Soup And Steel Tariffs

U.S. Commerce Secretary Wilber Ross appeared on CNBC on Friday, 2 March 2018 to defend President Trump's proposed 24% tariff on steel and 10% tariff on aluminum coming into the United States from foreign sources, during which he held up a can of Campbell's Condensed Chicken Noodle Soup to claim the that tariffs would have a minimal impact on American consumers. The following video shows the entire 21 minute-long interview, where Ross holds up his Campbell's Soup can prop to make his point at roughly the 3:50 minute mark.

Video Length: 00:21:26

Checking Ross' math, we find that a 25% increase in the cost of the current $0.026 of tinplate steel in one of Campbell's Soup's iconic Number 1 size soup cans would indeed raise its cost by roughly $0.006 to $0.032 per can.

The problem with Ross' math is that it doesn't consider just how many cans of soup that Campbell's makes and sells each year: 440 million. Of which, some 200 million are Campbell's Condensed Chicken Noodle Soup like the prop he used in his CNBC interview, or 45% of the total. Campbell's Condensed Tomato Soup is its second-best seller, whose sales account for 85 million cans each year, or 19% of Campbell's annual total.

Thanks to President Trump's tariffs, a financially-troubled Campbell's Soup Company will need to pay up to an additional $27.3 million to buy the imported steel that it cannot avoid given the limited capacity of U.S. steel producers in order to deliver the same 440 million cans of soup to the market, which would be on top of the $114.4 million than it is currently paying to do so at Ross' $0.026 per can cost point.

That seemingly tiny cost increase at the consumer level, when rolled up to the company's bottom line, may be enough incentive to change how the company chooses to package all of its soups altogether in favor of plastic, glass or cardboard materials that would not be subject to President Trump's tariffs on steel and aluminum. How might U.S. steel producers, who are currently salivating at the prospects of increasing their sales and market share, respond if their sales were to fall sharply instead as a result of that kind of strategic business decision? And how successful could such tariffs ever be if they drive similar changes at other American companies to the point where it hurts the very industries that they were meant to prop up?

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