Why Beer Could Get More Expensive Under Trump’s Tariff

 

More than half of the beer made in the U.S. is sold in cans or bottles made of aluminum

 

Source: WSJ

By Nick Kostov

March 2, 2018

 

President Donald Trump’s planned 10% tariff on aluminum imports could hit America in its beer gut.

 

Beverage makers, including Heineken HEINY 0.36% NV, Molson Coors Brewing Co. TAP 2.50% and Coca-Cola Co., who use aluminum cans had warned Mr. Trump last month of increases in production costs if the tax were imposed. Some of those costs are likely to be passed on to consumers, according to analysts. The Beer Institute, a trade group, said Thursday the tariff would amount to a $347.7 million tax on brewers and result in the loss of tens of thousands of jobs.

 

“Businesses don’t assume cost increases, they pass them on to consumers,” said Nico von Stackelberg, a consumer-goods analyst at Liberum.

 

More than half of the beer produced annually in the U.S. is sold in aluminum containers and is traditionally marketed to cost-conscious consumers. Cans of Natural Ice, known as “Natty Ice,” are staples of cash-strapped college students and Bud Light has become a symbol of working class America, which is a key part of Mr. Trump’s political base.

 

MillerCoors statement: We are disappointed with President Trump’s announcement of a 10% tariff on aluminum. While we won’t know the details for a week, the Department of Defense recently reported that aluminum does not cause any national security issues. (1/3)

 

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. (2/3)

 

Cans are cheaper and easier to ship than bottles and they protect against ultraviolet rays, reducing the risk of beer going stale, or skunked.

 

The tariffs could also hurt craft beer. Part of the reason artisanal brew is increasingly sold in cans, producers say, is that aluminum offers a good surface for colorful, effective branding.

 

Industry watchers say the planned levies may exacerbate a shift by consumer away from beer toward spirits and wine, which are mainly sold in bottles.

 

Soda companies such as Coca-Cola and PepsiCo Inc., PEP 0.85% use more aluminum cans than makers of alcoholic beverages, though only about 29% of soda and other soft drinks are sold in cans, according to the American Beverage Association, an industry group. Coca-Cola and PepsiCo declined to comment.

 

Beer makers aren’t taking the tariff sitting down. MillerCoors, the U.S. division of Molson Coors, tweeted that “American workers and American consumers will suffer as a result of this misguided tariff,” adding that there isn’t enough can sheet aluminum available in the U.S. to satisfy demand.

 

President Trump signed an executive order in late January that imposed tariffs on washing machines and solar panels. WSJ’s Gerald F. Seib examined whether these moves could ignite a trade war with South Korea and

Mr. Trump’s announcement came on the same day Anheuser-Busch InBev, the world’s largest brewer, was presenting its fourth-quarter earnings.

 

“We urge the Department of Commerce and President Trump to consider the adverse impact that the trade restrictions on aluminum will have on the more than two million American jobs before making his final decision,” AB InBev BUD 1.08% Chief Financial Officer Felipe Dutra said on a call with reporters. “We will be following that and monitoring that closely.”

 

Mr. von Stackelberg says roughly 25% of AB InBev’s cost of goods sold in the U.S. stems from aluminum purchases.

 

Food manufacturers that rely on steel and aluminum, to package everything from tuna fish to soup, asked the administration to exempt packaging containers from the tariffs. “Such tariffs will act as a regressive tax on low income consumers,” said the Grocery Manufacturers Association, the trade group representing big food companies. Mr. Trump plans for a 25% tariff on steel imports.

 

As for the cans’ makers, The Can Manufacturers Institute said the tariffs could cause closures to U.S.-based plants. The industry employs 22,000 workers across 34 states in the U.S. The group also said the tariffs would trickle down into higher food costs for consumers, arguing that domestic metal supplies can’t meet its needs.

 

The sector used 2.1 million tons of tin plate in 2016, with companies only getting 58% of that domestically. “When you make 115 billion steel and aluminum cans, if you multiple that by a penny, that’s a lot of money,” said Robert Budway, the association’s president, in an interview Friday. “We are extremely disappointed.”

 

Mr. Budway added that the group is planning to file a petition with the U.S. Commerce Department for relief from tariffs on imports of raw materials that go into cans, including aluminum sheets and steel tin-plate, if the tariffs go through.

 

In unveiling his plans to impose the tariffs on aluminum and steel, the president cited what he described as a trade imbalance and national security concerns. Studies conducted by the Commerce Department concluded that metal imports could weaken domestic production and thus affect U.S. production of weapons, tanks and aircraft as well as other critical infrastructure.

 

However, The Beer Institute says there is no reason for can sheet aluminum to be included in the new trade barriers.

 

“Imported aluminum used to make beer cans is not a threat to national security,” said Jim McGreevy, the group’s president.