Loss of jobs to offshore manufacturers likely considering additional proposed aluminum tariffs
Flexible aluminum foil packaging is an essential component of most cosmetic and personal beauty care products to protect integrity and ensure the product is sanitary when purchased by the consumer. According to London-based market research firm Euromonitor, personal care items like cosmetics comprise $1.5 billion of the current U.S. flexible packaging market.
Additionally, the projected compound annual growth rate (CAGR) for beauty and personal products in the flexible packaging industry is projected to grow 0.1% by 2025, with specific product types forecasting stronger CAGR predictions. For example, facial cleansers forecast a 5.4% CAGR, face masks forecast a 4.3% CAGR, and adult sun care products forecast a 7.4% CAGR by 2025.
Unfortunately, these growth rates may soon be further affected by duties levied by the U.S. Department of Commerce (DOC) against Chinese aluminum imports, which have been in place for five years. The DOC is now looking to further enact these duties against Thailand and South Korea, which will potentially accelerate supply chain issues and the shuttering of domestic aluminum manufacturers (including suppliers to the cosmetics and personal care industries) in favor of moving operations overseas to save production costs.
To learn more about this pressing issue and how it may impact suppliers and manufacturers in the cosmetics and personal care industries, CosmeticsDesign spoke with Alison Keane, President and CEO of the Flexible Packaging Association. She has represented the interests of flexible packaging manufacturers for over 6 years, and her previous experience working with the U.S. senate helps provide some much-needed insight into how cosmetics and personal care companies should be responding to these regulatory issues.
CDU: Can you explain the recent history behind the issues with aluminum foil trade actions?
Alison Keane (AK): Five years ago, there was a petition by U.S. aluminum manufacturers against China. They argued that China was dumping aluminum imports on the U.S. and undercutting domestic manufacturing. FPA argued then that aluminum foil, particularly the foil we use in flexible packaging, should be excluded.
This was primarily because it isn’t made in the U.S. – at least not in the quantity and quality we need for food and medical grade packaging. Unfortunately, we were unsuccessful as the Department of Commerce treats all aluminum and aluminum foil as equal.
CDU: Where does the issue currently stand today?
AK: The Chinese duties are in place and current range in the 108% range – so very costly. U.S. manufacturers lost some jobs to overseas operations, since if the aluminum is imported already laminated to another substrate or as a finished packaging, it avoids any duties or tariffs.
Now, not by any petition, but on its own, DOC has self-initiated a case against Thai and S. Korean manufacturers of aluminum, saying that they are circumventing the China duties and not really manufacturing in those countries. This couldn’t be further from the truth.
CDU: What potential consequences can result from these actions?
AK: The loss of more jobs in the U.S. and not just aluminum foil jobs as the paper, film, ink, adhesives and coating jobs will also go overseas. Again, if the lamination and final packages is imported it bypasses the duties. It is only the aluminum foil roll that has the increased cost.
But aluminum foil is used as the barrier lay in flexible packaging – it is not used alone – so all the other packaging components and those converting jobs are at risk as well. Scarcity is another issue. With the supply chain already strained, products that people use every day may not be available.
We have already seen this with baby formula mid-2022 and other products over the last 2 years – this will only exacerbate that. Price will also go up to reflect either the new duties and/or the cost of importing the finished packages instead of converting them domestically.
CDU: In what ways can these actions impact suppliers to the cosmetics and personal care industries? Manufacturers?
AK: Costs will rise if new duties are put in place. Suppliers will have to pass these costs alone and product manufacturers will as well. In order to be competitive, manufacturers may have to go offshore to buy their packaging.
Aluminum foil provides the ultimate barrier protection to odor, light, oxygen and bacteria – all things that can spoil cosmetics and personal care items and render them unsterile. There really isn’t a viable substitute at this time.
CDU: Are any alternatives to current flexible packing options or innovations available at all, even at a high cost, or is flexible aluminum the literal only option?
