After months of deliberation, President Trump’s tariff policies will now be enforced. These tariffs include a 10 percent tax on aluminum and a 25 percent tax on steel that Canada, Mexico, and the European Union (EU) ship to the United States. For perspective, Canada and Mexico account for around 50 percent of steel imports and a significant amount of aluminum imports as well. Additionally, Trump added 1,300 items to the China tariffs list last month, triggering a tariff war.
Canada, Mexico, and China were not pleased. As a response, each implemented retaliatory tariffs on the United States. The Canadian tariffs, composed of 299 different items, will value at the same amount as the US tariffs; some of the items include yogurt, coffee, juice, tomato products, soups and broths, candles, sleeping bags, and playing cards. The EU and Mexico responded similarly, while China announced tariffs on $50 billion of US goods like coal, grease, petroleum jelly, asphalt and plastic products, and recyclables.
Leaders of each country made it known that they disagree with these tariffs, deeming them “totally unacceptable” and “unlawful.” Each statement included points apologizing to US consumers, with hopes that the retaliatory tariffs will affect them as little as possible. Unfortunately, this will likely not be the case.
CPG manufacturers suffering
The long lists of taxable foods and materials will cause serious expense pains for consumer packaged goods (CPG) manufacturers selling internationally.
Canned goods, including soups and drinks, will face heavy taxation due to their steel and aluminum packaging Campbell’s Soup Company is expected to be one of the hardest hit due to the steel in their cans and the amount of international business they do.
The Hershey Company, Kraft Foods Group, Inc., MillerCoors, and Tyson Foods, Inc. are among other companies preparing for big hits due to the materials they use like tomatoes, steel, or aluminum. These tariffs have put these companies in a dilemma. Because they can—and will most likely be forced to—raise prices, both their sales and relationships with consumers could be hindered.
Retailers feeling the pain
Twenty-five retailers, including Walmart, Costco, Target, and Dollar Tree signed a letter to President Trump urging him to avoid imposing the tariffs on China. The letter outlines their concerns for how these tariffs would affect the average American household:
“Applying any additional broad-based tariff would worsen this inequity and punish American working families with higher prices on household basics like clothing, shoes, electronics, and home goods . . . We must do right by American families while also addressing harmful technology practices.”
The pressure on the CPG manufacturers will be passed to retailers because the retailers will need to raise prices to make up for the manufacturer cost increases. Retailers may face a loss of consumer trust when forced to do this, but they have few other choices.
The president of the National Retail Federation, Matthew Shay, made a statement on his concerns: “We agree it’s time to address China’s unfair trade practices, but we can do so in a way that doesn’t . . . create uncertainty for businesses and increase every American’s cost of living.” Shay is referencing China’s technology theft, currency manipulation, and state-owned enterprises. These actions go against the free-market policies that most countries in the World Trade Organization follow and greatly harm the countries China trades with.
Consumers paying the ultimate price
Consumer goods companies will have no choice but to raise their prices when their cost of materials rises. Items like beer, electronics, canned goods, and cars will noticeably increase in the near future.
Although this is a hit to the manufacturers of these items, the consumer feels the ultimate pain as it trickles down the buying chain. However, with production times, consumers aren’t expected to see the price increases on most items until 2019. These price changes will vary depending on the manufacturers and their relationships with retailers.
A statement from the Grocery Manufacturers Association points out that “Such tariffs will act as a regressive tax on low-income consumers” due to the foods being affected. Low-income consumers who depend on the low prices of canned goods may struggle to afford price increases on the products.
Nonetheless, there are a few winners with these new tariff policies. CEOs of steel and aluminum companies are extremely satisfied with the progression of events and will profit greatly.
Consumers can expect price increases on many products in 2019, manufacturers will struggle to make up for the large expenses in other areas of their business model, retailers will need to increase prices, and the political relationship with these other countries may remain shaky as it all plays out.