Tobacco Asia

22 tobaccoasia Issue 4, 2025 July / August "When companies move to Indonesia or Malaysia, it's really just final assembly," Xu explains. "They don't have the supply chain. Nowhere else has the ecosystem like Shenzhen. All the companies moving there are literally just slapping labels on boxes." The reason, Xu says, is that Southeast Asia also faces stiff tariffs—some as high as 46% on goods from countries like Viet- nam [Malaysia is 24%]. "That doesn't make it attractive to move there either," he adds. "So, people are just waiting to see what happens next." The wait-and-see approach is pervasive. Xu owns another company with his sister, Ting, Evergreen Enterprises, which designs, manufactures, and distributes home and garden décor, gift items, and other products. Evergreen typically ships 2,000 containers from China to the US each year. Today? "We're in a holding pattern. Nothing is shipping," he says. "The shelves are going to look real empty soon." (Ed: the conversation with Xu happened before the US-China tariff pause.) The domino effect Despite the uncertainty, the list of companies seeking refuge outside China continues to grow. Several manufacturers beyond Ispire and Pax have already established factories in Indonesia over the past few years, including Smoore (the world's largest vaping product manufacturer), Mason Vape, Geekvape, and Jinjia. The Trump administration has stated that manufacturers would be better served by moving their operations to the US. When asked if this was a feasible solution, Xu answered, prob- ably not. "Many companies have tried to assemble consumables here, but it's too expensive. And the (US Food and Drug Ad- ministration) FDA—well, it's not enough to just have a (pre- market tobacco product application) PMTA," he says. "There's no incentive to invest millions when a new president could re- verse the rules in a few years." Even infrastructure poses a problem. "The supply chain isn't here," he notes. "If you build a factory, you still have to im- port the parts from China, and then you're back to dealing with tariffs." Some ambitious efforts have already failed. Xu recounts a Chinese entrepreneur who tried to launch a Texas-based factory. It was shut down by FDA for lacking proper approvals. Others attempted to do US-based e-liquid filling and assembly for Chinese firms, only to run into the same regulatory walls. "And even if you wanted to do it, the infrastructure isn't here," Xu says. "You'd have to import all the parts from China anyway, which puts you right back into the tariff trap." And China? Xu believes they're better prepared to weath- er a prolonged standoff. "They've already found other sources for agriculture and semiconductors," Xu explained. "It's the US that buys everything from China." Like the recent changes in Vietnam, other Southeast Asian countries have also outright rejected any vaping company in- vestments. Cambodian prime minister Hun Manet reiterated his government's unwavering stance against e-cigarettes, emphasiz- ing that the country will not entertain any investments related to their production, even if the products are intended exclusively for export. "If it is any other type of investment, Cambodia is welcome, but when it comes to e-cigarettes, our stance is: 'Not necessary, please look elsewhere'," the prime minister stated in a press re- lease. Cambodia has enforced a comprehensive ban on the im- port, sale, and use of e-cigarettes, heated tobacco products, and hookahs since 2014. A double-edged sword While Malaysia and Indonesia may offer short-term advantages, they come with their own challenges. Several Malaysian states— Johor, Terengganu, Kelantan, and Perlis—have banned the sale of e-cigarettes outright by refusing to issue retail licenses. Others, including Penang and Selangor, are considering similar moves. And while federal law technically allows the sale of nicotine vapes, enforcement of Malaysia's Control of Smok- ing Products for Public Health Act has been inconsistent. "It's like a regulatory vacuum," says Xu. "You move there thinking you're safe, and suddenly you're not." Indonesia, while more open, lacks a mature regulatory framework. Its low manufacturing costs and growing shipping infrastructure have drawn interest, but companies are still wary. "You're not going there for long-term stability," Xu adds. "It's just a stopgap." The recent agreement between the US and China to lower tariffs for 90 days offers temporary relief—but little certainty. "Everyone thinks the tariffs will come down eventually," Xu says. "This (current) deal is short-term pain relief, not a cure." It should be noted that many financial experts in the US have said that tariffs between China and the US could drop to 10% or even zero in 90 days. For companies still rooted in China, the pressure is im- mense. Rising costs and regulatory crackdowns have squeezed margins and prompted fears of market share loss. For those moving abroad, the challenge becomes maintaining quality in unfamiliar environments. "Lots of companies are buying cheap- er parts to cut costs," Xu says. "But that risks consumer safety. And if something goes wrong, regulators will come down hard." Indeed, many companies now find themselves walking a tightrope: cut corners and risk their brand or absorb costs and risk bankruptcy. Some are betting on diversification—spread- ing production across multiple countries—but that brings new logistical headaches and compliance burdens. For now, the vaping and heated tobacco products industry is stuck in a kind of geopolitical purgatory. The broader concern Xu shares is that if high tariffs continue for too long, behaviors will change permanently. "Once people shift supply chains, they don't go back," he says. "You change the flow of goods; you change the market forever." But even if the Trump administration were to reverse the policies, rebuilding isn't easy. "Let's say I build a factory in the US. It takes years. And what if the next president reverses every- thing again? I'm stuck with an expensive facility I don't need," Xu says. "That's the reality in the US. Things swing back and forth too fast." In that sense, the 90-day tariff pause may not be the begin- ning of a reset—it might be just another delay in a long period of uncertainty. What's clear is that the industry is evolving— geographically, financially and strategically. Companies that can adapt quickly, balance quality and cost, and manage regulatory complexity will survive. Others may not. "We're all in flux," Xu says. "Nobody has the answer yet." But they're all looking.

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