What Do Tariffs on Chinese Imports Mean for Your Cannabis Business?

Have you been following the news on the tariffs that the U.S. has levied against goods imported from China? More importantly, what do these tariffs mean for you specifically? While the true magnitude of the tariffs’ impact can only be speculated, especially in the wake of talks between the U.S. and China during the G20 summit over the weekend, there are some important facts in place that can help you to understand the economic event and give you an idea of what to expect in what may be the beginning or end of a trade war.

The Basics

• An additional tariff of 10% had been levied on U.S. imports from China until December 31, 2018.
• On January 1, 2019, this tariff was set to increase to 25% but talks between President Trump and China’s President Xi have ceased that for now.
• Talks to determine the future of Chinese tariffs are scheduled for completion within the next 90 days approximately.
• No single industry is affected – since the tariffs apply to raw goods, the impact of the tariffs is expected to result in price increases across most industries and effect economics on a global level.
• The cannabis packaging industry has already been affected by the 10% increase.

The Origin of the Tariffs

Earlier in 2018, the Trump administration shocked the world, including leading economists both national and global, by stating their intentions to impose tariffs on Chinese imports. For those unfamiliar with tariffs, they’re basically additional taxes instituted on imported goods. The Office of the United States Trade Representative (USTR) clarified the news, stating that Custom and Border Protection (CBP) would collect a 10% tariff on List 3 goods from China, amounting to roughly $200B in U.S. imports. This amount was originally set to continue until December 31, 2018 at which point the tariffs were to increase to 25%. However, the White House announced on the evening of Saturday, December 1^st that the U.S. were in talks with China, resulting in the January 1^st deadline being pushed back. While this does not signal a clear end to the trade war, it is at least a temporary ceasefire that will allow for communication between the two economic powers and hopefully a conclusion that satisfies both sides. Has Marijuana Packaging been affected by the still-active 10% tariffs? Yes. But finding any business unaffected by the tariffs is a challenge. The U.S. and China have enjoyed a strong trading relationship for decades, so these sudden, severe tariffs undoubtedly impact every industry, reaching way beyond cannabis packaging businesses. Imported goods that have felt (or will eventually feel) the sting of the increased tariffs include several types of food across the spectrum, chemicals, minerals, essential oils and perfumes, plastics, rubber, leather, wood, paper, textiles, stones, metals, industrial and retail machinery, electronics, vehicles, medical supplies, and much more. Here’s the full comprehensive list of items. The Trump administration cited the tariffs as a necessary response to the claimed theft of intellectual property by Chinese businesses, a matter that will be discussed in the talks taking place over the next 90 days. In the meantime, the results of the 10% tariffs will continue to impact businesses on both sides of the world who are far removed from anything involving intellectual property.

Concerns Over the Tariffs

Tariffs are rarely used in global economic disputes and have largely been dismissed by economists as a trade war tactic that ultimately results in deep losses for all parties involved, even if there is a clear victor. As ex-acting deputy U.S. trade representative Wendy Cutler explained to The New York Times recently, “It’s very hard to impose tariffs on billions of dollars in imports without shooting yourself in the foot.” A chief concern in the tariffs levied against China is the impulsive nature with which they were executed. Tariffs are almost regarded as a nuclear reaction in matters of economics and are largely out of fashion in modern economic dealings; especially on such a grand scale. Expert analysis and painstaking research are usually conducted before the idea of a tariff is even floated. The Trump administration seems to have sought little to no expert opinion before levying the tariffs and has sought public opinion only as a formality. Even with the 25% increase at bay, the initial bold course of action will have results that are difficult to predict.

Response to the Tariffs at Home and Abroad

In the meantime, if the aim is to shake Chinese businesses, the Trump administration have accomplished their mission, though the results may not be quite what they expected. Many Chinese businesses have already started moving their operations to Cambodia as a way of sidestepping the tariffs. It’s a move that will hurt their economy. But the question remains as to whether the U.S. will be hurting more. Prior to the G-20 meeting, this tactic found the U.S. and China circling one another like a couple of boxers, the world anxiously watching to see who could endure the punches longer. Supporters of the tariffs have argued that breaking ties with China will prompt U.S. businesses to build new factories on U.S. soil with more job opportunities. However, U.S. businesses who have never witnessed tariffs on this scale aren’t rushing out to begin construction. Rather, they are waiting in a state of bafflement for the tariffs to be overturned. As they proved at the G-20 summit, the Trump administration could reverse their stance on the tariffs at any given moment. No businesses want to invest in expensive and lengthy factory constructions when the landscape could change in minutes. For many supporters of the Trump administration, it’s tempting to say criticism of the tariffs are strictly coming from liberal voices with a partisan agenda. Yet, the highly conservative Koch Industries political network sponsored a study to support their opposition to the tariffs. Using consulting firm ImpactECON, it was predicted that the trade war would cost the average American $915 annually, or $2,400 per household. And that’s just in 2019. The study found that if the tariffs were to remain in place, the average American household could be losing an extra $17,300 per year by 2030, through a combination of higher costs, lower wages, and lower returns on investments.

Ties to Mercantilism

There may be a method to the seeming madness of this trade war, though it’s steeped in the economic concept of mercantilism which hasn’t been in fashion for decades. Mercantilism was at its height during the 17^th and 18^th centuries, a time when imperialism was the primary policy for countries in power. The goal of mercantilism was to bolster exports by cutting the value of imports, using the type of zero-sum trade deals that appeal to the philosophies of the Trump administration. But as we mentioned before, these types of trade wars rarely result in a clear winner; there’s just the side that lost and the side that lost more. Writing for The Big Think, Scotty Hendricks not only draws the parallels between the Trump administration’s tariffs and mercantilism, but points out a major difference: instead of levying the tariffs on finished products, the administration has instituted them on raw goods. This actually conflicts with practices of mercantilism which would instead place importance on keeping raw goods as affordable as possible. In this way, mercantilism is often very focused whereas the Trump administration’s tariffs are wide reaching, effecting virtually every industry and, therefore, highly unpredictable. Whether you understand the recent tariffs that the U.S. has imposed on China or not, your budget will most likely begin to feel it soon, if it hasn’t already. No one has a clear idea on when the trade war will cease or how long it will take industries across the board to adjust to the current U.S. tariffs, let alone any potential future tariffs. While the 10% tariffs are already in effect, and the 25% tariffs are on hold pending talks between the U.S. and China, many businesses are still stocking up now to beat the possibility of a tariff surge.