The Silica Chronicles
The Tariffs Imposed By The
United States Of America And China
And Their Impact On The Glass Industry

November of 2018

Relations between the United States of America and China were much more pleasant on April 6, 2017,
when President Donald Trump and First Lady Melania Trump met with
Chinese President Xi Jingping and his wife, Mrs. Peng Liyuan,
at Mar-a-Lago in Palm Beach, Florida.

A trade situation that began earlier this year with the United States of America imposing broad-based tariffs on steel and aluminum to protect its military preparedness has evolved into a major trade war.  Two of the major combatants are the United States and China.  The European Union, Canada, and Mexico as well as a host of other nations are also affected by this trade war.

As one country decides to add a tariff to a specific product, another nation decides to add a tariff to another product of their choosing.

In late Summer this year, President Donald Trump of the United States announced that as of September 24, 2018, an additional 10% tariff would be placed on certain imports from China that were estimated to be valued at $200 billion.  A total of 5,745 types of products were targeted with this additional tariff.  To put into perspective the breadth of these tariffs, the list of tariffs is 194 pages in length.

President Trump also announced that as of January 1, 2019, the additional tariffs will increase to 25%.

These tariffs are in addition to two previous waves of 25% tariffs on imports from China implemented by the United States government;  the two previous tariff actions involved products valued at approximately $50 billion.

As each of those tariff actions were implemented by the UnitedStates government, China then implemented tariffs on products imported from the United States into China.

American tariffs now target an estimated $250 billion in imports from China.

Chinese tariffs now target approximately $110 billion in imports from the United States.

According to the Office of the United States Trade Representative, China has acted, adopted policies, and implemented practices “related to technology transfer, intellectual property and innovation [that] are unreasonable and discriminatory and burden or restrict United States commerce.”

Businesses that produce glass as well as businesses that utilize glass to manufacture and package other products are affected to varying degrees by these tariffs.

Companies that operate solely within one country’s borders and do not export their products to other nations may be largely unaffected by trade tariffs or, more likely, may not directly feel the impact of tariffs on their specific products.

Indirectly, though, these same firms may find certain products needed for their operations are now priced higher because of the tariffs.  In turn, those “unaffected” businesses may have to streamline operations to get better efficiencies and lower their costs, raise prices on their products to their customers, decide to accept lower profit margins, or do a combination of all three.

Many businesses that operate globally have been directly affected by these trade tariffs.

Some companies that manufacture glass as well as other businesses that utilize glass in producing or packaging their products have had to deal with the initial broad-based tariffs on aluminum and steel.

While many businesses outside of the aluminum and steel industries were not directly affected with the initial broad-based tariffs, as additional tariffs have been added on specific types of products, the impact has been felt by many more firms.

In many cases, the specific impacts of those additional tariffs have not yet been felt by businesses.  But the concerns of business leaders are very real.

This edition of The Silica Chronicles looks at aspects within several industries that either manufacture glass or utilize glass to produce or package products – the glass container industry, the wine and spirits industries, the high-tech consumer products industry, and the door and window industry.

Some within the glass industry have welcomed tariffs on glass products being imported into the United States.  While specific tariffs were being considered for inclusion in the third wave of tariffs by the United States government on imports from China, Mr. Paul Coulson, Chairman and CEO of Ardagh Group, spoke of the need for tariffs on glass containers.

"The U. S. glass market is being adversely impacted by a substantial rise in glass containers being imported from China and Mexico,” stated Mr. Coulson, according to a transcript by Seeking Alpha of the investors’ call meeting held by Ardagh Group on July 26, 2018.

“We've previously noted the level of what we believe are effectively subsidized import glass containers being sold into the North American glass market,” Mr. Coulson continued.  “And we welcome the recent inclusion of glass containers on the proposed list of Chinese-manufactured products to be subject to new importation tariffs…We view initiatives to ensure a level playing field and fairness and trade practices as essential to the long-term future of the North American Glass Packaging industry.”

On September 18, 2018, the Glass Packaging Institute issued its Statement on Tariffs for Chinese Food and Beverage Containers.  This trade association represents businesses in the glass container industry in North America.

