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The Impact of Tariffs on the Beauty Industry

‘If the intent is to have more of these products produced in the U.S., that could happen, but it will take time.’

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By: Dr. Sunderesh Heragu

President Elect, Institute of Industrial and Systems Engineers

The world trade is set to hit $33 trillion in 2024, up 3% from the year before. The U.S. had imports ($4.11 trillion) and exports (3.19 trillion) totaling more than $7.3 trillion, or 22% of world trade. Toiletries and cosmetic exports were valued at $15.3 billion, while imports were $20.8 billion.

There is much uncertainty on which countries the U.S. will impose tariffs on and to what extent. Products from China are already being hit with a 10% tariff. The tariffs could extend to France and other countries making cosmetics.

Many American brand cosmetic companies make their products almost entirely in China. The 10% tariff will amount to a tax of a similar amount for American consumers of these cosmetics. If the intent is to have more of these products produced in the U.S., that could happen, but it will take time. 

Supply Chains and Re-Shoring

First, it is not easy to dismantle existing supply chains and move the entire production to the U.S. The costs will go up.

Such reshoring may make sense for high-margin items, but is it efficient for companies to reshore only a subset of their products? 

FDA and Other Laws

Second, cosmetics are regulated by the Food and Drug Administration under the FD&C (Food, Drug, & Cosmetics) and FPLA (Fair Packaging and Labeling) acts. Companies moving production from one location to another will have to make sure they abide by these laws. 

Other Uncertainties

Third, businesses are already facing much uncertainty from exogenous factors such as war, climate change, labor shortage, political realignment, supply chain issues, and logistical problems. Adding another layer of uncertainty will only add to the cost of products and inflation because manufacturers will want to wait and see what the steady state tariffs will be and how it impacts their bottom line. In my opinion, tariffs are being used as the wrong tool at the wrong time to address the trade imbalance or raise revenues. 

About the Author

Sunderesh S. Heragu is a Regents Professor and holds the John Hendrix Chair at Oklahoma State University (OSU). Dr. Heragu is President-elect of the Institute of Industrial and Systems Engineers (IISE) and a senior member of the Institute for Operations Research and the Management Sciences (INFORMS). He is the author of the 5th edition of Facilities Designand, co-editor of Operations, Logistics, and Supply Chain Management. Dr. Heragu is a Fellow of the Institute of Industrial and Systems Engineers (IISE), the Society of Manufacturing Engineers (SME), and the World Academy of Productivity Sciences (WAPS).

Photo: Valery Evakhov/ Shutterstock.com

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