Tariffs, Tobacco, and Policy Whiplash: How the Trump Administration’s Cigar Decision Hurts Main Street
Roger Bate — 3 November 2025
Executive Summary
The Trump Administration’s proposed 100 percent tariff on large cigars imported from Nicaragua represents one of the most economically damaging and least defensible trade measures in recent memory. According to an economic analysis by Goss & Associates (2025), the tariff would reduce total United States economic output by 2.06 billion dollars, shrink gross domestic product (GDP) by 1.26 billion dollars, eliminate nearly 18,000 jobs, and cost state and local governments 95 million dollars in lost tax revenue.
There is no domestic industry to protect: the United States produces almost no large cigars. Consequently, the tariff functions as a consumption tax on American small businesses and consumers. Approximately 60 percent of all 430 million cigars imported each year originate from Nicaragua. A doubling of landed import costs would harm the 3,500 brick-and-mortar retailers and 50,000 employees whose livelihoods depend on this trade.
The measure also undermines the administration’s earlier achievements in deregulation and regulatory restraint. During President Trump’s first term, the White House sought to limit the Food and Drug Administration’s overreach into large-cigar regulation. The new tariff proposal reverses that record of rational governance. It exemplifies the same arbitrary and capricious policymaking recently visible in the FDA’s action against NOAT nicotine pouches—a decision that punished compliant, low-risk products while leaving more problematic competitors untouched (Bate 2025a).
If implemented, the tariff would not only destroy jobs and raise consumer prices but also create openings for China and Russia to expand their influence in Central America by weakening United States trade relationships under the Central America–Dominican Republic Free Trade Agreement (CAFTA-DR). The administration should exempt large cigars from Section 301 tariffs and reaffirm the United States’ commitment to predictable, rules-based trade policy.
From NOAT to Nicaragua—A Pattern of Policy Whiplash
Over the past year, several United States regulatory and trade agencies have displayed a pattern of inconsistency, especially in sectors posing minimal public-health or strategic risk. The FDA’s September 2025 warning letter to NOAT, a Swedish manufacturer of low-nicotine pouches already authorized for sale in Europe, replaced scientific assessment with political impulse. Now, the proposed 100 percent tariff on Nicaraguan cigars repeats the error—rhetorical toughness masking economic incoherence.
Both actions share three defining traits.
First, they target imported goods for which there are no viable domestic substitutes, ensuring that the burden falls on United States consumers and small businesses rather than on foreign producers.
Second, they stretch statutory intent: in the NOAT case, the Tobacco Control Act; in the cigar case, Section 301 of the Trade Act of 1974 (Office of the United States Trade Representative 2024).
Third, they contradict the administration’s publicly stated priorities of deregulation, small-business support, and strengthened engagement with democratic nations in the Western Hemisphere.
This paper analyses the economic and policy consequences of the proposed tariff using data from Goss & Associates (2025), supplemented by official trade and employment statistics. It argues that an exemption for large cigars under CAFTA-DR is both economically prudent and strategically necessary.
1. CAFTA-DR and the Structure of United States Premium-Cigar Imports
Large cigars differ fundamentally from the mass-market, machine-made cigars sold in convenience stores. They are hand-rolled, long-filler products sold primarily through tobacconists, cigar lounges, and specialty retailers. Nearly all such cigars are imported from Nicaragua, the Dominican Republic, and Honduras, with Nicaragua alone accounting for 59 percent of all imports by volume and 253 million dollars in declared import value in 2024 (Goss & Associates 2025).
Since 2006, these products have entered the United States duty-free under CAFTA-DR (Office of the United States Trade Representative 2023). Over two decades, Nicaragua has developed into the world’s leading producer of large cigars, hosting the manufacturing facilities of globally recognized firms including Padrón, Drew Estate, Oliva, A.J. Fernandez, Perdomo, My Father Cigars, Plasencia, and J.C. Newman.
