The good news is that Spring Break is here. The bad news is that tariffs on aluminum could spell higher prices for college students looking for a beer and a good time. Some of the biggest losers from President Trump’s steel and aluminum tariffs are the beer and beverage industries, which depend on aluminum for their beverage cans. Two of the largest brewers, Molson Coors and Anheuser-Busch, have warned of rising aluminum prices and job losses from the tariffs.
The rationale for tariffs is national security concerns. Specifically, few U.S. manufacturers are left to supply the aluminum used in the defense industry. However, an alternative solution to tariffs can be the Department of Defense agreeing to purchase the output of domestic aluminum smelters. Furthermore, Canada produces aluminum, and Canadian firms are considered part of the national industrial base with respect to national security suppliers.
A report by John Dunham & Associates, prepared for an industry group, the Beer Institute, concludes that a 10 percent tariff on aluminum will cost the beverage industry $348 million. Beer producers alone will lose up to $247 million. The effect on the beer industry could cost the United States $2.5 billion in lost economic activity and the loss of American jobs in the beer industry could total 20,300. Even if the effects are less than projected, the damage could be substantial.
Approximately 11 percent of the cost of manufacturing beer in the United States comes from the production of beer cans. Furthermore, 36 percent of the aluminum found in these cans is imported. Tariffs are detrimental to beer companies because the foreign supplier of aluminum can simply raise its prices in response to the tariff. Large brewing companies typically rely on aluminum cans, and independent craft brewers will also be affected. Using aluminum cans has been steadily increasing. While bottles are still the most popular for craft brewers, aluminum cans make up approximately 29 percent of their packaged production.
A recent policy brief from The Trade Partnership, a consulting firm, concludes that steel and aluminum tariffs will result in a net loss of 146,000 jobs, with two-thirds of the jobs lost attributable to low-skilled workers. Even if only half those estimated jobs were lost, this is a net loss of 73,000 jobs. President Trump believes that placing tariffs on aluminum and steel will help boost American manufacturing. However, the analysis from The Trade Partnership shows the job losses in manufacturing industries that are not steel or aluminum producers will outweigh the job gains in these sectors.
It is difficult for brewers to replace imported aluminum in the immediate short-run. Due to declining U.S. aluminum production and increasing imports, there may not be sufficient domestic production to satisfy demand.
How would the beer industry adjust to an aluminum price increase? There are a few options. Companies could accept the higher cost of aluminum and reduce profits. However, a private firm in the industry is unlikely to do this because the industry is competitive, so profits are already low. Companies could lay off workers. Given the reports, it is very likely for companies to choose this. A third option for companies is to pass on the higher-priced input (aluminum) on to the consumers of the final product (beer). Neither scenario is good for students on Spring Break.
The president’s announcement that he will exempt Canada, the source of 59 percent of U.S. aluminum imports, from the tariffs until a deal on Nafta is reached is good news. This action will soften the blow of the tariffs on the beer industry and the beverage industry in general. However, the best course is not to impose tariffs.
The potential effect on the beer industry is just one cautionary tale of how destructive tariffs can be for American workers and consumers, including Spring Breakers with a six-pack of beer.
Isai Chavez is a contributor to Economics 21.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, E21 delivers a short email that includes E21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the E21 Morning Ebrief.