Fastmarkets Viewpoint: The Impact of Tariffs — and Uncertainty

Fastmarkets Viewpoint: The impact of tariffs — and uncertainty — on the US containerboard and corrugated markets

By Derek Mahlburg

The Trump administration’s aggressive and rapidly evolving tariff policy has wreaked havoc in markets, sent consumer sentiment plunging and upended economic outlooks. With the administration’s stance on tariffs on Mexico and Canada at times whipsawing by the day and little hard post-inauguration economic data yet available, it is extremely difficult to nail down the final shape and impact of trade policy. Despite the lack of clarity, a continued emphasis on tariffs could prove highly consequential for the US corrugated and containerboard markets in 2025 and beyond, and heavy policy uncertainty looks to be a key part of the outlook in any scenario.

Impact on containerboard and corrugated trade with Mexico and Canada

Although tariffs on Canada and Mexico present perhaps the highest degree of uncertainty, the impact of broad 25% tariffs on containerboard and corrugated trade within North America is perhaps the most tractable piece of analyzing a tariff scenario. The US is a major containerboard exporter, with exports accounting for 24% of unbleached kraftliner production and 18% of total containerboard production in 2024.

The US has mostly balanced containerboard and corrugated trade with Canada, with exports of 1.4 million tons in 2024 balanced by imports of 1.3 million tons, though there are important differences within grades. First, the US exported about 275,000 tons of unbleached kraftliner to Canada and imported essentially zero. This is quite logical given that Canada does not have any unbleached kraftliner capacity and is illustrative of why broad tariffs would be so incredibly disruptive if actually implemented; frequently, there is no US industry to protect, or in this case, no Canadian or Mexican production to protect from, so the only impact of the tariffs will be to distort and weaken both economies. Thankfully for US kraftliner exports, the Canadian approach to retaliatory tariffs has been far more considered. Crucial intermediate goods such as containerboard are not currently slated for Canadian retaliation; however, converted corrugated containers are, so more than 45% of total US containerboard and corrugated exports to Canada would be subject to tariffs unless producers shift to converting it north of the border. This could cause Canadian imports of kraftliner to ironically increase if the US follows through on its tariff threats, though this would be fully offset by reduced imports of corrugated. It is also important to note that the US had roughly 270,000 tons of net imports of bleached kraftliner from Canada in 2024; even if the impact of tariffs on overall containerboard and corrugated trade ends up a wash, a lasting implementation of broad tariffs on Canada would reduce the US market’s tariff-free supply of increasingly popular bleached grades.

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Mexico is the most important destination for US containerboard exports, so major disruptions to this trade would cramp operating rates for US producers. Since Mexico has no kraftliner production of its own, our initial expectation is that Mexico will not implement any retaliatory tariffs on containerboard or corrugated from US mills, as this would create an even larger disruption to Mexican manufacturers that depend on this packaging. Instead, the main impact of US exports to Mexico would occur through the chilling impact of US tariffs on the Mexican manufacturing sector. In 2018-19, the last time the Trump administration experimented with tariffs, a global manufacturing recession followed, with Mexican gross domestic product shrinking by 0.2% in 2019 and containerboard demand declining by 2.8%. If tariffs directly target the Mexican manufacturing sector in 2025 — unlike the trade tensions of 2018-19 that were mostly between the US and China — the hit to the Mexican manufacturing economy and containerboard demand would likely be even more severe.

In general, any tariffs impede economic growth by raising costs, disrupting business models and distorting decisions. Despite these disadvantages, protectionist sector-specific tariffs are sometimes implemented, with the tariff being fervently supported by the beneficiaries but not usually noticed, though more than paid for, by the rest of the economy. Broad tariffs are much less common, and one reason is their impact on exchange rates,

with US moves on tariffs so far already leading to the US dollar appreciating against the Canadian dollar and Mexican peso. A stronger US dollar would partially offset the impact of a lasting tariff scenario by making exporting to the US more profitable for Canadian and Mexican companies. In fact, financial markets’ hedging toward the appreciation of the US dollar is causing some of this benefit to be realized early, creating an immediate disadvantage for US manufacturers. The exchange rate impact goes both ways, as it would also make US goods more expensive in these countries, including US containerboard exports to Mexico.

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Impact on corrugated demand

Perhaps the most difficult aspect of assessing the impact of the Trump administration’s approach to trade policy is how it will affect domestic demand. On one hand, its impact on the overall economy will clearly be negative. Tariffs are simply not a recipe for economic success, and leading indicators such as new orders, sentiment and equity prices have all moved sharply lower as the White House has leaned into its tariff approach and acknowledged the very real possibility of short-term pain for businesses and consumers. On the other hand, protectionist measures such as tariffs can benefit the industries they target, leading to the question of whether tariffs could boost the market share of US manufacturers that use corrugated packaging enough to offset the negative impact of tariffs and uncertainty on US consumers.

