By David Lawder
WASHINGTON (Reuters) - One of the largest U.S. producers of aerosol cans, Colorado-based Ball Metalpack, has laid off 91 of its 500 U.S. workers since President Donald Trump imposed a 25% tariff on imported steel that abruptly hiked the firm's raw materials costs.
At a chief competitor, DS Containers, the story is different. The subsidiary of Japan's Daiwa Can Co has added more than 80 workers over 18 months at its two Illinois plants, bringing employment to 232.
Rivals of the Japanese-owned firm say the reason for its success is simple - it's not paying the tariff, allowing the firm to snatch business from competitors who have been forced to raise prices to cover their higher materials costs. The U.S. Commerce Department granted DS Containers an exemption from the import tax because it uses a raw material, plastic-laminated steel, that isn't produced by U.S. steelmakers.
Firms that use standard tin-plated steel, including Ball Metalpack and Mauser Packaging Solutions, have seen their exemption applications denied or delayed by Commerce after U.S. steelmakers objected to them, arguing the material is available domestically. Executives from the can makers counter that domestic steelmakers can't produce nearly enough tinplate to meet their needs - forcing them to keep importing and paying tariffs.
"Anytime they want to take a customer from us, they can do it," said Leslie Bradshaw, an executive vice president at Mauser Packaging, a maker of aerosol and other cans based just 19 miles away from DS Containers in Illinois. "Their business is growing, and everyone else's is not. We're paying 25 percent tariffs, and they're not."
The dynamics of the aerosol can industry illustrate the uneven impact of Trump's tariffs on U.S. manufacturers and the unintended consequences of policies that protect one sector or company from foreign competition at the expense of others who are hit with hefty import taxes.
It also underscores domestic steel producers' strong influence over the Trump administration's tariff policies. According to a Reuters review of Commerce Department exclusion requests for tinplate steel, the key factor in an approval or denial is whether they draw objections from U.S. Steel Corp or Arcelor Mittal USA, two major domestic producers of tinplate.
DS Containers Chief Executive Bill Smith dismissed any advantage the tariff exclusion has given his company, arguing that his materials are still more expensive that standard tinplate, even considering the tariff.
His company has grown, he said, because of the innovative design of its two-piece, round-shouldered can, which can be manufactured more efficiently. He also credited a recent move into aluminum aerosol cans.
"We win on the manufacturing floor, not at the table negotiating steel prices," Smith said.
STEEL MAKERS VS. STEEL CONSUMERS
U.S. tariffs on imports of steel and aluminum - a cornerstone of Trump's "America First" trade policy - have increased steel prices and spurred investment in metals manufacturing. In March, U.S. Steel Chief Executive David Burritt told lawmakers not to "blink" in the face of criticism as the industry begins to recover from a long decline.
The tariffs, imposed in March 2018, initially caused Midwest hot-rolled coil steel futures prices to shoot up to $942 per ton by the end of May 2018. But this week they had fallen back to about $578 a ton, about where they were in October 2017 - but with increased market share and capacity utilization for domestic steelmakers.
The rising fortunes of the steel industry have produced a modest uptick in employment, reported at 143,700 in March, up about 4,000 from a year ago, according to U.S. Labor Department data.
Steelmakers' employment is dwarfed by that of industries that consume steel and aluminum, which employ about 6.5 million people, according to the Precision Metalforming Association and the National Tooling and Machining Association, two trade groups representing metal processors.
The Can Manufacturers Institute, a trade group, estimates its industry employment at 22,000 for cans of all types.
When Ball Metalpack's Chief Executive Jim Peterson laid off workers in Ohio, Pennsylvania, Tennessee and Wisconsin, he said: "We let them all know that apparently their jobs are not as important to our government as U.S. Steel union jobs in Indiana."
'READY TO SERVE'
In seeking a tariff exemption, Ball Metalpack argued that domestic steelmakers can produce only about half the tinplate needed for aerosol, food and paint cans in the United States.
U.S. Steel contended in its objections that U.S. tinplate mills were operating at only 43 percent of capacity because cheap imports had eroded domestic producers' market share.
"The United States has ample capacity to supply domestic tin mill customers with their needs, and U.S. Steel is ready to serve," U.S. Steel spokeswoman Meghan Cox said in a statement.
Cox said the company is pursuing a capital investment program in tinplate operations called "Can Do," aimed at improving product quality and delivery.
Whatever steelmakers can do in the future, says Peterson, they can't do it now - leaving his business with no choice but to import about half its tinplate from Europe and pay tariffs.
"It will take U.S. Steel years to get where they need to be, but we don't have years," Peterson said. "The business we're losing is happening overnight."
STEEL INDUSTRY INFLUENCE
Commerce has received tens of thousands of such exemption requests from U.S. manufacturers, and the agency has struggled to keep pace with the volume. It has often rejected requests if there are any objections from domestic metal producers.
"The bias in the Commerce Department’s administration of this has been totally towards the domestic industry" of metal manufacturers, said Rufus Yerxa, president of the National Foreign Trade Council, a Washington-based multi-industry group that promotes free trade.
In a statement to Reuters, the Commerce Department said exemptions are generally approved in the absence of objections from domestic providers - as in the case of DS Containers. Tinplate products that do draw objections would only get tariffs waived if the department determines the product is not "reasonably available" in a "satisfactory quality" from domestic steelmakers.
"The lack of objections would indicate the product is not available from U.S. sources. The DS Container requests received no objections and thus were granted," the department said.
Commerce overruled can-makers' arguments that they could not purchase enough tinplate domestically. In one denial of a Ball Metalpack exclusion request, the agency found that the material is "produced in the United States in a sufficient and reasonably available amount and of a satisfactory quality."
Some of the tinplate exclusion requests, including many from Mauser Packaging Solutions, are still pending as the Commerce Department reviews rebuttals and counter-rebuttals.
Bradshaw, the Mauser executive, said the company may not wait around hoping for more favorable tariff treatment.
It's exploring moving the manufacturing of can tops and bottoms to South America to tap into cheaper foreign steel supplies and import the components to the United States duty-free.
"If we do that," he said, "those jobs are never coming back."
(Reporting by David Lawder; Editing by Simon Webb and Brian Thevenot)