How trade wars are impacting the cosmetics industry

Although global trade agreements have been in a constant state of flux for hundreds of years, the inauguration of the Trump presidency in 2017 has seen the world’s super power flexing its muscles in an attempt to negotiate the best terms for the USA.

The US government has raised tariffs against major imports with massive trading partners like China, the European Union, Canada and various countries in Latin America, particularly Mexico.

Beauty and personal care hit by tariff hikes​

Last Summer beauty and personal care products were amongst a wide selection of consumer products that were slapped with prohibitively high tariffs in a tit for tat trade spat between China and the US, with trade tensions still not fully resolved to this day.

Economists and politicians are often in agreement that there are rarely any winners in this kind of situation, but certainly the current environment has provided some areas of opportunities, many of them unexpected.

Cosmetics Design has been reporting on some of the latest developments with respect to tariffs and trade agreements, and perhaps the biggest development in the past couple of years was announced at the end of last week.

Tariffs dropped in EU-Mercosur agreement​

A trade agreement that has is the result of 20 years of negotiations between the European Union and Mercosur – Argentina, Brazil, Paraguay and Uruguay – could make a significant impact for fine chemicals players trading in the beauty and personal care areas between the two regions.

Cosmetics Design reported that the agreement,​ yesterday, which is in the final stages of being finalized, will eliminate tariffs on a number of areas in addition to chemicals, including consumers goods, including food, beverage, wine and spirits, as well as pharmaceuticals.

Although it does not specify finished beauty and personal care products, the fact that it will impact tariffs on chemicals will have a significant impact on the ingredients side of the industry, particularly for trade with Brazil, which is the largest market by size and also a significant player in the chemicals industry.

Domestic businesses can benefit from protectionism​

Many Latin American countries, and in particular Brazil, have introduced more protective policies when it comes to international trade, something that has benefitted a host of domestic producers across many industries.

In another recent interview with Mintel global beauty and personal care expert Lauren Goodsitt​, Cosmetics Design found how protectionism in Brazil and throughout Latin America has served to help boost indie beauty players.

High tariffs placed on international beauty players like Lush and Kiehls have made markets like Brazil too difficult to remain competitive, forcing these brands out of the market and leaving opportunity for smaller indie players who are have a competitive pricing advantage and are better placed to consumer needs.

A similar situation has occurred in Asia, specifically in China, where domestic beauty and personal care brands have also benefited from higher tariffs placed on multinational brands, helping to drive growth and the development of those brands.

But who truly wins in a trade war?

Right now it seems that trade is witnessing a tug of war between free trade and protectionism. If protectionism wins, that is likely to spell continued or renewed opportunities for beauty and personal care players at a domestic level.

And if free trade agreements like the one between the EU and Mercosur prevail, then there could equally be opportunities such as the one this agreement makes for the chemicals players.

However, trade wars do come with a warning for the global economy as a whole, which could effect everything, underlined by comments made by the governor of the Bank of England this week who warned that further trading pressure could ‘shipwreck’ the global economy.