China Exports More Than Fentanyl

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From 1839 to 1842, the British attacked China over the Chinese government's decision to ban opium. The French joined the fray between 1856 and 1860. The military superiority of the Western powers resulted in the legalization of opium in China. Karma – in the form of China's payback to the Western powers – is a bitch.

When we talk about Chinese exports to the U.S., the concern most often revolves around fentanyl and other highly addictive drugs or the loss of jobs and economic power. But China continues to wage an economic version of the opium wars, with no need for military intervention, with the U.S. over “flavored vapes.” Before jumping into the issue, I would be remiss in not restating what I have often said: Smoking combustible tobacco is stupid, but the use of nicotine-infused vapes as a means of harm reduction for those addicted to smoking is a public health good.

Since 2020, the FDA has reduced the number of vape systems sold in the U.S. from 6,500 to 23, all tobacco flavored. Yet illegal, disposable, flavored vapes abound. Of course, some of the blame for flouting U.S. law lies with the U.S.’s inability to enforce its own laws within its borders. But let’s consider the supply side of the supply-demand equation.

China’s state-run and owned China National Tobacco Corporation (CNTC) controls all tobacco sales, imports, and exports into China. Since May 2021, they have prohibited

“flavored e-cigarettes, other than tobacco flavors, and e-cigarettes to which users can add their own atomized substances.”

The National Law Review, a legal journal, reports,

“China’s Management  Rules for e-cigarettes require that e-cigarette solely for export must comply with the regulations of the destination country; when there is [sic] no relevant regulations and standards in the destination country, the product must comply with China’s regulations and standards.” [emphasis added]

Despite the requirement that Chinese exports of vape products comply with U.S. law, they do not.

As reported by Reuters, Heaven Gifts, a large vape company located in the Shenzhen province, where 90% of global vape products are produced,

“In the United States, the firm simply ignored regulations on new products and capitalized on poor enforcement. It has flooded the U.S. market with flavored vapes that have been among the best-selling U.S. brands, including Elf Bar, EBDesign and Lost Mary.”

There are several economic reasons that China turns a blind eye to these tobacco sales and exports.

  • First, the CNTC brings in 8.9% of all of China’s governmental revenue; they have a vested interest in maintaining the sale of cigarettes. For comparison, U.S. tobacco revenues represent 2.3% of the federal budget. CNTC produces 4-fold more cigarettes than our largest tobacco company, Philip Morris.
  • Second, while the CNTC has levied new taxes on the domestic e-cigarette supply chain (manufacturing, distribution, and importation), those taxes do not apply to e-cigarette exports. And as intended, those taxes move markets. There was a 30% increase in e-cigarette exports year-to-year in the first half of 2023.

The FDA has required e-cigarette manufacturers to provide evidence that each e-cigarette product is a net benefit, a lengthy and expensive undertaking. This has resulted in many American companies removing products from the market; all the while, Chinese imports, ignoring our laws, gain market share.

“Heaven Gifts launched the Elf Bar in the United States in late 2021 without getting FDA authorization to sell. Sales skyrocketed. … Heaven Gifts products rang up about triple the sales of all the FDA-authorized products combined from July through September [2023], the data show.”

In 2022, Juul was the biggest player, controlling about 38% of the 15 to 20-year-old market; by the end of the year, Heaven Gifts’ Elf Bar was the choice of 57%. We are talking about $650 million in sales.

Regulatory Whack-A-Mole

Let’s begin with the good news: The use of tobacco products, both combustibles, and e-cigarettes, by the young, has continued to drop over time. Adult use of combustibles also is in decline, matched by a rise in vape products.

The FDA has banned pod-based flavored e-cigarettes – those products previously made by Juul, which pulled them from the market before the FDA action. But it exempted disposable flavored devices, like Heaven Gifts’ Elf Bar, catering to those rising adult vapers. Unsurprisingly, that regulatory change led to disposables rising from 4% to 43% of the market, as Drs. Singer and Bloom have often written on our website, prohibitions do not work. 

Of course, those Elf Bar manufacturers ignored the requirement to demonstrate a net health benefit and are illegal. The FDA sent 168 warning letters to brick-and-mortar stores and may have shut down a bodega or two. They have asked customs to seize Elf Bars upon importation, but Heaven Gifts evades our laws by simply changing the name of the product and its manufacturer.

The British and the French defeated 19th-century China because of overwhelming military strength. The “century of humiliation” that followed for China will not be forgotten by a country with a long memory. They have already reclaimed one of the spoils of that war: Hong Kong. We can argue at length over the net benefits of e-cigarettes, but China continues to poison our population with drugs and devices that we have termed illegal.

Source: China e-cigarette titan behind 'Elf Bar' floods the U.S. with illegal vapes Reuters