“The Glass Packaging Institute testified and provided written comments in support of tariffs on Chinese glass containers imported into the United States,” according to the Statement.  “The request covered glass bottles and jars for the food, beverage and cosmetics industries.”

“Considerable evidence exists that Chinese glass container manufacturers have been supported for decades by various government subsidies that lower the cost of their production,” the Statement continued.  “In the U. S., the glass container industry supports a highly-skilled hourly workforce at 43 plants.  Domestic glass container manufacturing companies also spend considerable capital to ensure compliance with air quality and other U. S. regulations.”

According to the Glass Packaging Institute, “Tariffs on Chinese glass containers will help level the playing field for domestic glass container manufacturers.  U. S. customers should not be significantly impacted by the tariffs since there is domestic latent capacity, and glass containers are imported into the U. S. from other countries in addition to China.”

“We are optimistic the tariffs may expand production of glass containers,” the Statement detailed.  “The domestic glass container manufacturing companies will adjust production levels based upon customer demand. Opening of new, or restarting of closed plants, is at the discretion of the manufacturing companies.”

The Glass Packaging Institute stated that the volume of glass containers imported into the United States from China had increased by 40% during the past five years.  During the same time period, the trade association indicated that domestic glass container manufacturing plants had their volume decrease by 8%.  The Statement from the Glass Packaging Institute indicated that imports from China represented about half of all empty, unfilled glass containers imported into the United States from all other nations during 2017.

Eleven glass container manufacturing plants have closed in the United States from 2005 to 2018, according to the Glass Packaging Institute.  The trade association indicated that “these closures represent 20.3% of the domestic glass container footprint, leaving 43 plants in 21 states.”

Collectively, more than 3,650 people had been employed at those eleven glass container manufacturing plants that closed, according to the trade association.  “This represents roughly 25.4% of the industry’s current hourly workforce of 14,350,” according to the Glass Packaging Institute.  “Chinese glass container imports have placed additional pressure on domestic glass container production.”

Grapes form the basis of the wine industry in the Napa Valley of California.
Glass bottles are utilized by many wineries to package their products in the United States.

The wine industry is one of the largest purchasers of glass bottles in the United States.

Exports of wine from the United States to other nations are critical to this industry.

“United States wine exports, more than 90% of which are from California, were $992,784,153.00 from January through August of this year,” stated Ms. Gladys Horiuchi, Director of Media Relations of Wine Institute.  “This almost one billion dollars in wine exports represents an increase of 1.31% by value for the time period of January through August of 2018 as compared to the $979,929,721.00 in wine exports during the same time period in 2017.”

A total of 256,750,485 liters of wine was exported from the United States from January through August of 2018, according to Wine Institute.  This was an increase of 0.62% from the 255,160,293 liters in volume of wine sales during the same time period in 2017.

Wine Institute reports that the top ten export markets for California wines are the European Union’s 28-member countries, Canada, Hong Kong, Japan, China, South Korea, Mexico, Singapore, the Philippines, and the Dominican Republic.

Overall, United States wine exports to all markets abroad reached $1.53 billion in winery revenues and 380 million liters (42.2 million cases) in 2017, according to Wine Institute.  The level of wine exports last year was less than the amounts exported in both 2015 and 2016.  In 2016, according to Wine Institute, exports of wine from the United States to nations throughout the world were valued at $1.62 billion for 412.6 million liters (45.8 million cases), while wine exports were valued at $1.603 billion for 461.3 million liters (51.3 million cases) in 2015.

For individual countries, Wine Institute indicated that wine exports from the United States to China for the time period of January through August of 2018 were valued at $44,956,529.00;  this represented an increase in value of 0.36% of the $44,793,920.00 during the same time period in the previous year.

According to Wine Institute, the volume of wine exports to China from the United States was 8,924,466 liters from January through August of 2018.  This volume was a decrease of 4.41% of the 9,335,997 liters in wine exports to China from January through August of 2017.

For exports to Canada, United States wine sales were $286,480,950.00 for the first eight months of 2018, an increase of 4.15% in value from the $275,074,028.00 in exports to Canada during the same time period in 2017, according to Wine Institute.

The volume of exports from the United States to Canada was 49,401,907 liters during the time period from January through August of 2018.  The volume this year represents a decrease of 11.01% in exports to Canada for the same time period during the previous year, according to Wine Institute, when 55,514,843 liters were exported to Canada.

