The Impact of U.S. Tariffs on Metals and the Can Manufacturing Industry

Introduction to the Tariffs and Their Implications

The recent announcement by U.S. President Donald Trump to impose a 25% tariff on imported aluminum and steel, set to take effect on March 12, has sent shockwaves through the can manufacturing and packaging industry. This sector, which heavily relies on raw materials like aluminum and steel, is bracing for significant cost increases and supply chain disruptions. The tariffs, along with the possibility of retaliatory measures from Canada, have raised concerns about affordability and availability for consumers of products like beer, soup, and other goods packaged in metal cans.

Challenges for the Beer and Food Industries

The can manufacturing industry is particularly vulnerable to these tariffs, as the cost of metal accounts for about 70% of the price of a can. In Canada, for instance, nearly 90% of beer consumed is brewed domestically, but a significant portion of the cans used for packaging are imported, including the popular 473 millilitre size favoured by craft breweries. U.S. manufacturers who import metal from Canada will face higher costs, which will inevitably be passed on to Canadian companies. If Canada imposes counter-tariffs, the situation could worsen, leading to a double blow for businesses and consumers alike.

CJ Hélie, president of Beer Canada, highlights the severity of the situation, stating that the industry is already grappling with an affordability crisis. The tariffs could force brewers to make difficult decisions, potentially leading to higher prices for consumers or reduced production. The situation is further complicated by the growing popularity of cans over glass bottles, with cans now accounting for 75% of sales in 2023, up from 53% in 2015. This shift has increased demand for cans, making the industry even more susceptible to tariff-related disruptions.

Opportunities for Domestic Production Amid Tariffs

While the tariffs present significant challenges, they also create opportunities for domestic production. Erick Vachon, co-founder of Ideal Can, a Canadian company that produces food cans and other can products, is one entrepreneur who sees potential in expanding domestic manufacturing. Ideal Can, which currently operates three production lines producing about 1,000 cans per minute, is working to add another shift to increase capacity and help offset the impact of the tariffs.

However, the scale of production in Canada is still far from meeting the total demand. Ideal Can’s annual capacity of 400,000 cans is a fraction of the 1.8 billion cans consumed in Canada each year. While Vachon’s efforts are commendable, they will barely make a dent in the overall demand. The tariffs have highlighted the need for greater domestic production to reduce reliance on imports and mitigate the risks associated with trade disputes.

Broader Market Implications and Industry Response

The impact of the tariffs extends beyond Canada, affecting the entire North American market. The U.S.-based Can Manufacturers Institute reports that approximately 25 billion cans were produced for human and pet food in 2023, in addition to 103 billion beer and soda cans. The industry is urging the U.S. government to exempt tin mill steel from the tariffs, as previous rounds of tariffs led to the shutdown of nine mill lines, undermining the intended goal of supporting domestic production.

Maresh Singh, co-owner of Canadian Canning, a distributor with 80% of its business in the U.S., echoes the concerns of many in the industry. Singh notes that the uncertainty surrounding the tariffs and potential Canadian countermeasures is creating confusion and complexity for businesses. He emphasizes that price increases are inevitable, particularly for American consumers, and stresses the need for greater supply chain security to protect against future disruptions.

Uncertainty and Calls for Clarity

The uncertainty surrounding the tariffs and potential retaliatory measures has left many businesses in limbo. Companies are struggling to understand how the tariffs will be implemented and what the full implications will be for their operations. Singh admits that the lack of clarity is making it difficult for businesses to plan effectively, but he hopes for more clarity in the coming days.

In the meantime, the tariffs have underscored the importance of diversifying supply chains and increasing domestic production. Singh believes that Canada should invest in building more manufacturing capacity to reduce its reliance on imports and shield itself from future trade disputes. This sentiment is echoed by others in the industry, who see the current situation as a wake-up call for greater self-sufficiency.

The Path Forward for the Can Manufacturing Industry

The tariffs imposed by the U.S. on aluminum and steel have created a perfect storm of challenges for the can manufacturing and packaging industry. While the immediate impact is a rise in costs for both businesses and consumers, there are also opportunities for growth and innovation. Companies like Ideal Can are stepping up to address the gap in domestic production, but much more needs to be done to build a sustainable and resilient industry.

As the situation continues to evolve, industry leaders are calling for clarity and cooperation from governments on both sides of the border. The tariffs have highlighted the interconnected nature of the North American economy and the need for a balanced approach to trade policy. In the long term, the industry will need to adapt to these new realities by investing in technology, expanding domestic capacity, and exploring new markets to ensure its survival and growth.