Trump’s tariff threat: China botanical extracts suppliers look to SEA to mitigate economic impact
Malaysia, Thailand, Vietnam, and Indonesia are the hotspots that some of China botanical extract suppliers are interested in, given their lower operating costs.
The rich biodiversity in some of these countries also appeal to companies that hope to develop new botanical extracts.
Speaking to NutraIngredients-Asia, Yinjun Hou, vice chairman of Shaanxi Plant Extract Association, said that some of their member companies have been adopting a wait-and-see approach since last year.
The election of Donald Trump as the new US president on November 5, however, is likely to send these plans into action.
“Indeed, there are plans to invest in factories in South East Asia, there are even companies that have gone on to build factories in the US.
“In fact, some companies were already thinking of doing so last year but were still taking a wait-and-see approach since Trump was not yet elected.
“However, now that the situation is clear, many companies will perhaps increase their investments and speed up their activities in South East Asia,” said Hou.
Other options that China firms are looking at include processing their raw materials or manufacturing finished products in Japan, South Korea, and Europe for export into the US, he said.
Trump previously floated the idea of imposing 60 per cent tariffs on US imports of Chinese goods if he were to take up office.
Under the Biden Administration, Hou said that US’s tariffs on China’s botanical extracts were raised twice – first from 0.7 per cent to seven per cent, which later increased to 25 per cent.
Plant proteins, such as pea protein, also faced a 150 per cent tariff as part of the US’s anti-dumping penalty against China.
High tariffs make it tougher to compete with India
The potential tariff hike could also make it more difficult for Chinese companies to compete with Indian firms – China’s main competitor in the botanical extract space, said Hou.
“Back then when the maximum tariff was 25 per cent, we can still survive in the US market. However, if this is to increase to 60 per cent, we are definitely not in a position to compete with the Indian companies.
“Our main competitor in the US is currently Indian companies,” he said.
Popular SEA options
Thailand, Vietnam, Malaysia, Indonesia are top of mind for China companies looking to expand and skirt around the potential US tariff hikes.
“Thailand, Vietnam, Malaysia, Indonesia are the popular options due to their lower human capital and production capital.
“Another reason is because these countries are located in the tropics and have a rich biodiversity, which is relevant to us as botanical extract companies…We can tap on their raw materials, local workforce and resources,” said Hou.
China’s hyaluronic acid manufacturer Bloomage also told us earlier that there was vast potential for South East Asia-manufactured nutraceuticals, but the context was for sale into China via cross-border e-commerce.
Raising tariffs “unlikely” due to boomerang effect
Another industry expert, Zhang Zhong Peng, secretary-general of China Nutrition and Health Association (CNHFA), however, believes that it is unlikely that the US would bump up its tariffs against China exports.
One reason, he said, was because raising tariffs would eventually hurt the US consumers, since the cost would be passed on to the consumers.
The US is also the biggest exporter of finished nutraceutical products into China.
Zhang said that US products would lose their price competitiveness in the China market, and even worldwide, if tariffs were raised.
Simply put, he said that there were “industry wide effects” to be considered.
In addition, he believes that any policy change will need to follow the protocols and is unlikely to change drastically due to a change in government.
About 70 per cent of raw materials used in the US’s nutraceutical industry come from China, according to Zhang.
“I feel that there is very strong complementarity between both China and the US, especially in the health supplements industry.
“At least 70 per cent of the raw materials used by the US health supplements industry come from China.
“Also, we enjoy competitive advantage in terms of our raw material production and supply…I personally feel that there are many raw materials which they have to purchase from China, which means that they have to be prudent in their policy planning,” he said.
Still, Zhang acknowledges that China companies are concerned around potential tariff hikes.
Like Hou, he also pointed out Malaysia, Thailand, Vietnam, and Indonesia as the popular choices for China nutraceutical companies looking to invest overseas.
He also cited how other industries, such as electronics, textiles, and apparel, have built production base in low-cost countries, such as South East Asia.
“South East Asia is a fast-growing region, they also have some good techniques on raw materials, and they have advantage in their low cost human capital, which also makes it a very good option to build upstream production base in the region,” he said.
While the new US administration is a contributing factor, the decision to expand overseas ultimately lies in the company’s strategic plans, he said.
He added that the China government has been advocating the “One Belt, One Road” initiative, encouraging China companies to build their presence in various regions.