Because domestic production in the United States is negligible (United States International Trade Commission 2023), imports are indispensable to the nation’s cigar economy. The CAFTA-DR framework has ensured price stability, allowed small retailers to compete with online sellers, and supported a network of importers, distributors, warehouse operators, logistics companies, and retailers. A sudden 100 percent tariff would disrupt that supply chain, threaten thousands of small businesses, and diminish tax revenue at every level of government.
2. The Proposed 100 Percent Tariff: A Sharp and Unnecessary Policy Turn
In April 2025, the administration implemented a universal 10 percent tariff on most imports under a declared “trade-deficit emergency.” It then added an 8 percent “reciprocal surcharge” on imports from countries deemed to maintain unfair trade barriers, including Nicaragua. In September 2025, the United States Trade Representative proposed increasing the rate to 100 percent on all Nicaraguan goods under Section 301 of the Trade Act (Office of the United States Trade Representative 2025).
This escalation has no relationship to any unfair practice in the cigar industry. It effectively doubles the landed import cost of all large cigars from Nicaragua, even though the sector poses no threat to United States manufacturers. Because Nicaraguan cigars represent 60 percent of total imports, the downstream consequences for distributors and retailers would be immediate and severe.
Like the NOAT decision, this proposal reverses earlier, evidence-based policymaking. Between 2019 and 2020, the White House Domestic Policy Council and the National Economic Council worked with the FDA’s Center for Tobacco Products to recognize large cigars as a distinct, low-risk product category requiring lighter regulation (Center for Tobacco Products 2020). The new tariff negates that progress and sends conflicting signals to the same small-business owners the administration once promised to support.
3. Economic Consequences
The Goss & Associates (2025) analysis employs the United States Bureau of Economic Analysis (BEA) Regional Input–Output Modeling System (RIMS II) to capture both direct and spillover effects of the proposed tariff. The findings are unequivocal:
Category
Estimated Loss
Total United States Output
2.06 billion dollars
GDP (Value Added)
1.26 billion dollars
Labor Earnings
711 million dollars
Employment
17,953 jobs
State and Local Tax Revenue
94.9 million dollars
The largest losses occur in retail and wholesale trade, which together account for 905 million dollars in lost output and more than 11,600 jobs. Secondary effects spread through real estate, finance, transportation, warehousing, and hospitality. Reduced imports mean lower port throughput, diminished trucking activity, and fewer service-sector jobs in related supply chains.
Fiscal consequences mirror these patterns. State governments would lose an estimated 57 million dollars in tax revenue, while local jurisdictions would forfeit roughly 38 million dollars (United States Census Bureau 2024). Sales and income-tax categories account for over 60 percent of the total fiscal impact, reflecting reduced business activity and household earnings.
Since the United States lacks domestic capacity to replace imported large cigars, the tariff functions as a dead-weight tax on consumption. It increases prices, depresses demand, and reduces total economic welfare. No corresponding employment or investment benefit offsets these losses. As Zitzewitz (2022) demonstrates, tariffs on non-strategic consumer goods impose welfare losses that exceed any potential fiscal gains—a conclusion that applies squarely to large cigars.
4. Strategic and Geopolitical Risks
The consequences of this tariff extend beyond economics. Nicaragua’s cigar industry has been one of the few consistently pro-United States sectors in a politically fragile country. Its export-led growth has depended on transparent trade with the United States under CAFTA-DR. Imposing punitive tariffs would likely push Managua toward deeper alignment with alternative partners—particularly China and Russia—both of which have expanded their economic presence across Central America (Ellis 2024; International Monetary Fund 2023).
China’s Belt and Road Initiative now encompasses logistics, infrastructure, and port investments in the region. Russia has sought to re-establish influence through technical and energy cooperation. Curtailing legitimate trade in high-value, legal exports such as large cigars would weaken U.S. economic engagement and reduce leverage in regional diplomacy.
This outcome would contradict the administration’s stated goal of “reshoring” influence from strategic competitors. A tariff meant to appear tough could in practice erode United States credibility among allies, undercutting the soft power derived from stable, mutually beneficial trade relations.
