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Free Minds & Free Markets

Protectionism vs. Cheap Beer

If you tax something, you get less of it, and Trump's tariffs are a tax on making things—including cans, kegs, and the beer that goes into them.

Joanna AndreassonJoanna AndreassonLocated on the outskirts of Philadelphia, American Keg is the type of small, blue-collar manufacturing business that might earn praise from President Donald Trump. It's the only remaining American manufacturer of stainless steel beer kegs, and CEO Paul Czachor is proud to use only American-made steel.

But American Keg is in jeopardy of going out of business, and the culprit is none other than Trump himself. The president's 25 percent tariff on steel and 10 percent tariff on aluminum apply only to imported metal, but they will increase the price of domestic products too, because, well, that's what tariffs do.

Although they've been blunted by the White House's decision to exempt imports from Canada, Mexico, and a few other major American trading partners, the tariffs are bad news for beer drinkers, who are likely to pay more for their favorite brew, and for a wide range of companies that touch the beer industry. While the tariffs are meant to boost domestic steel and aluminum production, they will do so at the expense of the much larger set of American businesses that consume those commodities.

That's exactly what's happening at American Keg, where Czachor laid off about a third of his workers and raised the price of each keg by $5 in response to Trump's tariff announcement.

Even that may not be enough to keep the business afloat, however, because the tariffs are a double whammy in Czachor's case. Not only will they increase the cost of the steel needed to make his company's products, they will increase the cost of his company's products relative to foreign-made competitors, since the levy applies only to raw or unfinished steel (sheets or rolls, for example) and not to steel-made products, like kegs, that are imported into the United States. Czachor's business faces a 30 percent increase in costs, yet keg manufacturers in other countries will be able to make and sell their products to American breweries for pretty much the same price as today.

And just as higher prices for steel mean more expensive kegs, higher prices for aluminum mean more expensive cans. Beermakers have to pay for both, and those costs will end up getting passed along to consumers. "American workers and American consumers will suffer as a result of this misguided tariff," said Molson Coors, the Colorado-based brewery that's one of the biggest in the world. Jim McGreevey, president and CEO of the Beer Institute, a trade association, calls the move "a new $347.7 million tax on America's beverage industry" and warns that those added costs could trigger more than 20,000 in job losses up and down the industry's supply chain.

They likely won't be alone. The Trade Partnership projects that Trump's tariffs will wipe out 146,000 American jobs on net—five lost for every one gained. Even protectionist think tanks like the Coalition for a Prosperous America expect an overall decline in jobs as a result of the policy. The only point of disagreement seems to be how bad things will get.

Tariff apologists, such as Commerce Secretary Wilbur Ross, argue that the final cost to consumers will be minimal. That's true, to a point.

According to the Can Manufacturers Institute, a trade group, the 10 percent aluminum tariff will add about a penny and a half to the cost of each can of beer. As a result, a small microbrewery producing 10,000 barrels annually might face $25,000 in additional costs, against already small margins in a highly competitive market. Do you raise your prices and make an unknown product less attractive to consumers? Do you cut one job out of your operation? Do you scrap plans for expansion, because buying new brewing equipment (made of steel, of course) just got more expensive? These are difficult choices, ones that have suddenly been forced on thousands of businesses by the stroke of a presidential pen.

"It would be tough to justify a price increase of 24 cents per case," Adam Romanow, founder of the Massachusetts-based Castle Island Brewery, told the trade publication Brewbound. His company now pays about $130 for 1,000 cans but goes through more than 2 million cans every year. It's not a question of pennies at that scale.

"We don't make things anymore" is a common Trump complaint. It's not true—America makes lots of things. But if you tax something, you get less of it, and Trump's tariffs are a tax on making things—including cans, kegs, and the beer that goes into them.

Photo Credit: Joanna Andreasson

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  • Z565||

    Maybe I'm seeing things but I couldn't help but notice the juxtaposition of the Reason article completely dismissing the idea that Trump's Iran saber rattling has increased gas prices and potentially could dramatically do so if Trump continues down the path to armed conflict with this Reason article on Trump tariffs. The Trump tariffs have similarly negatively affected consumer prices but barely so and yet if Trump continues down the tariff path consumer prices could potentially raise more dramatically. And thus if you're going to call attention to tariffs for the affects it could have on prices then you shouldn't dismiss others who do the same with gas prices and Trump's signaling of war.

  • Scarecrow Repair & Chippering||

    The Iran+gas prices article was about political hypocrisy, not that breaking the deal didn't raise gas prices.

  • Rossami||

    The Iran+gas prices article also explicitly cited the Annenberg Public Policy Center analysis rejecting Schumer's argument, finding "that other factors, such as robust global economic growth and a decision by the Organization of the Petroleum Exporting Countries to curb production, were more influential."

    So, yeah, we are going to dismiss the idea that has no valid economic basis while supporting the idea that actually does have a sound basis in economics despite the superficial surface similarities.

  • Braunasaurus||

    Small price to make America great again.

  • Deconstructed Potato||

    We'll try that once more, with a little gusto please.

  • DrZ||

    In my book, cheap beer should always be the winner.

  • Braunasaurus||

    Small price to make America great again.

  • Deconstructed Potato||

    Okay that's better but I want to hear some real emotion. Feel the words.

  • Braunasaurus||

    Small price to make America great again.

