As both the U.S. and China pile on new tariffs in their escalating trade war, it is expected that the effects increasingly will be felt on both packaging and the products that are sold in packaging. As of Sept. 1, the United States imposed tariffs of up to 25 percent on thousands of products worth an estimated $110 billion shipped from China. That country retaliated with 25 percent tariffs on nearly $60 billion worth of U.S. exports.
In some cases, chemicals commonly used in packaging are being hit with these trade taxes. In other cases further down the supply chain, tariffs are being added to packaged goods such as meat, frozen foods, coffee, baking products and pasta — all products that frequently are delivered and sold in flexible packaging.
Those tariffs are starting to bite. U.S. companies are losing overseas sales. They cannot afford to keep absorbing increased costs due to tariffs without passing them along to consumers. Supply chains also are being disrupted as business try to find new sources for materials and manufacturing.
It is understandable that the United States wants to level the playing field when it comes to trade with China. After all, China, with its centrally-controlled economy has a reputation for intellectual property theft, unfair industry subsidies, currency manipulation and tight restrictions on foreign investment within the country.
The first round of tariffs targeted goods that businesses, not individuals, tend to buy. The latest round includes tariffs on thousands of consumer items. This is likely to impact consumer spending as the U.S. heads into the upcoming holiday season. It is consumer spending that has buoyed the strong economy this year.
Tariffs are bound to affect the packaging market whether or not these taxes are directly added on to inbound packaging or packaging materials. Rollstock and laminations were included in this round of tariffs. Not only that. Along with importing plenty of electronic products, clothing and other manufactured goods, the United States imported roughly 3.9 billion pounds of agricultural products from China in 2010. Government forecasts say the tariffs are likely to add up to $1,000 in costs this year for each U.S. family. Many American families just can’t handle that hit to their budgets.
Tariffs are affecting packaging equipment manufacturers, too. Steel and aluminum prices are rising. As General Steel reports: “As steel imports from China, Mexico, and other trade partners decrease due to the tariffs, American steel manufacturers are experiencing higher utilization rates and less competition. That gives steel manufacturers increased pricing power, and they’re taking full advantage – passing on the full value of the tariffs to steel customers.”
Because China has retaliated with numerous tariffs on U.S. products while reducing their currency exchange rates, American OEMs are likely to lose sales in that country. Machinery from U.S. manufacturers has simply become too expensive to compete in many overseas markets.
Time will tell if this trade war will have a positive outcome for the U.S. economy. Meanwhile, American businesses and consumers must brace for budgetary pain. Packaging companies should carefully study how these moves affect their business and plan accordingly.
John Kalkowski, Editor-in-Chief
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