AK: That’s going to depend on whether it's flexible or not. There are other options in glass and rigid plastics, I don't think paper would be too good. You don't see a lot of that, but certainly glass, particularly opaque, so sunlight and moisture can't get in.
When you get to flexibles, no, there are no other options, even at a higher cost. Are people looking for other options? Yes, because the global supply chain, regardless of the higher cost if they put the tariffs on the two new countries, is already so depressed regarding aluminum. There are so many other places where aluminum can go before it even gets to foil and then gets to that thin gauge foil. There's a lot of processes in between.
There are higher margins that it can go to, so I would say from a flexible standpoint, no, there's not. The best potential option is metalized plastic, which is a different process. Instead of being straight foil, it's plastic and then they incorporate ions of aluminum on to it, but that doesn’t give you as good of a shelf life. You really can't sterilize the package, so if it must go through sterilization process, that will melt. Aluminum foil will not melt, so if you're talking strictly flexible, there is no other alternative even at a higher cost.
If you're talking alternative packaging, that may be a higher cost, or a higher sort of environmental footprint when you're trying to lightweight and use the least amount of material. That's why companies have moved into the flexible space.
CDU: If costs continue to increase, could cosmetics and personal beauty product manufacturers potentially be forced to consider options like reducing overall production?
AK: Probably not. Probably what's going happen is the production's going to move offshore. If you move offshore and you make the entire package offshore or even if you laminate…let's say you're laminating it to a plastic or a paper. It comes in as laminated either in A roll stock or if it comes in as the final finish package, you bypass all that. Companies may pay a little bit more for transportation costs to get it from Mexico, Canada, Europe, wherever it's coming from.
It's still not going to be 108%, which is what the current Chinese tariffs are, which would then be placed on South Korea and Thailand. So, you will see jobs move offshore. Companies that already have manufacturing facilities outside of the United States are going be better positioned than the folks that are just US centric and can't really move those operations. They'll just lose those jobs completely.
It's the difference between making the entire package here with one part being imported versus importing the entire package. That's our argument to the policymakers, which would you rather have? We realized we'd rather have the entire package domestically produced. But in this case, we'd still rather have 90% of it and 10% coming in versus 100% having to come in from overseas.
CDU: Does the lack of available domestic flexible aluminum foil affect cosmetics or personal beauty companies as they're working to design and release new products?
AK: Whether it's food, cosmetics, beauty, anybody who's using this foil as a converting foil at this point is trying to find alternatives, other barrier alternatives so that they can keep the light weighting and the sustainability benefits. Flexible still has the same barrier protection without the added cost and really the added hassle of this supply chain disruption that we've seen across the globe for aluminum foil.
We just haven't seen it yet, but this is one of the most innovative Industries that I've ever worked at, so I have no doubt that at some point there they'll get there. It's just when and how.
The other thing is, everybody's trying to get their packages recyclable at the end, and those multi-material packages are the hardest to get recycled and reprocessed, it's much more expensive and it's not widely scaled. Right now, we're looking at that.
CDU: Should cosmetics and personal beauty care companies be more concerned with the impact that these duties are going to have not only this year but also in the future?
AK: Yes. The global supply for aluminum period is pretty depressed. 60% of the ingot is coming from China and then 40% is coming from other places. Now in the cosmetic industry, if the foil is in contact with anything that's going to go on skin or hair, then there are real concerns about safety and sterility.
Companies want that primary aluminum. It's not like beer cans or soda cans, which can be recycled. Right now, where we're getting the aluminum foil, that's the converter foil for flexible. It used to come from Germany but because of the war in Ukraine, Germany has shut down their production because it's too expensive with the energy costs. Then companies are left with China, who's already very expensive because of the tariffs already in place. South Korea and Thailand now might get the same duties at 108%.
