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The Risk of Increasing Trade Tensions

By AICC Staff

September 13, 2018

As the year rolls on, U.S. industrial production is growing rapidly. However, while the manufacturing sector and those independent corrugated converters who make the boxes to protect and deliver those goods are on a roll now, storm clouds are visible on the horizon as the threat of a major trade war looms larger.

In January, the U.S. imposed tariffs on imported washing machines, and in April, tariffs were levied on steel and aluminum imports. So far, the administration has imposed duties on $92 billion of imports including washers, solar panels, steel, aluminum, and a range of other goods imported from China. Already, higher metal prices have put pressure on some manufacturers that use aluminum and steel in their products to cut costs or raise prices. And the component of the Producer Price Index that tracks laundry equipment prices has risen by more than 20 percent since the beginning of the year, a penalty felt by consumers needing new or replacement equipment.

In addition, the U.S. Trade Represen­tative has published a list of up to $400 billion of additional goods on which a 10 percent tariff would be added. At the time of this writing, this tariff is currently under review and negotiation, and if approved by the administration, these penalties would go into effect between August and November.

Tariffs on imports and exports act as taxes that adversely impact American consumers and businesses. While taxes on imports may increase U.S. producers’ competitive position, the imposition of similar tariffs on exports in a tit-for-tat escalation of trade confrontation can hurt economic growth even more seriously. With the U.S. economic expansion now some 10 years old and inflation already rising faster than wage gains, adding tariffs will erode consumers’ purchasing power even more, perhaps enough to push the economy into recession.

According to the U.S. Chamber of Commerce, half of all U.S. manufacturing jobs depend on exports, and 1 in 3 acres of American farmland is planted for international sales. In response to U.S. actions, major U.S. trading partners have published lists of goods exported to their countries from the United States on which identical tariffs would be imposed. The U.S. Chamber of Commerce has aggregated U.S. Census Bureau 2017 values for these identified exports from Canada, Mexico, the European Union (EU), and China. On their website, www.uschamber.com/tariffs, the data is organized so state-by-state impacts can be viewed.

The total 2017 value of these targeted exports for all states comes to a whopping $59.4 billion dollars. The table shows the U.S. exports targeted for foreign retaliatory tariffs for the top 10 impacted states and the U.S. totals identified by country. Washington, Louisiana, and California each account for more than 10 percent of the total.

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So, what does this mean for box producers? Since many of the products in the initial volley of the trade conflict are steel or aluminum goods that consume little corrugated packaging, boxmakers have so far felt mainly indirect effects, such as reduced sales of laundry equipment in the face of rising prices.

To answer that question for all the products identified by major U.S. trading partners, we looked at the detailed data and identified those products that consumed corrugated (e.g., food, personal care items, etc.). These packageable goods are estimated to amount to $14 billion of the total $59.4 billion of 2017 exports, and the tariffs have the potential to erode the sales of boxmakers supplying packaging for the identified products. As shown at the bottom of the table above, they amount to nearly one-quarter of all the goods covered by the proposed retaliatory tariffs.

Unsurprisingly, Canada, our largest trading partner, has identified the greatest amount of packageable goods, $6.4 billion. The largest category of Canadian trade items are prepared foods, including bakery goods and personal care items, and include $1 billion of converted paper products, mainly toilet paper.

China has proposed tariffs on a set of nondurable goods, of which they imported $3.3 billion worth in 2017. High on the list of packageable goods were $1.2 billion of seafood products and $713 million of meat products. Fruit, vegetables, and tree nuts amounted to $567 million and, if the tariffs are implemented, they will have a major impact on packaging demand in California and other states in the west. Exports of wine, whiskey, and other alcoholic beverages are another targeted sector, as are tobacco products, of which China imported $163 million last year.

Mexico has targeted meat, cheese, prepared foods, and fresh produce for tariffs on goods worth $2.7 billion.

Finally, the EU has targeted packageable goods totaling 41 percent of its total package of retaliatory tariffs. Half of that total is aimed at fruits, vegetables, and nuts.

The stakes to settle the current trade disputes and achieve a fair balance of trade conditions without prohibitive tariffs are high, since the economic impact of reduced or more expensive trade will be harmful to all in the global economy.


PortraitDick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.