Heads spun. Captains of industry, trade groups and political leaders expressed shock, warning of dire financial consequences to economies across the globe. The president answered via Twitter with a firm opinion: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big. It’s easy!”
Tariff opponents dominate the headlines, but not everyone is against them. The United Steel Workers and the AFL-CIO, two major labor unions, are in favor, as are the Aluminum Association and the American Iron and Steel Institute. Josh Bivens, the director of research for the liberal think tank Economic Policy Institute, defended the tariffs in a New York Times opinion piece. “The proposed tariffs won’t end the world, and may even do some good,” he wrote. Bivens says that state supported steel and aluminum plants elsewhere create unfair competition for the US, and therefore, “The proposed tariffs can provide a countervailing force against these foreign subsidies and protect American metal producers until a comprehensive solution is found.”
The US trade deficit in goods and services exchanged with foreign countries rose 12% to $566 billion last year, the highest since 2008, says the US Commerce Department. The deficit with Mexico is $71 billion, $18 billion with Canada, and $150 billion with the European Union. China is up 8% to $375 billion and now faces $60 billion in tariffs.
Modifications have been floated since the initial proposal, among them possible exemptions for Canada, Mexico, the EU, Australia, Argentina, Brazil and South Korea. Conspicuously absent from the list is Japan, an ally and a large steel supplier to the US.
The tariff would pose a threat to many industries worldwide, and one of those is printing and packaging. A direct impact would be felt by those manufacturers who purchase steel and aluminum for their containers, and while these may not be of significant volume in the big picture, high import fees would certainly have to be passed on to customers.
Food Engineering magazine writes, “Tinplate steel is about 2% of all the steel used to make cans. That doesn’t seem like much, but the industry makes almost 20 billion cans of food every year. And there’s not enough tinplate steel produced in America to meet the demand.” The Can Manufacturers Institute (CMI) says demand for tinplate steel in 2016 was 2.1 million tons, and only 1.2 million tons were produced domestically. Can makers would be looking at higher costs, and the end user at steeper prices.
In the beverage industry, aluminum packaging is a big deal and getting bigger. Three major industry institutions have jointly asked the president to refrain from imposing tariffs or import restrictions on cansheet, primary aluminum, and scrap. A 10% tariff on aluminum, they say, would cost beer and beverage producers $256.3 million. (Other estimates are higher.) In their letter to President Trump, the heads of the trade associations made their cases.
“Imposing an artificial price hike on American companies that employ millions of people will weaken the economy and hurt working families by raising prices, costing jobs and reducing incomes unfairly,” says Susan Neely, president of the American Beverage Association. “Tariffs on our companies’ imports of primary and cansheet aluminum will greatly increase our manufacturing costs and harm many more workers than it helps.”
“Imports of primary aluminum and cansheet used to manufacture beer cans do not threaten national security,” says Jim McGreevy, Beer Institute president. “Aluminum is critical to the beer industry and its employees, since more than half of the beer produced annually are packaged in aluminum cans or aluminum bottles. Any trade restriction on primary aluminum or cansheet imports would disrupt the market and increase costs to brewers and beer importers as aluminum customers,” McGreevy says.
“The administration should take into consideration the unintended consequence of a trade action against aluminum cansheet and primary aluminum that would ripple across the supply chain. Like most industries, can makers depend on predictability in supply and price. If the aluminum supply is hindered by unnecessary tariffs or trade restrictions, it could lead to supply inefficacies and affect product availability,” explains Robert Budway, CMI president. “Even a small tariff will result in greater uncertainty about prices, supply and financing would dramatically curtail investment and hiring in the United States.” CMI estimates that the imposition of an aluminum tariff will have an adverse impact on 10,000 employees and their households.
When US Commerce Secretary Wilbur Ross said on CNBC that the tariffs would be “no big deal” for aluminum packagers, amounting to pennies per can, his argument was challenged. “Let’s say the cost increase is a penny a can,” says Bob Pease, president of the Brewers Association. “115 billion cans were produced in this country last year. Even a 1-cent increase per can – as a result of a tariff – will cost the can industry $960 million, which could lead to lost US jobs and increase costs to consumers.”
The above is a fraction of the response to the tariff proposals. Import levies on raw materials will affect every link in the supply chain. Smaller industries will feel an impact, as well as the large ones do, but their voices aren’t as prominent. Package printing cannot be overlooked.
The label industry makes good use of metallic inks, those popular enhancements to many a fine label. That glittery look in silver ink comes from aluminum powder. Few companies make the stuff, and just about all of them are abroad. If the EU escapes the tariffs, that will be a relief for some ink and coatings suppliers.
Metalized films probably use more aluminum powder than inks do, and those substrate makers are keeping a sharp eye on the tariff picture. Offset plates, while small in number among label converters, are dominant in other printing segments. On the equipment side, printing presses and other converting machinery are massive steel constructions. Ancillary devices and parts of all kinds are constructed of solid aluminum.
Steel is made of iron ore and carbon. The United States is the eighth largest miner of iron ore, and its production is dwarfed by China, Australia, Brazil and India. China, the Russian Federation and Canada mine more aluminum than the US. If the USA plans to increase domestic production of steel and aluminum, it’s going to have to buy some of the raw ingredients to do so. Tariffs? Australia and Brazil are on the exempt list, but not China, Russia or India. China was quick to respond to the tariff proposals, suggesting retaliatory measures. That sounds like the start of a trade war.
The author is president of Jack Kenny Media, a communications firm specializing in the packaging industry, and is the former editor of L&NW magazine. He can be reached at email@example.com.