July 02, 2017
That’s the question millions are asking after reading an NYT article on the state of the U.S. aluminum industry. The article notes that an increasing share of aluminum is imported, mostly from Iceland and other countries with low-cost electricity. (The industry uses huge amounts of electricity.) However, it also points out that China is getting a growing share of the market and the industry claims that the Chinese firms are subsidized by the government. The industry and steelworkers union are arguing for offsetting tariffs.
The piece then presents a comment from an executive at the Molson Coors Brewing:
“If there are duties on aluminum coming to this country, it will obviously get passed on to us and the customer … Our prices will go up.”
The piece doesn’t give any sense of how much beer prices to consumers would rise from the tariffs being considered. While it would take a bit of homework to calculate the prospective increase from a tariff, suppose that tariffs on Chinese aluminum raised the price of aluminum by 10 percent. This is almost certainly too high a figure, since Chinese aluminum only accounts for 5 percent of U.S. consumption, according to the article.
Suppose that the cost of the aluminum accounts for 10 percent of the price of a can of beer in the store. This is also almost certainly far too high since the current cost of aluminum is less than a dollar a pound. If you can get twenty cans out of a pound of aluminum that would make the cost per can less than five cents.
In this scenario, tariffs would raise the price of a can of beer by 1.0 percent. It’s a safe bet that the beer drinking public would rather not pay 1.0 percent more for their beer, but most would probably not be terrified by this prospect.
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