Then there’s Brazil and India. What I'm fearful of is that we started with China now, South Korea, Thailand. What's to stop the US Department of Commerce from going after India and Brazil next? Or Germany when they start rolling, because they're doing the exact same things. Unfortunately, the DOC treats all aluminum and aluminum foil the same.
It must be circumvention, but we don't see the investment in the United States ever coming back for this thin converting foil. It hasn't in the last five years with the Chinese duties. My fear is that it's just going to expand and there won't be any place to go without much, much higher cost. And that just means again, more jobs moving offshore and going someplace else, so that they don't have to pay 108% duties.
The U.S. cosmetic industry must be competitive with the rest of the world and that's what they'll do, I think. They'll go offshore to continue making the packaging that their products go into. That's why we'd like to try to stop this before it’s too late.
The primary reason for duties and tariffs is to enable the US manufacturing sector to rise above and be competitive, but it's not doing it that. You must look at the unintended consequences which means you're not doing any good for the aluminum the industry in the United States.
It’s really depressing and moving offshore a lot of packaging, manufacturing jobs domestically. And it's not just aluminum packaging: if the foil, the paper, the adhesive, the ink, the actual converting goes offshore, that's a lot more than just the foil converters. It's everybody in the supply chain that goes offshore.
CDU: Would you consider this to be indicative of a sign of things to come? Do you anticipate that the DOC will try and intervene in other areas outside of aluminum?
AK: 100%. I think the last five years it's all been about aluminum and steel, but that can change on a whim. The Trump era brought in aluminum and steel and they're kind of still on that wagon. But as I've delved more into this and I've worked with our attorneys and I've worked with folks on Capitol Hill, I could see it moving on to other things depending on who in the White House who the current secretaries are.
We've been talking with folks on the Hill to see if we can't put some legislation in or executive order to put some guide rails around it, so that they're not so siloed in their decision making. I’ll give you an example. If there's one bad actor, let's say there's somebody who really is circumventing Chinese government money in another country, circumventing the duties, pretending they're a private industry.
If the DOC finds that one actor, let's say there's 5 rollers in South Korea, they will put the tariffs on every single roller instead of just saying, here's one bad actor. They get the tariffs. That's something they could do, if there really is somebody circumventing, we want to make sure that that's not the case. Put the tariffs on that roller. We won't use that roller anymore, or we'll use it at the higher cost.
But that doesn't mean a lot of investment outside of China has been made for these rollers to make it into aluminum foil and then make it into the grade that we need. So, we're really asking the DOC to try to take into consideration the policy aspects and then formulate a response that's appropriate, versus their normal response, which is just one bad actor, the whole country gets the tariff.
There are some focused responses we're asking for too: we're saying really look at it and take into consideration all the unintended consequences and find an approach that works for both parties.
CDU: What actions can be taken by trade organizations and/or their members to best represent industry interests regarding aluminum foil trade issues?
AK: Contact your representative in Washington. Explain the issue and have them weigh in on your behalf with the Department of Commerce and the White House.
CDU: What resources are available to support industry members in dealing with these issues and their ramifications?
AK: FPA has resources you can use, including a factsheet, video and sample letters.
CDU: Anything else to add?
AK: I will just reiterate that the Department self-initiated this case and has the authority to fix it. They have very focused solutions at their disposal, including stopping the case altogether; defining circumvention based on the value added processes and not soley on where the aluminum ingot is coming from (approximately, 60% of the world’s aluminum comes from China, however, transforming that ingot into aluminum foil is a significant undertaking, so finding circumvention based on the original raw material is not appropriate); and if circumvention is truly found, applying duties on the bad actor and not the entire country.
Nothing has changed in the intervening 5 years since the initial Chinese case – converter grade aluminum foil is still not made in the U.S. to the extent needed, more duties on additional countries will not fix this. Investment in domestic foil production is going to higher margin goods, like batteries for electric vehicles, it is not going to thin gauge packaging foil and domestic packaging manufacturers should not be penalized more for this.