Trump’s tax on beverages

(Photo: Shutterstock)

According to the U.S. International Trade Commission’s Harmonized Tariff Schedule, most aluminum products currently have tariffs set between 2 and 4 percent. This means the 10 percent tariff on aluminum and 25 percent on steel is going to be felt across the country, whenever exactly it happens. This comes at a time when the beer industry not so long ago shifted back to aluminum because, among other reasons, beer actually remains fresher in cans than bottles.

Beverage companies are enormous consumers of commercial freight services, including trucking. Companies like Ab Inbev, Miller, Coca-Cola, Pepsi, and their peers spend over $8B on truckload shipping beverages across U.S. If the cost to produce the products in aluminum cans get passed on to consumers and consumers shift their beverage choices to alternative liquids or bottle types, it could have an impact on freight transportation flows- particularly in the truckload sector. Beverages are one sku that is not easy to displace by last-mile or ecommerce players. It is also a product that is used as a store traffic driver. One does not have to look further to see the impact of cost increases on beverage demand than to look at Seattle’s disasterous tax on sodas. Consumers are going outside city limits to do pick up their favorite sodas and with it the rest of their grocery spending, 

While consumers are unlikely to stop buying beer or soda they might shift to alternative or higher density container choices (glass, plastic containers, Soda Stream, or an expected “soda K-Cup”). This potentially will impact what factories and warehouses freight ships out of and it might impact how shippers route freight (glass containers are more fickle and delicate to handle than aluminum).  

Beer leaders in the industry came out with immediate responses.

“Aluminum is critical to the well-being of America’s beer industry as more than half of the beer produced annually is packed in aluminum cans or aluminum bottles. President Trump’s announcement today that he plans to impose a 10% tariff on aluminum imports will increase the cost of aluminum in the United States and endanger American jobs in the beer industry and throughout the supply chain,” said Jim McGreevy, Beer Institute President and CEO.

“According to third-party analyses, this 10% tariff will create a new $347.7 million tax on America’s beverage industry, including brewers and beer importers, and result in the loss of 20,291 American jobs. We appreciate the many members of Congress—both Republicans and Democrats—as well members of the cabinet who spoke out against imposing this tariff, many of whom specifically cited their concerns for how this tariff would negatively impact America’s beer industry.

“Imported aluminum used to make beer cans is not a threat to national security. The largest importer of aluminum to the United States is Canada—one of America’s strongest allies. We urge the Department of Commerce to exclude imported aluminum and cansheet used to make beer cans from these tariffs so as not to unnecessarily increase costs on American businesses and put jobs at risk.”

“A threat to national security” is the only reason named so far from the White House for the tariff’s purpose. At the same time, numerous comment boards criticize the “20,291 lost jobs” projection as beer lobbyist’s overreaction.

Can Manufacturers Institute president Robert Budway said, “A tariff on these aluminum and steel products will harm our industry and put food and beverage cans at a disadvantage among competitive packages, such as plastic and glass, which are not subject to tariffs. This would ultimately harm U.S. consumers, who would pay more for canned food and beverage products.”

Anheiser-Busch InBev stock is down 0.75 percent on the day. MillerCoors voiced their disappointment in a 3-part tweet, saying essentially: “Like most brewers, we are selling an increasing amount of our beers in aluminum cans, and this action will cause aluminum prices to rise. It is likely to lead to job losses across the beer industry.”

It’s not just beer, of course. Other major beverage manufacturers will face the same issues. Coca-cola is slightly down by 0.23 percent. Interestingly enough, Keurig, who may be making serious plays to consolidate their beverage products and get out of shipping so much aluminum and water-based product, is also down 0.30 percent on the day. That makes some sense, however, in that now that they have merged with Dr. Pepper, they too have a large number of brands—and the cold carbonation segment (loaded with cans) is the most scalable.

Anticipating this move from several months away, the Canned Foods Industry wrote a letter to Trump, writing: “Since tinplate steel makes up approximately 60% of the cost of a can, a tariff as low as 5% would result in increased can costs of approximately $1 billion/year. Given the industry’s thin margins, manufacturers cannot absorb this cost and will be forced to pass it on to consumers.” Clearly, the letter fell on deaf ears.

Steel and aluminum makers can’t complain, however. Among steel makers, AK Steel Holding Corp shares jumped 9.5 percent, U.S. Steel Corp rose 5.7 percent, while Nucor Corp and Steel Dynamics Inc. each gained more than 4.0 percent. Aluminum producer Century Aluminum Co.’s shares rose 3.3 percent, while Alcoa Corp edged up 0.2 percent.

While no one knows exactly when the tariffs will begin, much less exactly why America is doing this, the implications are real. They will hit consumers in a variety of pain points, not the least of which are their beverage costs.

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Chad Prevost

Chad is radio host and broadcast media specialist for FreightWaves.