PHOENIX – The U.S.-China trade war has crushed the packaging products industry over the last several months. There is no relief in sight for business owners paying the bill. Last Friday, the Trump administration announced increased tariffs on several products, including packaging, to 25 percent. And Monday, China announced retaliatory 25 percent tariffs starting June 1, that also hit paper products.
For western cities like Phoenix, which have been wholly dependent on the U.S.-China relationship to fully process recycled paper, the trade war is not really about trade. It’s about business and a hard lesson in how U.S. and Chinese business owners must work together to keep one industry alive.
Brian Boland is a paper guy. He started in paper in 1995, and he’s seen things change dramatically.
“People hear that you have got foreign investment coming into the United States, but one thing to remember again, to see growth, and to see investment in these facilities that have been here literally since the late 1800s, it creates jobs. It’s really, really cool. It’s really powerful stuff. And regardless of who owns the thing, that investment is a good thing.”
Brian Boland is vice-president of government affairs and corporate initiatives at ND Paper. Boland started in paper in 1995 in Michigan, just out of school. He’s at ND’s Ohio office. He says his plant sounds just like any other U.S. plant.
Boland’s mill had been shut down for decades, now bought and renovated by ND Paper, a wholly-owned subsidiary of Nine Dragons Paper Holdings, the largest paperboard company in China and one of the largest in the world, with more than 15,000 employees worldwide, including those like him, in its newly developed U.S. operations.
ND Paper has been quietly buying up closed down U.S. paper mills, starting with those previously owned by Catalyst paper, the Canadian company that still owns the shuttered mill in Snowflake.
With an ongoing trade war with China, these buy-ups and buy-outs are making industry insiders nervous, understandably. But, businesses owners say the industry needs to be saved by its operators.
“When I say the business model is broken in the U.S., it is broken,” said Pete Keller, vice president of recycling and sustainability at Republic Services, the second-largest waste company in the U.S., based out of Phoenix.
“Eighteen months ago, cardboard was trading for around $150 a ton. Mixed paper and other paper products were trading for around $100 a ton. Cardboard today is trading for about $50 a ton, and those other paper grades are trading for around zero.”
Seventy-five percent of Republic Services’ business is dependent on paper. Keller says a lot has changed in the last year.
“I would say this, relative to recycling. If the material that’s being recovered and aggregated and ultimately marketed isn’t going back into a manufacturing process, isn’t getting reintroduced as some other product, then it is not recycling,” he said.
Prices in the U.S for recycled cardboard are at a decade low since China stopped buying the U.S. product. In January 2018, China established its National Sword policy, an effort to clean up its own environment and reduce pollution. That included drastically changing its import policy on recycled paper, in addition to tariffs on paper products. The global recycling business went into a tailspin, hitting recycled paper particularly hard.
“Those products are not selling at the price they used to and in some cases, people are paying to move their paper. It’s affecting municipalities, a lot of operations in terms of the revenues they are accustomed to receiving from selling recycling are not there anymore and so those shortfalls, for example, in Phoenix, those shortfalls in budget are are things we have to make up,” said Joe Giudice, assistant public works director for the city of Phoenix.
China consumes approximately one-quarter of all global paper products. About a quarter of their consumption has been imported, since China does not have the natural resources to keep up with its population. In 2017, China imported 26 million metric tons of scrap paper. In 2018, that dropped to 15 million metric tons — 2019 is on pace to drop even more.
Giudice said the solution to the trade problem is not trade negotiations, but with U.S. mills which need to produce cleaner products across the U.S. The mills being bought and renovated by Chinese-owned ND Paper already do, since they produce paper pulp, a finished product that is contaminant free and can be exported to China as is, even with an added tariff.
“So essentially, they are making their new cardboard boxes or products here in the United States and then shipping them back to China to put the toys and other products that they are manufacturing that are then going to get back in the box and go back to the United States or wherever else people are buying them from, so it’s this very unique international trade situation going on there,” Giudice said.