5. Policy Options and Recommendations
Exempt Large Cigars from Section 301 Tariffs. Large cigars are artisanal, low-volume products that pose no competitive threat to any United States industry. A categorical exemption would prevent unnecessary damage to small businesses while maintaining the integrity of trade-enforcement measures.
Preserve Duty-Free Access under CAFTA-DR. Maintaining treaty-based access protects the economic stability of both Central American partners and the United States retail sector. Reneging on CAFTA-DR commitments risks damaging trust and inviting retaliatory or competitive moves from rival powers.
Ensure Regulatory Consistency. Trade and public-health policy should operate coherently. The administration’s earlier recognition that large cigars merit lighter FDA regulation cannot logically coexist with punitive tariffs on the same products.
Engage Industry Stakeholders. The United States should consult with retailers, importers, and cigar-industry representatives to identify targeted enforcement or anti-illicit-trade measures that do not penalize compliant businesses.
Monitor Downstream Effects. Congress or the BEA should commission follow-up studies to measure the employment, fiscal, and consumer impacts of any major tariff change affecting low-risk consumer sectors. Transparent evaluation would discourage politically motivated actions of this type in the future.
Conclusion
The large-cigar industry is small in scale but deeply integrated into the American economy. It sustains more than 3,500 retail outlets, provides employment for 50,000 workers, and contributes tax revenue across all levels of government. A 100 percent tariff on Nicaraguan imports would raise prices, shrink GDP, and eliminate thousands of jobs without producing any measurable gain in domestic output or strategic advantage.
More broadly, the proposal exemplifies policy whiplash: abrupt, inconsistent decisions that contradict an administration’s own principles. Just as the FDA’s NOAT action ignored scientific and economic evidence in favor of political signaling, this tariff substitutes symbolism for sound policy.
The United States has long benefitted from predictable, evidence-based trade policy that fosters small-business growth and regional stability. Exempting handmade premium cigars from Section 301 tariffs would protect Main Street, reinforce the credibility of CAFTA-DR, and demonstrate that the United States remains committed to rational governance grounded in economic reality rather than political theatre.
References
Bate, R. (2025a) Nicotine Pouches on the Shelves: Enforcement Helps, But FDA’s NOAT Decision Appears Bizarre. International Center for Law and Economics.
Bate, R. (2025b) Reforming FDA Regulation of Nicotine Pouches: Lessons from Sweden and the Path Forward for Public Health. TPA Working Paper.
Center for Tobacco Products (2020) Premium Cigars and Regulatory Policy: White House Inter-Agency Workshop Summary. FDA Archive.
Ellis, E. (2024) China and Russia in Latin America: Strategic Competition in the Western Hemisphere. Center for Strategic and International Studies Press.
Goss & Associates (2025) The Economic and Fiscal Impacts of a 100 Percent Tariff on Premium Cigar Imports from Nicaragua. Prepared for the Premium Cigar Association, 30 October.
International Monetary Fund (2023) Western Hemisphere Regional Outlook. Washington, DC: IMF.
Office of the United States Trade Representative (2023) CAFTA-DR Overview and Implementation Status. USTR.gov.
Office of the United States Trade Representative (2024) Section 301 Investigations: Statutory Authority and Procedures. Washington, DC.
Office of the United States Trade Representative (2025) Federal Register Notice: Proposed Tariff Action on Nicaragua Imports. Washington, DC.
United States Bureau of Economic Analysis (2024) Regional Input–Output Modeling System (RIMS II) Multipliers. Washington, DC: BEA.
United States Census Bureau (2024) Annual Survey of State and Local Government Finances. Washington, DC.
United States International Trade Commission (2023) United States Import Statistics for Cigars (HTS 2402.10). DataWeb.
World Bank (2024) World Development Indicators: Trade and Small Business Employment. Washington, DC: World Bank.
World Trade Organization (2024) Tariff Profiles by Country: United States and Nicaragua. Geneva: WTO.
Zitzewitz, E. (2022) “Tariffs and Deadweight Loss in Small Consumer Markets.” Journal of Economic Perspectives 36(4): 73–94.