There are some opportunities for tariffs to boost corrugated usage in the US economy. The largest end market for corrugated packaging, by far, is the food and beverage sector. Consumers make many choices at the grocery store, and the heady inflation of recent years has cramped discretionary budgets and caused per-capita grocery spending to stagnate. Nonetheless, total inflation-adjusted spending in this area has continued to rise, though not accompanied by growth in food and beverage manufacturing output. One reason for this decoupling has been a rise in US imports of food and agricultural products, which have shifted the trade balance by about $50 billion in inflation-adjusted terms since 2018. If tariffs were to bring the trade balance back to neutral, there would be room for domestic food and beverage manufacturing to rise by 2-3%. Another potential policy-driven tailwind could come from the e-commerce sector, as the explosive growth of the offshore e-commerce model has pushed Section 321 import entries up to an approximately 5% share of total US e-commerce sales — already a sector that has lost some of its power to drive corrugated demand due to shifts to mailers and other non-box fulfillment methods. The Trump administration still plans to suspend the “de minimis” exemption for any goods produced in China.

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Tailwinds such as the above will likely be offset by the impact of tariffs, whether on Mexico and Canada or through a “reciprocal” implementation affecting much of the world, on consumer demand. As noted previously, the Trump administration’s first experiments with tariffs occurred in 2018-19, with negative consequences for the US containerboard market. US box shipments slowed from the 1.8% average growth rate of 2014-18 to just 0.3% in 2019, a barely positive performance made possible only by the support of the ascendant e-commerce sector. The last time the US manufacturing sector experienced trade tensions, box shipments growth slowed by about 2 percentage points, and this was with the support of a clearly healthy labor market, rising equity prices and low inflation. Box shipments have languished at such low levels over the past two years that there is probably not much room left for erosion, but it is hard to see consumers as having the ability to absorb much more inflation without cutting spending.

Financial markets seem to agree that any positive impacts of tariffs on US manufacturers will be swamped by negative impacts on consumers and the overall economy. Even though the S&P Consumer Staples Sector Index has outperformed almost every other segment of US equities since President Donald Trump’s inauguration, this segment succumbed to decline and has sunk 6% since the brief re-imposition of broad tariffs on Canada and Mexico on March 4. While the US dollar has appreciated against the Canadian dollar and Mexican peso, it has depreciated against the euro as investors have soured on the US economy.

Another important aspect of the impact on domestic demand is the cross-border nature of North American and US manufacturing. Free trade agreements — and the certainty provided by them — have enabled North American industry to invest in a complex supply chain spanning across all three countries that has helped keep many US industries globally competitive. Tariffs would upend this system, with the aluminium and steel tariffs already in place greatly increasing input costs for numerous US industries, another factor that will offset any

protections that select industries receive from imports. Even the containerboard and corrugated market is part of this supply chain, as seen by the numerous US box plants located along the Mexican border that presumably serve many Mexican customers. (Maps of containerboard and corrugated assets in North America by company are available as part of the Global Corrugated Converter Database found under Capacity Reports on the Fastmarkets dashboard.)

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Impact on supply and costs

Another important aspect of the containerboard and corrugated market’s previous experience with tariffs is the impact on old corrugated container (OCC) prices. In 2019, the global manufacturing malaise created by trade tensions led to a sharp decline in OCC prices, which fell even lower than the levels reached amid the post-pandemic supply glut of late 2022 and early 2023. Given the headwinds we expect tariffs would present for containerboard exports, manufacturers and consumers, the prospect of tariffs would seem to create a much more difficult environment for raising prices in the near term, which may be a relief for buyers facing the potential for tariff-driven cost inflation in many other areas. The silver lining for producers, especially recycled mills, is that overall economic headwinds could be offset by cost relief if OCC prices follow their 2019 pattern.

After more than two years of demand being stuck in the doldrums and companies re-focusing strategies on margins rather than volumes, US containerboard producers entered 2025 in capacity rationalization mode, with leading producer International Paper’s total capacity reductions since late 2023 set to reach roughly 13% of its US containerboard capacity after the April closure of the Red River mill. While we do not believe that producers are yet done with this round of rationalization, enough capacity adjustments have mounted that operating rates are only a couple machine exits and a year or so of healthy demand growth away from returning to typical, potentially even strong, levels after their long post-pandemic hangover. As evidence, ND Paper apparently sees room to restart a recycled packaging machine that it idled in 2024.

An extended tariff scenario could change this dynamic; the short-term pains of broad tariffs seem most likely to simply be followed by more pain and slower growth, and extended uncertainty will also have a negative impact. Continued tariff threats and persistent uncertainty will keep the economy and box shipments muted, delaying the demand growth needed to re-balance the containerboard market without a much larger round of capacity closures and reducing the outlook for future growth that would provide producers with motivation to hang on for good times. Derek Mahlburg, Director, North American Paper & Packaging, is co-author of the Paper Trader, the Paper Packaging Monitor, the North American Graphic Paper Forecast and the North American Paper Packaging Forecast. He works out of Durham, North Carolina, and can be reached at 929-988-7272 or dmahlburg@fastmarkets.com.