Us To Impose Additional Tariff On Chinese Rubber Gloves Starting Tomorrow

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US President Trump signed executive orders to introduce an additional 10% tariff on Chinese goods, which include rubber gloves, to combat fentanyl. 
“The new tariffs will take effect on 4 Feb 2025 and will remain in place until the crisis related to fentanyl is resolved,” said Hong Leong Investment Bank (HLIB) in a recent report.
To recap, in mid-Sep 2024, the Office of the United States Trade Representative (USTR), under the former Biden Administration, announced that the tariff rate on medical and surgical rubber gloves of all kinds will be increased from the previous 7.5% to 50% and further to 100% effective 1 Jan 2025 and 1 Jan 2026 respectively.
HLIB believes the additional 10% tariff on China’s medical and surgical rubber gloves would not necessarily create another round of higher-than expected tariff-led average selling price (ASP) surge for Malaysian glove makers, as seen in quarter four of 2024 (4Q2024).
This is because US glove distributors have already re-established their supply chains in Malaysia, unlike in mid-Sep 2024 to 4Q2024, where US glove distributors rushed to re-establish the supply chain in Malaysia, which has allowed local glove makers to strengthen their bargaining power. 
For perspective, assuming all Chinese medical rubber gloves were diverted to Malaysia, tariff-related shifts could only result in an incremental glove demand of 22-28bil pieces per year. 
This would just account for 7% to 9% of Malaysia’s total supply in 2025, which only represents 4% rise from 2024 level.

“In our view, the additional tariff on China’s medical and surgical gloves would not necessarily help Malaysian players to capture global market share from Chinese players,” said HLIB.
HLIB believes Chinese players will instead shift their focus to Europe and Asia from the US market. It is merely a shift in customer profile between Malaysian and Chinese players.
However, when trade is diverted to Malaysia, they believe US medical rubber glove distributors are likely to prioritise reputable companies, particularly the listed Big Fours.
Then there are the established business relationships, with proven track records and it could take at least three months of qualification procedures for a new business relationship. 
Hence, HLIB sees Hartalega and Kossan as clear beneficiaries, given their listing status and having relatively higher exposure to US customers. 
Also, Hartalega and Kossan have not been served with Withhold Release Order (WRO) by US CBP before. 
Nevertheless, they have already factored these expectations into Hartalega and Kossan earnings forecasts.

“We maintain our neutral outlook on the sector and reaffirm our earnings forecasts for Hartalega and Kossan, following our assessment that the additional 10% tariff on Chinese goods will have limited impact,” said HLIB.
While HLIB remains optimistic about the gradual improvement in operating conditions for glove manufacturers, they believe that the recovery thesis for 2025 has already largely been priced in. 
Currently, Kossan is the sole buy rating they have in their glove coverage, driven primarily by its ongoing PE re-rating play. — Focus Malaysia

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