Cigar Aficionado

President Donald Trump said last week that he was imposing a new 10 percent global tariff on all imports entering the United States, on the same day the Supreme Court ruled that he exceeded his authority when introducing sweeping tariffs under the International Emergency Economic Powers Act (IEEPA). The new tariff went into effect yesterday and is likely to have a direct impact on cigar prices. 

The court’s decision on Friday invalidated many, but not all, of the president’s previous tariffs. In response, Trump announced a new tariff plan, this time ordered under Section 122 of the Trade Act of 1974. Section 122 allows the president to impose a temporary global tariff of up to 15 percent, but only for a period of 150 days, unless extended by Congress. The current global tariff rate stands at 10 percent. The president has signaled that he wants to raise it to 15 percent, but his administration has not issued a timeline for when that hike would occur.

The rapidly changing tariff environment is creating uncertainty for cigarmakers. Nearly all of the handmade cigars smoked in the United States are rolled offshore, particularly in Nicaragua, the Dominican Republic and Honduras, which account for 99 percent of all of America’s imported premium cigars. 

“We’re unsure if the tariffs will stay at 10 percent or 15 percent,” says Rocky Patel, owner of Rocky Patel Premium Cigars Inc. “And we don’t know if the previous tariffs that were deemed unlawful will be paid back to us.”

Patel owns a cigar factory in Nicaragua. He also has cigars made for him under contract at a factory in Honduras. Under the new tariff setup, cigarmaking countries like Honduras and the Dominican Republic will see their tariff rates remain at 10 percent, the same as before the Section 122 announcement. Nicaragua, the world’s largest producer of handmade cigars, will see its tariff rate drop from 18 percent to 10 percent. Those rates could rise to 15 percent in the near future if the Trump Administration takes action.

Patel says this is a challenging time for both cigarmakers and consumers, due to tariffs and other rising costs. “Nicaragua’s tariff was up to 18 percent. We were one of a few cigar companies that didn’t raise prices last year based on the socioeconomic situation in the country. We ate the cost of the tariffs, along with other expenses. The cost of living for people in Nicaragua is going up, the price of tobacco, factory expenses, everything is getting more expensive in Central America. We know this is a tough time for consumers. Cigar prices keep going up, but we’re not making more money.” 

The cigarmaker says he had to adjust some of his cigar prices earlier this year because of ongoing tariffs. “In January, we made a small price increase to some cigars, to cover some costs,” Patel says. “There may be a time when we have to make more changes.”

Litto Gomez, co-owner of La Flor Dominicana, a cigar factory in the Dominican Republic, also expressed frustration with ongoing tariffs and the possibility of a rate hike from the U.S. government. “It definitely affects our business and the stability of prices,” Gomez says. “There's a big level of uncertainty here. They keep going back and forth with what they say they will do. I don't like the tariffs and I'd prefer we didn't have them. We need stability. The consumers need stability.”

Like many cigar companies, Gomez says his company had to raise some of its prices last year due to tariffs. “We had to adjust our prices because of the tariffs and other rising costs in the Dominican Republic. All these things affect the consumer in the end.” 

Gomez says that if the tariff rate for the Dominican Republic jumped to 15 percent, he would not immediately change prices. “I would not want to make a price adjustment for that extra five percent. We’d have to be really sure that tariffs weren’t coming back down, or going away in the long term in order to consider raising prices for that. But we need more certainty. This back and forth, not knowing whether the tariffs will stay at 10 percent or not, it’s just crazy.”

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