If you’re a business owner, news of the recent tariff increase has likely made its way into your awareness. If this is news to you, we hate to be the ones to break it to you, but as of Friday, May 10, 2019, a 25 percent tariff is now being imposed on nearly 6,000 categories of Chinese products imported into the US (List 3), including flexible packaging. Yes, that means you will likely be paying 25% more for your packaging if you buy from China. While many products are being impacted, for the sake of this article we will focus on flexible packaging.
Here’s What You Need to Know
Let’s cut straight to it: if you’re importing your flexible packaging from China, you’ll soon see a drastic shift in the cost associated with those incoming shipments. While the 10 percent duty that originally came into effect in the fall of 2018 was one that could be more easily absorbed, a 25 percent tariff is another ballgame.
The way the new tariffs are structured, any goods that arrive before June 1, 2019, are only subject to the prior 10 percent tariff, but all shipments that arrive after that date will result in the full 25 percent rate. Something else to be aware of, the U.S. is preparing an additional round of tariffs on some $300 billion of Chinese goods, which could further impact flexible packaging materials.
Looking at the numbers, here’s what the American Chemistry Council expects to see: this increase and retaliation are expected to up the impact on U.S. exports of plastics and chemicals to $8.8 billion and more importantly, imports up to $13.2 billion.
While the tariff increase isn’t good news for any company that does business with China, it has the potential to be particularly challenging for small and medium businesses (SMBs) that might not be able to absorb the additional overhead costs. Even if sourcing product from overseas is still the most viable solution for your business, there are still a lot of unanswered questions about the future of the trade relationship with China.
If you’re currently sourcing your packaging from China, here are some additional considerations in light of the tariff changes:
- Connect with local packaging providers: There are many U.S. based packaging providers who offer high-quality flexible packaging at very competitive pricing. Now is the time to connect with a local provider to avoid the additional costs involved with the tariff increase. We’d love to help you navigate these changes and see if we’re the right partner for your business.
- Reevaluate your cost structure: If your company is sourcing a significant amount of materials from China, now’s the time to reevaluate your cost structure. The choices you made based on previous costs models may no longer make sense. We encourage you to explore your alternatives and review your sourcing options.
- Consider Potential Quality Concerns: To absorb the increased tariffs, packaging suppliers in China may alter the quality of their packaging. This could include anything from using raw materials that aren’t FDA certified, implementing questionable production practices, and producing in plants that are not AIB certified. Another concern is packaging that has a higher level of retained solvents, which can cause odours or alter the taste of the food inside. We encourage you to consider the potential quality concerns that could impact your packaging.
- Plan for a smooth transition: Change can be a great thing, but when you’re changing big parts of your supply chain, there are several factors that need to be considered. If it makes sense for your business, find new partners that you feel good about and plan for how changes to your supply chain will impact your operations. Keep in mind that in some cases it can take time to alter well-established supply chains when you consider all the due diligence necessary.
Bottom line: big changes are here, and we’re here to help you in whatever way we can. If you’re in search of a new packaging partner, we’d love to talk.
If you want to learn more about the history of the tariffs in the U.S., keep reading.
The U.S., China Trade Dispute: A Brief History
Let’s dive into a brief history of how the U.S. got to where it is now with China, via Reuters:
- Lists 1 and 2, July-August 2018: The Trump administration imposed 25 percent tariffs on about $50 billion worth of technology-related goods (i.e., machinery, semiconductors, automobiles, certain electronics) in July and more goods in August of 2018. China retaliated by imposing a 25 percent tariff increase on U.S. exports.
- List 3, September 2018: A 25 percent tariff was announced on an additional $200 billion worth of Chinese goods. The tariffs were scheduled to go into effect starting at 10 percent in late September and then increase to 25 percent in early 2019. These goods include computer modems, circuit boards, chemicals, building materials, and furniture. China again retaliated by implementing tariffs on $60 billion worth of U.S. goods.
- December 2018: The U.S. and China agreed to a temporary 90-day trade truce. This meant the U.S. would refrain from increasing its latest round of tariffs from 10 to 25 percent in early 2019 and China would also refrain from increasing or imposing new tariffs. The truce was scheduled to last until March 2019.
- February 2019: President Trump announced he would extend the trade truce.
- May 2019: President Trump increased tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent, just as he threatened last fall. He also threatened new tariffs on $325 billion worth of Chinese goods, which may go into effect in June 2019. China retaliated by increasing tariffs on $60 billion worth of U.S. goods.
- List 4, June 2019? Stay tuned…
How We Can Help
We understand how challenging these changes can be, especially if you have been working with the same flexible packaging supplier for an extended period of time. But, we’re confident we can help. We’d love to hear from YOU: what are your challenges as you face these new tariffs? Contact us today or give us a call at 844-623-8603.