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What’s in the order: Last week’s executive order restoring and raising tariffs on steel and aluminum to a flat 25%, even for US allies, sent tremors through those businesses that rely heavily upon these metals for their packaging. The order frames steel and aluminum imports in terms of “trade practices that undermine national security.” But tariffs may also impact the price of consumer goods that are bought in almost every home in America. What this means for mass consumer goods companies: On March 12, tariffs on imported steel and aluminum will be raised to 25%, and manufacturing supply chains will need to be reconsidered. As input prices rise, three viable options emerge: Ultimately, the executive order aims to reshore manufacturing, create new jobs, improve the economy, and even tempt foreign partners to invest in US production—for instance, Hyundai Steel is considering building a plant in US. This could be part of the story manufacturers tell their stakeholders. Tariffs on metals = boon for plastics? The big challenge for manufacturing companies will be how to secure affordable materials and maintain sustainable supply chains. The CEO of a large beverage company responded to the news of the tariffs with succinct, enlightening commentary: “As it relates to our strategies around ensuring affordability and ensuring consumer demand, if one package suffers some increase in input costs, we continue to have other packaging offerings that will allow us to compete in the affordability space.” The implication is more plastic in the market. And potentially more waste: In 2018, 29.1% of PET (plastic) bottles were recycled compared to 50.4% of aluminum cans, according to the EPA. The TCB take: This is a challenge for the sustainability targets of big companies, and it will be interesting to see how the reaction of the end customer comes into play. Which option will US consumers favor: More plastic in the environment or higher prices for their favorite beverages and packaged food? Businesses will need to be aware of these tradeoffs as they evaluate the best course for possibly expanding domestic operations. Companies need to have an understanding that their current cost estimates of materials may not play out as planned over a muti-year timeframe for packaging and this will spark innovation in alternative materials.
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