Bracing for impact

This article appeared in the January 2025 issue of Resource Recycling. Subscribe today for access to all print content.

As the January inauguration approaches — and with it, the prospect of new, higher tariffs — views on the potential impacts are mixed among the recycling industry, several officials said in recent weeks. However, market participants largely agreed that the implementation of such tariffs remains far from certain.

On Nov. 25, President-elect Donald Trump threatened hefty tariffs on Canada and Mexico to take effect on his first day of office this month, saying they’re meant to stop drugs and undocumented immigrants from entering the U.S. During the campaign he also shared plans for blanket tariffs on almost all imports regardless of country, according to Reuters and other news outlets.

Even before the threatened increase in tariffs, major exporters in China and Southeast Asia started producing faster to ship products to the U.S. ahead of Trump’s inauguration, said Hannah Zhao, director of fiber at commodity pricing and analysis agency Fastmarkets RISI. As in many packaging sectors, the fourth quarter of each year is traditionally weak, but this year orders for paper packaging, such as containerboard and boxboard, suddenly increased to “preload” the price to the U.S., increasing demand for recycled fiber.

Similar dynamics are at play in plastics, said James Derrico, vice president of new business at CellMark, a large brokerage for recycled materials including plastic bales and resins.

Ahead of the tariffs, CellMark imported extra PET and recycled PET resin to help hedge against anticipated higher pricing, he said. “A lot of other industries have the same idea, and the reason we know that is because the ocean freights jumped up pretty dramatically on importing material to the U.S. that looked like it could potentially be hurt with tariffs.”

Derrico remained optimistic that Canada and Mexico would not resort to retaliatory tariffs, because the customers overseas still need materials. An increase in prices was more likely than a decrease in trade volumes, he added.

As Chris Goger, senior director of recycling at recycled materials broker Blackbridge Investments, put it: “Who knows how it’ll actually take shape? And so it’s kind of hard to make sense of it, but at the same time, you can’t just say, oh, we’ll worry about it if and when it happens.”

Fiber supply and demand

In the wake of China’s 2018 implementation of a ban on imports of scrap material, a policy known as National Sword, India and Southeast Asia have become prime destinations for U.S. recovered paper. These countries pulp the recovered paper and then send it to China for packaging manufacture.

India, Malaysia, Thailand and Vietnam combined to receive nearly 40% of U.S. recovered fiber exports in January-October 2024, according to U.S. International Trade Commission data. Mexico accounted for about 15% and China received just under 10% of the total. Canada received only 5%.

So if Chinese demand for recycled fiber were to fall, so too would Asian demand for U.S. exports, and “that definitely will impact the U.S. recovered paper market,” Zhao said.

In addition, tariffs on certain developing nations — so-called BRICS countries such as India and Brazil — would likely mean a slowdown in goods imported to the U.S. and further weaken demand for paper packaging, should they support an alternative currency to the U.S. dollar, she said.

Likewise, Mexican manufacturing of consumer goods relies on U.S. demand, said Derek Mahlburg, economist and director of North American paper and packaging at Fastmarkets RISI. “Their demand for importing containerboard from the U.S. is just going to go down, period,” he said. “And this is regardless of whether we were to see any kind of retaliatory tariffs.”

In general, weak manufacturing of consumer goods leads to decreased demand for packaging, he said, pointing to the drop in OCC prices in 2019 following increased trade restrictions during Trump’s first term.

“China is a huge driver of what happens to U.S. prices,” Mahlburg said. “There’s only so much decoupling that can happen really because of how much U.S. recycled fiber does get exported.”

Plastic dynamics

As was seen starting in 2023, widely available cheap imports for both virgin PET and RPET dampened demand for domestic RPET, which remained at a significant price premium. With tariffs in place, however, the opposite could occur, according to Marcelo Wasem, research and analysis director for PET at Chemical Market Analytics.

Although increasing tariffs on Chinese material would have no impact due to the dearth of resin originating there, “for Mexico and Canada, yeah, we have a huge impact,” Wasem said.

The U.S. is a net importer of virgin PET, and he said imports supply around 30% of demand requirements, with Mexico representing about 18% and Canada 6-7%.

“What we can predict at this point is that an increase in tariffs in those countries will have naturally an increase of imports from Asia,” he said, adding that 65% of imports come not from China but from South Korea, Taiwan and southeast Asia. The increase in demand would subsequently push up deep-sea freight rates, Wasem said.

Although over the past two years RPET buying on the spot market has increased only during shortages of virgin PET, Wasem said increased buying would push up prices for RPET but still could incentivize usage of RPET over virgin material.

“We have two components of demand: One is the natural demand for sustainability initiatives, companies trying to introduce more recycled PET in their products,” he said. “And the other component is directly related with how long or short the virgin PET market is.” If the U.S. has any constraints on PET supply, “players will naturally move to the recycled market to get more volumes.”

Because of its reliance on the U.S. PET market, Mexico eventually would run out of export alternatives and be forced to reduce plant operating rates, he said.

In a late July investor call — well before the threat of tariffs — Jorge Young, CEO of Mexico-based PET producer Alpek, said the North American trade deficit for PET “probably peaked in 2022 with more than 1 million tons of PET deficit in the Americas. It’s been trending down slightly.”

With anti-dumping duties already in place for imported Chinese PET, Mexico’s imports originate mostly from other Asian countries, Young said, though “the prices from the non-China origins are not as low as China.” Nevertheless, Asian countries besides China still have “a relatively high percentage of their capacity that is again available for exports.” He expected Mexico to continue to face an uphill battle for market share.

For PE markets, Morales said a trade war would ultimately hurt domestic converters, “the consumer would pay, and it would hurt profitability of these North American countries, which kind of goes against the whole point of trying to make a better economy, not worse.”

Over the past few years, vast new U.S. capacity for virgin PE — and the resulting oversupply and low pricing — has cut deeply into demand for post-consumer HDPE. Recycling processors struggle to compete with virgin resin that may be priced closer to feedstock post-consumer bales.

However, Morales said, with emphasis growing on recycled content targets, recycled HDPE prices remain elevated, and “we’re setting ourselves up for another whiplash, possibly in 2025.” Even tariff-inflated virgin PE values were unlikely to be sufficient to incentivize use of recycled HDPE, he said.