Exports to Mexico totaled $17,353,774.00 during the time period from January through August of this year.  The value of wine exports to Mexico increased 22.54% by value as compared to the first eight months of 2017 when $14,151,713.00 in wine was exported to Mexico.

The volume of wine exports to Mexico also increased from the first eight months of 2017 when 4,517,430 liters of wine were exported from the United States to Mexico, according to Wine Institute.  A total of 5,077,017 liters of wine was exported to Mexico during the time period from January through August of 2018;  this represented an increase in volume of 12.39%.

Tariffs are directly affecting the wine industry.

According to Wine Institute, as of September 24, 2018, the new total tax and tariff rate, when compounded, will equal 79% on wines imported into China from the United States.  Wine Institute indicated that this rate includes the 10% tariff on United States wine imports to China that that nation added in September.  This tariff is in addition to, according to Wine Institute, a previous 15% tariff increase implemented by China in April 2018.

These actions are in response to the United States government increasing tariffs on certain consumer goods from China, according to Wine Institute.

“China continues to be an important market for California wines, but tariffs put our products at a price disadvantage,” stated Mr. Robert “Bobby” Koch, President and CEO of Wine Institute.  “We will continue our full slate of promotional activities in China to engage Chinese consumers who are increasingly attracted to California wines. We are confident that the popularity of California wines will continue to grow.”

Tariffs are also affecting American businesses that need to package their wines in glass bottles.

A number of the wine growers in California have had long-standing practices that minimize the impact of tariffs on glass products.  One such business is G3 Enterprises of Modesto, California.  “From sand and soda ash to limestone and cullet, Gallo Glass sources all of its major raw materials within the State of California,” according to G3 Enterprises.

Groth Vineyards & Winery of Napa, California, is a customer of G3 Enterprises.  “My single largest supplier of glass bottles is the Gallo family,” explained Ms. Suzanne Groth, President and CEO of Groth Vineyards & Winery.  “Their G3 Enterprises is committed to sourcing 100% of the materials from California, a key factor in my purchasing their product.”

Beyond the wine industry, other industries that utilize glass bottles are also looking at potential impacts from tariffs implemented in this trade war.  The spirits industry is one such industry.

Brown-Forman Corporation includes a number of whiskey and scotch brands, among other products, in its fold.  In July of 2018, China enacted a 25% additional tariff on whiskies imported from the United States.

Mr. Lawson Whiting, the Chief Operating Officer and incoming Chief Executive Officer of Brown-Forman Corporation, stated in a news release dated August 29, 2018, that “There remains significant uncertainty around the duration of recently enacted tariffs, but we have been encouraged by the resilience of our business model as we are working to minimize short-term disruption and maintain our top-line momentum.”

This flat screen television is one of the LCD products that use Corning® Gorilla® Glass.

The impact of tariffs on glass, as well as other products, has been limited for some businesses.  Part of that limited impact is because some businesses have chosen to place manufacturing facilities in a number of countries based on customer needs within those nations.

“Corning Inc. is not experiencing a material impact from tariffs as we manufacture most of our products close to our customers, thereby limiting our exposure to tariffs on cross-border trade,” stated Mr. Dan Collins, Vice President of Corporate Communications for Corning Inc.  “These new Chinese tariffs create an immaterial additional tariff exposure to Corning.”

Corning, as a business, has been around for quite some time.

“Corning first came to prominence when it created the first light bulb for Thomas Edison,” explained Mr. Collins.  “Since then, Corning has been involved in more than half a dozen technologies that have become life-changing innovations. We began producing glass for railroad switches, which led to the first trans-American railroad.  More than 40 years ago, Corning developed the first optical fiber, which revolutionized the telecommunications industry.  We also perfected a fusion manufacturing process for liquid crystal displays (LCD) used in flat screen televisions, personal computers, cell phones, and desktop monitors.”

According to the company, the Corning Display Technologies business unit, which manufactures LCD glass and other precision glass solutions, represented 30% of Corning’s annual sales in 2017.  The firm stated that its Specialty Materials segment, which includes Corning® Gorilla® Glass and more than 150 material formulations for glass, glass ceramics, and fluoride crystals, represented approximately 14% of 2017 sales of Corning.

