How the New U.S. Tariffs May Affect the Secondary Packaging Industry
Published June 13, 2019
As industries of all types respond to recent developments in the United States’ trade talks with China, tariffs remain a topic of great concern. Affecting not only brokers or merchants, but developers, producers and marketers alike, the recent changes to U.S. trade tariffs contain major implications for the future Consumer Packaged Goods (CPG) and secondary packaging industries. Today, we’re breaking down trade tariffs — what they are, why they matter and how they affect the secondary packaging industry.
What Are Tariffs and How Are They Implemented?
Briefly defined as a tax applied to imports, a tariff is added to anything relating to foreign production, imports and trade. Many economists claim tariffs create a preventive trade barrier by encouraging big brands to keep local jobs and in-country production facilities to avoid the monetary hits that result from international production and trade.
Tariffs are not a new concept. In fact, the United States has been taxing imports for centuries. Generally speaking, though, there has been a trend towards tariff rates decreasing globally, with trade barriers lowering and global trade expanding exponentially. Through 1900, tariff rates in America were over 25% since they were the primary source of federal revenue at the time. The percentage has fluctuated in the years since that change, with numbers ranging from 1.5-50% tax. Currently, the U.S trade tariff rate sits at an average of 2%,
Tariffs are usually introduced to protect certain industries that are valuable to a particular country, or that could be seen to have a strong influence over politics in that area. Added predominantly to raise the cost of a good or product, tariffs are usually imposed by the government in an attempt to lower or cap the imported amount of that given good or product into a country. Raising the price of an import makes it less attractive to potential buyers, who usually turn to overseas products due to their affordability. With tariffs now making those once cheaper products more expensive, companies may choose to turn to local products instead, avoiding tariffs altogether while also boosting the local workforce and economy.
Exploring Recent Changes to U.S. Tariffs
In the last 80 years, a majority of the extensive tariff-setting authority has been run through the sitting President. This type of delegation kept congress free from domestic pressure and resulted in a trend of relatively low tariffs. Since the last presidential election, however, we’ve seen the current administration use its authority to a greater extent, raising tariff rates and introducing new tariffs with little to no congressional input.
In the summer of 2018, President Trump introduced 25% U.S. trade tariffs on billions of Chinese imports, prompting the country to retaliate. The China trade war became heated later in the year as the current administration imposed a separate 10% U.S. trade tariffs on imports worth billions more. China’s retaliation, raising its own tariffs, had a relatively small effect on the current political climate in the U.S., since our imports there are significantly lower. These changes represent the largest shake-up in tariff numbers in the last 100 years and hold great implications for the secondary packaging industry in the United States.
Ripple Effects of Tariff Changes
As new and raised U.S. trade tariffs encourage increased business and production of goods within the U.S., American-based secondary packaging companies should be watching the tariff discussions with acute interest. Although the retail industry might not feel the full impact of these changes until later this year, tariffs on Chinese goods will undoubtedly affect trade here within the U.S. — especially if China follows with further tariffs of its own. Keep an eye on big brands like Amazon, which has many overseas merchants. We may start to see prices rising, or a smaller selection of such goods available on U.S. markets as these retailers struggle to maintain feasible profit margins with the increased taxes.
This could speak good news for U.S.-based SP companies, though, which should be ready and willing to pick up the potential increase in available business as brands struggling with tariffs seek stateside alternatives. Secondary packing providers might consider marketing specifically to this group of businesses, highlighting that made-in-America advantage.
Keep Your Packaging Local with INSITE
If your brand is currently partnered with an overseas SP company and the state of U.S. trade tariffs are starting to affect your bottom line, consider bringing your secondary packaging efforts back to U.S. soil. With seasoned creativity, an unmatched commitment to quality, and a fresh, streamlined approach to standardized packing equipment, INSITE has the solution to your packaging needs. Contact us today to learn more.