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Update: Will Craft Breweries Pass the New Tariff Costs onto Customers?

Updated: May 31, 2018 at 11:21 a.m.

President Trump has now imposed tariffs on imported steel and aluminum from the European Union, Canada and Mexico, which were at first exempted from the original tariff that went into effect in March of this year. The 10 percent tariff on imported aluminum is likely to drive up the price of beer, soft drinks, and other canned food and beverage products.

"These tariffs are a new $347 million tax on the U.S. beer industry. Over the long run, these tariffs will drive aluminum prices higher globally, increasing the cost of beer production for all brewers. The tariffs are already having an immediate and disproportionate impact on American brewers and American jobs," said Jim McGreevy, President and CEO of the Beer Institute, a national trade association for the American brewing industry, in a statement released today. "Ending the exemptions for our trade allies will only lead to more uncertainty in the aluminum market. The price of aluminum had already skyrocketed since President Trump announced tariffs on aluminum, meaning increased prices for America's more than 5,000 active brewers and importers."

In response, the E.U. and Mexico have announced retaliation against the tariff. The E.U. will impose duties on items imported from the U.S., including Kentucky bourbon, cranberries, and orange juice. Mexico plans to put import taxes in place on U.S. exports of food items including pork bellies, blueberries, apples, grapes, and certain cheeses.

Many craft brewers worried about the tariffs when they were first announced. Almost all of the aluminum used to produce beverage cans is imported because the U.S. doesn't have the raw materials to make aluminum. Small craft breweries just starting out often first package their beer in cans because it's easier and less expensive. These new tariffs are likely to affect smaller breweries the most because they don't have the ability to cover even a small cost increase in their materials without raising their costs for customers.

The original article continues below.

Craft breweries may find themselves paying more for cans and equipment in the near future, which means that craft beer drinkers may find themselves paying more to purchase craft beer. The increase in costs come from tariffs imposed by the Trump Administration that went into effect on March 23.

President Trump imposed a tariff of 25 percent on steel imports and 10 percent on aluminum imports after the Department of Commerce determined that imports of these goods pose a threat to national security.

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The idea that the aluminum used to make beer cans is a threat to our country is absurd, according to many in the beer industry. Jim McGreevy, president and CEO of the Beer Institute, a national trade association for the American brewing industry, said, "It is critical that if the president and his administration choose to impose any tariffs, they be carefully targeted only to protect America's national security interests. Imported aluminum used to make beer cans is not a threat to national security."

Beer cans in the United States are made from imported aluminum for one simple reason: We can't get the raw material in large quantities here in the U.S.

Aluminum is made out of refined bauxite ore. Bauxite is mined in three U.S. states: Arkansas, Alabama, and Georgia. There is actually a town named Bauxite in Arkansas, which was a company town for aluminum miner and producer Alcoa. The bauxite mining industry, through Alcoa and Reynolds Metals (the company that makes Reynolds wrap aluminum foil), was a major employer in Central Arkansas up until the 1980s. (The two companies merged in 2000.)

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Butler Center for Arkansas Studies, Central Arkansas Library System

But Bauxite is a non-renewable resource, so once the mineral has been mined, you can't make more of it. According to The Aluminum Association, 160 million metric tons of bauxite are mined each year across the globe; less than one percent of that amount is now mined in the U.S.

Even though we don't mine the raw material here, aluminum is still critical to U.S. manufacturing. And aluminum cans are how more and more small craft breweries are breaking into product distribution.

According to the Brewers Association, another trade association representing craft brewers, cans represent over 28 percent of packaged production for brewers and the smallest brewers (those that produce less than 10,000 barrels of beer a year) are the largest growing segment using cans for packaging.

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That's because cans are less expensive overall than bottles. The production line is cheaper. They weigh less, which means shipping is cheaper. And they take up less space, which means—you guessed it—it's cheaper to warehouse the product.

So a tariff on aluminum, which has to be imported because we don't mine the raw material, would affect the small brewers and new breweries the most because they tend to be the ones using cans and the ones least likely to be able to afford a higher production cost.

There is some good news, though; the tariffs include some exclusions that may lessen the impact on the craft beer industry. Canada, Mexico, the European Union, South Korea, Brazil, Argentina, and Australia are all exempt from the tariffs, at least until May 1. Companies may also request a targeted exclusion for products that are not produced in the United States in the quantities or of the quality a company needs.

The Brewers Association noted that the exemptions for Mexico and Canada were helpful, though they are still concerned about the potential effect on small breweries.

In a statement posted on their website, the association said: "The American craft brewing industry is a great example of strong American manufacturing. In the last year, the more than 6,000 breweries located across the United States have directly employed more than 130,000 people and contributed more than $73 million to charities. These small businesses are located in almost every congressional district in the country and the Brewers Association opposes any policy that could negatively impact this growing American industry."

The bottom line is that it's too early to tell what kind of impact these tariffs will have. Larger craft breweries may be able to request exemptions or at least spread the cost out, keeping down any consumers cost increase. Small craft brewers may opt not to sell in cans, focusing entirely on draft service in a tap room or growler fills. Or they may raise their prices, which means that drinking beer is going to get more expensive for everyone.

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