Corning Gorilla Glass is a type of glass product that is used on a variety of mobile consumer devices such as smartphones, tablets and watches.  The company has manufactured Corning Gorilla Glass for use on the iPhone since Apple introduced this smartphone in 2007.

Overall, through the years, Corning has provided the glass for 6 billion devices from 45 brands worldwide, according to the firm.

Mr. Collins concluded by stating that “We continue to refine our calculations, identify any potential mitigating actions, and assess any potential competitive advantage gained from the tariffs.  We remain hopeful that China and the United States will be able to resolve these trade disputes quickly and tariffs implemented by both countries will be removed.”

The new corporate headquarters of Holtec International recently opened in Camden, New Jersey.
The seven-story building includes 58,000 square feet of glass fabricated by
J.E. Berkowitz, a CGH Company as well as a member of the National Glass Association.

Leaders within the National Glass Association, which includes businesses in the architectural and window and door glass industries, reported that the issue of tariffs was discussed at its recent Glazing Executives Forum.  This forum was held in Las Vegas, Nevada, on September 12, 2018.

Mr. Connor Lokar, an economist with ITR Economics, was one of the speakers at the forum.  Mr. Lokar stated that “Tariffs could be a threat to the business cycle growth…The idea we can do this without a cost is just not a reality.  Prices are going to increase…That is really going to be a pressure point for the global economy.”

The Window & Door Manufacturers Association is a national trade association in the United States
that represents producers of residential and commercial windows, doors, and skylights for the
domestic and export markets.  This association has advocated against the implementation
of tariffs on a wide variety of products.

Others within the building industries that utilize glass have also expressed concern about price increases due to tariffs.

During 2018, the Window & Door Manufacturers Association has strived to stop the implementation of tariffs on a number of products utilized by manufacturers of residential and commercial doors, windows, and skylights in the United States.  While tariffs were not implemented on some of the products initially targeted by the United States government, a number of products used in these industries are now subject to tariffs when imported into the United States.

Among the glass products imported from China that are now subject to additional tariffs are toughened (tempered) safety glass, glass multiple walled insulating units, and a variety of products made of pressed or molded glass.  These products are used extensively within the building industries.

“The sourcing of material from responsible vendors in China has been a significant benefit of manufacturers in the United States directly or indirectly involved in the manufacturing of windows, doors, and skylights,” stated Mr. Michael O’Brien, President & CEO of the Window & Door Manufacturers Association.  “In certain cases, product offerings are simply not viable at domestic production rates and/or costing.”

“By imposing a tariff on the products listed… manufacturers will likely need to raise prices on finished goods to compensate for the additional costs,” Mr. O’Brien continued.  “The ripple effect of this action will be felt by manufacturers and consumers alike, as finished goods would likely be more expensive.  Furthermore, the possible price increases could result in decreased sales volume, which would negatively impact employment across the United States.”

In the next few months, if nothing changes, the tariffs implemented by both the United States of America and China will likely impact the producers of glass as well as industries that utilize glass in a wide range of products as well as for packaging.  The full extent of that impact is something that is not yet certain.  Many business leaders in the glass industry are hopeful that this trade war will end before extensive negative impacts are felt by both producers and customers alike.

When President Donald Trump of the United States announced the new wave of tariffs on $200 billion worth of imports from China, he ended his statement with the following wording:  “Hopefully, this trade situation will be resolved, in the end, by myself and President Xi of China, for whom I have great respect and affection.”

Credits:

The photograph of the President of the United States of America, the President of China,
and their spouses was produced by D. Myles Cullen and is provided courtesy of The White House, April 6, 2017.

The photograph of the bottles on the conveyor belt is from the video
“Fire and Sand – How Glass is Made” is provided courtesy of Owens-Illinois, 2015.

 The photograph of the television is provided courtesy of Corning, Inc., date uncertain.

 The photograph of the headquarters of Holtec International is provided courtesy of J.E. Berkowitz, a CGH Company, 2018.

Do you have questions about the aluminum industry?

Governmental regulations?  Company operations?

Your questions may be used in a future news column.

Contact Richard McDonough at thesilicachronicles@gmail.com.

© 2018 Richard McDonough