  • Deconstructed Potato||

    Bravo! Cut and print! Okay everyone take 30 for lunch and we'll reconvene on scene 22.

  • Braunasaurus||

    Some blame squirrels I blame underpants gnomes

  • loveconstitution1789||

    In America's non-free trade trading atmosphere, sometimes shaking up managed trade agreements helps get the USA toward a more free trade type situation.

    This happened with China and might be worth the short term additional cost to get costs far lower and more accessible foreign markets for the long term.

    If our government was tiny, tariffs could be used to fund it just like during the beginning period of the United States.

  • Agammamon||

    We're not 'shaking up' trade agreements. We're just funneling money to a politically favored minority at the expense of the rest of us.

    And you don't get closer to free trade by allowing the government ever more power to manage trade. That's like saying that ever more government control will lead to a magical moment when the state fades away to nothing - a core conceit of communists.

    If you want free trade - then just stop interfering with trade. Period. Let the Chinese do what they do, if the USG stops interfering then trade will be freer than under the current regime.

  • vek||

    That's bullshit though.

    He's LITERALLY in the middle of negotiations with several countries, trying to strong arm them into lowering their barriers to our products. That's how negotiations work. If you don't ask for something you'll never get it genius!

    If he gets China to lower barriers to entry, that could add hundreds of billions a year to US GDP. That's why it's worth risking some short term pain for a long term gain.

    I don't understand how some people are so oblivious to this stuff, it's pretty obvious, not to mention Trump has outright said this is exactly what he's doing. He's offering a carrot and a stick, and hoping they take the carrot. If not I think he'll follow through with the stick in the hopes that they'll change their mind and take the carrot.

  • Don't look at me.||

    The value of the aluminum in a beer can is not the total value of the can. There is some exaggeration of the effect the tariffs could have.

  • Bearded Spock||

    "Some exaggeration"? That's an understatement.

    The average aluminum can is worth about 1¢ to a recycler. The cost of the container in a can of beer is around a nickel, maybe a dime.

    Increasing that cost by 10% will result in an increase of a penny per beer; Joe Six-Pack won't even notice it.

  • Hail Rataxes||

    This is so weird, last week we were supposed to trust the NFL to make business decisions for itself but now business owners are obviously full of shit.

  • Sevo||

    Hail Rataxes|5.29.18 @ 1:33PM|#
    "This is so weird, last week we were supposed to trust the NFL to make business decisions for itself but now business owners are obviously full of shit."

    Care to explain that? I could use some amusement.

  • Bearded Spock||

    "The only remaining American manufacturer of stainless steel beer kegs...."

    Here's an inconvenient question: if the only thing keeping the domestic beer keg industry solvent is cheap steel, why then is there only one American company left? What happened to the others? Wouldn't the pre-tariff flood of low- priced steel result in a keg maker in every city?

    This illustrates the fatal flaw in Boehm's reasoning: Free Trade is supposedly the only thing saving our Brave Keg Makers from financial fuin, but Free Trade is also the reason all but one have gone out of business.

  • Bearded Spock||

    *financial ruin*

  • loveconstitution1789||

    Plus, keg manufacturers are not operating in a free market world anyway.

    Its managed trade all the way down.

    If it was free trade then costs of labor would be between employer and employees, governments (including foreign govs) would not interfere in picking winners and losers, and prices at all levels of production and services would be set by the market.

  • Bearded Spock||

    If the owners of American Keg were complaining about the flood of cheap Chinese-made kegs and requesting help from Trump, you can bet Reason would be patiently explaining to us all that having them go out of business would be a good thing for beer drinkers.

  • Echospinner||

    "Its managed trade all the way down"

    Managed trade is on back of the first giant turtle.

    Then it is turtles all the way down.

  • vek||

    Yup.

    Like how Reason has quoted steel production being up from the lows of about a decade ago, not looking back further in years to see our production absolutely crater as domestic demand dried up, because we don't manufacture a lot of stuff here anymore. We may supply most of our own steel that is consumed in the US today, 70% according to Reason, but that's only because we import TONS of finished products made with foreign steel. We'd probably have 3 times the steel industry we have if we had the same amount of manufacturing going on here today as 30 years ago.

  • sharmota4zeb||

    $347.7 million is about a dllar per American, but we should still oppose the tarrif on general principle.

  • buybuydandavis||

    "If you tax something, you get less of it"

    True

    So should we tax labor, by which we produce value, or imports, by which other countries develop gain economies of scale for their production of value?

    "Trump's tariffs are a tax on making things"

    No, they're taxes on purchasing things from other countries. Sometimes this will reduce production, sometimes consumption.

  • Longtobefree||

    Just to be sure, we should tax everything - - - - - -

  • Longtobefree||

    So why can't these guys just repackage and sell kegs made of recycled plastic straws? I hear the raw material will become real cheap soon, as states ban them for their designed purpose - - - - - - - -

  • Liberty Lover||

    I only buy long necks, aluminum cans make the beer taste tinny.

  • vek||

    But what if Chinese imports of ACTUAL beer were so cheap that it made it impossible for local micro breweries to stay in business? People just couldn't possibly pass up the cheap Chinese swill since it still got them trashed? Would that be a problem then???

    Methinks urban yuppies would be bemoaning the death of the micro brewery in such a situation. LOL

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