Catty Corp. has been buying light-gauge aluminum foil for more than 80 years. So, after the U.S. began cracking down on imports from China in 2017, the flexible-packaging firm began to further lean on longstanding relationships around the world to ensure a consistent supply.
But that didn’t mean it was an easy transition, says Bruce Scott, president and CEO of Catty Corp., based in Harvard, Illinois. “I’ve been in the business for over 30 years and this has been one of the most challenging times,” he says.
Prices rose for aluminum as U.S. manufacturers of all sorts searched for alternatives to Chinese producers, which make up about 40% of the world market. The search grew even more complicated as the U.S. began imposing tariffs on imports from other countries and requiring companies to prove they couldn’t find U.S. sources under a trade-law provision known as Section 232. The Section 232 process, say manufacturing executives and others, has been slow, opaque, and unpredictable—fueling additional frustration.
“It’s an administrative nightmare for the converter,” says Jeffrey Huber, director of corporate purchasing for American Packaging Corp., based in Columbus, Wisconsin.
To ensure supply at the best price, the company has to file multiple exclusions, Huber says. Despite the government’s intervention in the market over the last few years, domestic producers have not stepped up to meet the demand. “The vast majority of foil still has to be imported,” Huber says.
“I’ve been in the business for over 30 years and this has been one of the most challenging times.”
—Bruce Scott, president and CEO of Catty Corp.
Consistency is one thing flexible packagers and other U.S. businesses generally are looking for in trade policy. At the same time, many of them recognize the need for the U.S. to take a harder line on China’s unfair trade practices. Those practices include forced technology transfers, theft of intellectual property, and government subsidies to industries like steel and aluminum.
The question is how to do so. Over the last four years, President Donald Trump has pursued a unilateral policy focused on wielding tariffs in an effort to forge trade agreements that benefit U.S. producers. This approach led to a so-called Phase 1 trade deal with China in early 2020—mandating structural reforms to the Asian country’s trade regime. But the agreement has been unraveling since the COVID-19 pandemic began—which Trump has blamed on China—in the midst of pro-democracy protests in Hong Kong, and security concerns about China-based social media apps TikTok and WeChat.
Where policies go next remains to be seen, especially with a presidential election set for Nov. 3.
Trump’s preferences for tariffs are clear, says Judith Zink, a principal at Capitoline Consulting. Based in Washington, D.C., the firm advocates in Congress and the administration for the Flexible Packaging Association. Zink and others expect Trump will take a similar track if he is elected to a second term. But it could bump up against opposition from most congressional Republicans, who historically have supported free trade.
Congress also can be expected to press for a fix to the Section 232 process, observers say. The issue is one of the few where there is agreement between a majority of Republicans and Democrats.
Trump’s opponent, former Vice President Joe Biden, agrees on the need to rebuild the U.S. industry. But his stance on China revolves around working with allies to contain the country.
Companies and trade associations should be ready for either candidate to win, says Vanessa Sciarra, vice president for legal affairs and trade and investment policy for the Washington, D.C.-based National Foreign Trade Council, which represents manufacturers, service providers, and technology firms. It has generally opposed Trump’s tariffs and other restrictions on trade.
“They have been crude instruments,” Sciarra says. “I just don’t think that tariff policy is a good way to influence business decisions.”
If the new year brings a new administration, industry groups should prepare a list of the most important actions they want to see and how those actions would align with Biden’s goals, Sciarra says. High on the list for flexible packagers will be reform of the Section 232 process. But there are other trade issues on the table that may affect the industry.
The U.S.-Mexico-Canada Agreement
Under Trump, the U.S. modernized the 26-year-old North American Free Trade Agreement, replacing it with the United States-Mexico-Canada Agreement, or USMCA. The new deal covers activities like e-commerce and digital sales that did not exist when NAFTA took effect in 1994. And it improves the ability of the three countries to cooperate on issues like customs.
“All of that makes the North American continent work more smoothly as a unified region,” Sciarra says.
But while an overarching agreement may be in place, some details still need to be worked out. They include rules around resolving labor disputes and addressing country of origin for items like automobiles and textiles. The rules are designed to encourage sourcing of parts and materials from the three countries in the USMCA, which could raise production costs for automakers.
“I just don’t think that tariff policy is a good way to influence business decisions.”
—Vanessa Sciarra, vice president for legal affairs and trade and investment policy for the National Foreign Trade Council
A Biden administration may take a second look at the rules, but a second-term Trump presidency likely will let the deal play out, Sciarra says. One wildcard, though, could be tariffs. In August, Trump reinstated tariffs on Canadian aluminum, citing national security concerns. But the administration backtracked on the tariffs in September, avoiding a reprisal from Canada.
Alison Keane, president and CEO of FPA, notes that many flexible packaging companies have supply chains that go back and forth over the U.S.-Canada border.
Fast-Track and Other Issues
In 2015, Congress handed broad negotiating powers to former President Barack Obama under the Bipartisan Congressional Trade Priorities and Accountability Act. Known as fast-track authority or TPA, the legislation allows the president to negotiate trade deals and expedites Congressional approval. It was used, for example, in negotiating the USMCA.
“We think TPA makes sense, and we support it,” says Jonathan Gold, vice president for supply chain and customs policy for the National Retail Federation in Washington, D.C. “It sets the guidelines for how the administration should negotiate free-trade agreements and requirements for consultation with Congress and industry.”
The authority, however, expires in July 2021. The fate of its reauthorization hinges on who is president and which party controls Congress next year. If it does move forward, it will likely be accompanied by other trade-related legislation, as was the case in 2015.
The agenda next year could include better assistance for workers harmed by international trade, modernization of customs processes, and reform of the Section 232 process, observers say.
Meanwhile, flexible packaging companies have been adopting more sustainable practices for years, largely driven by brand and consumer preferences. But in the years ahead, trade policies also could become a factor.
On the domestic front, a second-term Trump presidency is unlikely to inject environmental concerns into trade policy, Sciarra says, adding that a Biden administration might. “This is a significant piece of Biden’s agenda—what to do on trade to make sure environmental policies can cross borders and be harmonized.”
European countries already are discussing so-called “carbon adjustment mechanisms,” which would essentially add tariffs to imports based on the greenhouse gases emitted in their production: the greater the emissions, the higher the tariff.
U.S. companies will adapt, and they want to adapt, Sciarra says. But it is better to have national goals than to have them imposed from the outside. “That’s the big concern,” she says.
Joel Berg is a freelance writer and editor based in York, Pennsylvania.
Changes at the WTO
The head of the World Trade Organization, Roberto Azevedo, stepped down in late spring before his term officially expired. President Donald Trump has been a vocal critic of the organization and threatened to pull the U.S. out of it.
WTO members have yet to select a new leader. The top contenders are two women from Kenya and Nigeria, says Vanessa Sciarra, vice president for legal affairs and trade and investment policy for the National Foreign Trade Council.
“The problem is, it’s a really hard job and the institution hasn’t aged well,” Sciarra says.
Challenges awaiting the next leader include reform in the handling of government subsidies for domestic industries, which has been a concern when it comes to China, she adds. But even erstwhile allies like the U.S., Europe, and Australia have trouble agreeing on what constitutes an acceptable subsidy.