Tariffs and the Politics of Craft Beer

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It isn't often that my professional life as a political scientist and my beer life come into contact, but this last week brought them together in an unfortunate way: get ready for some hot tariffs talk.

Tariffs: A Primer

Tariffs, simply put, are a tax levied on trade goods - in this case, imports.  They have a long and complicated history (including why the Constitution mandates that we can only tax imports and not exports), but the most common use of tariffs is in response to unfair trade practices.  Usually, we're talking about dumping.

"Dumping" is when a country's manufacturers export a product and sell it at a deliberately low price to undercut the market and drive competitors out of business.  This predatory pricing approach makes it impossible for domestic (or other foreign) producers in the target market to stay profitable, and if the foreign company is willing to take the loss in the short term, they can eventually bring prices back up when they become the last company standing - they're paying a short-term cost to create a monopoly later.  In response, the targeted nation can impose tariffs as a defensive/protectionist mechanism.  Tariffs artificially increase the price of imported goods.  This acts to protect domestic industries from dumping.  Simple, right?

In this case, the argument goes, cheap steel and aluminum are making it hard for American metal producers to stay in business, since labor costs tend to be higher in the US.  We want to protect American metal manufacturers and their employees.  

There's a healthy argument to be had about whether the largest metal exporters to the US engage in dumping, but the preponderance of economists' opinions is that it's a very minor concern (after all, our largest metal-import customer is Canada, which has similar market conditions to work with).  

Politics aside, though, why do we care?  Because this would have a substantial impact on craft beer, in particular.

The Craft Case Against Tariffs - it's not just cans

A major problem here is that, more and more, craft beer is being packaged, shipped, and served in cans.  

"But aren't nearly all cans made in the USA?  This wouldn't affect 98% of them!"

Yes, they are.  But the materials they're made from are often not from the US - they're imported and then worked here, which means these tariffs will hit them squarely in the...can.

"OK, but how much?  I mean, we're only talking like one cent per can."

Yes, we are.  And that's enough.  Craft breweries are already operating on a very tight profit margin, and even incremental cost increases are going to hurt.  Not only that, but it's already problematic (from a sales/marketing perspective) that craft beer costs substantially more than macro beer.  If a 30-pack of a macro lite lager increases in cost by a penny a can, the global beer companies can absorb that cost simply by virtue of their overall size, or if they pass it on they have the pricing "room" to do so.  Not only can the small craft brewer not absorb that cost, increasing prices to account for it will end up exacerbating the price disparity and driving the sticker price higher.  

Then there are the secondary and tertiary effects.  The prevailing wisdom - which may not be accurate, but which is historically consistent and logical - is that other countries will retaliate by imposing tariffs on American products, most notably (because we grow food like nobody's business) agricultural products.  A tightening market for agricultural goods will have mixed effects, of course, but it will almost certainly hit barley and wheat and other grains, which will have downstream effects on beer ingredient costs.  I don't think hops will be much affected, but it's not a slam-dunk that they won't.  

This isn't just about cans.

Cost/Benefit

It's not at all likely that this action - assuming it is fully implemented and not remedied by the US Congress - will actually result in anything good in the US or global economy.  Industries that rely on aluminum and steel have lost jobs when this has been attempted in the past - to the tune of about five jobs lost to every one saved in the steel industry (directly - indirect effects can eliminate or reduce wages in up to 200 jobs for every one saved).  And let's not forget that the only real function of a tariff is to increase costs.  No one wins a trade war.  In the face of obvious dumping, targeted tariffs can meet a real need, but these are universal.  Metal costs are rising in the US.  It's unavoidable.  Which means that even if we save a few jobs, the benefits will accrue to only those few individuals, while the costs will be shared out collectively in higher prices on almost everything made with steel or aluminum.

And craft breweries will be caught in a bad, bad spot as a result.  They can't just suddenly pivot to something else - back to bottles, right? - because a) it's not that simple, and b) even if they could it would increase lots of other costs since glass is both breakable and a heavier-weight item.

Will this hurt the big breweries, too?  Yes, but they can take the punch better than your average microbrewery.  A corporation that runs at a loss (or a smaller profit margin) for a quarter or two might see a slight decline in its stock price; a local brewery in the same boat might be driven under.

Ideology and partisan identification aside, if you enjoy craft beer, you should be calling, e-mailing, and writing to your representatives to oppose this action.  The costs far outweigh the benefits overall, and are potentially lethal to craft brewers.

Keep it simple.

JJW

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