Import policies that China implemented over the last decade have changed the global flow of paper and packaging, and that flow could be altered further by new tariffs, according to a pair of reports by RaboResearch.
Tariffs that U.S. President Trump Donald promised for Canada, Mexico and China — as well as retaliatory tariffs from certain countries — stand to cause “immediate and lasting impacts” on the pulp and paper sector, according to a Feb. 18 RaboResearch report about “a new North American trade war.” Those countries are “all important trade partners for the US in the pulp and paper supply chain,” it says.
The U.S. imported $11 billion worth of pulp and paper products from Canada and Mexico in the 12 months ended November 2024, and it exported $15 billion worth to those countries during the same time period, according to RaboResearch. "By value, this accounts for 40% of US pulp and paper imports and 51% of its pulp and paper exports," the report says.
Almost all North American pulp and paper manufacturers have exposure to more than one country, the report says. This is due to significant cross-border trade of forestry products, companies locating converting plants in multiple countries and selling finished paper products across borders.
For example, Canadian company Cascades operates corrugated mills in both the U.S. and Canada, which executives noted on their February earnings call when discussing the development of plans to mitigate tariffs’ consequences. Similarly, Smurfit Westrock has plants in all three North American countries, and higher prices caused by tariffs likely would be passed down to customers, CEO Tony Smurfit told investors last month.
Tariff activity with China would also have repercussions, considering “China is a key destination for North America paper product exports,” said Xinnan Li, packaging and logistics analyst at RaboResearch. “That is going to have an impact on both the buyers within China — they have to pay a higher cost — or for the volumes being exported out of the U.S. If China has to pay a higher cost of U.S. products, they are going to source from elsewhere.”
Specific sector influences
Folding cartonboard is the most actively traded fiber product among North American countries, and therefore it would be the grade most hit by tariffs, according to RaboResearch. Corrugated packaging, labels and recovered paper are also poised to be affected. Tariffs would cause both short- and long-term impacts across the fiber sector, Li said.
The near-term effects include higher prices, which get passed down to consumers, and greater inflation across supply chains, Li said. Another short-term result is companies reworking their supply chains — for example to adjust where they source fiber materials.
Longer-term economic effects include companies altering where they invest in their assets. For example, RaboResearch is aware of certain U.S. companies discussing potential investment pullbacks for their assets in Canada and Mexico. In some cases, U.S. companies with significant amounts of machinery across borders are even considering whether to abandon those locations altogether.
“If tariffs are going to be in place in the long term, then [the companies] are going to have to bring back the machinery into the U.S. and either build a plant [to house it] or acquire another old plant,” Li said. “In the long term, definitely it's going to lead to some strategic impact on where companies are going to invest."
Another long-term ramification could be not just where companies invest, but if they do at all. Generally, companies avoid making investment decisions during times of political uncertainty, the report says.
Tariff-driven cost pressures also have the potential to alter countries' domestic fiber supplies. Duties can prompt companies to change where they produce products or to pull back on export volumes. That could lead to an oversupply of certain grades in different countries. Oversupplies, in turn, "could lead to closure of excess domestic capacities," the report says.
Numerous closures already have occurred during the industry's recent lower demand cycle. And analysts anticipate more in the coming months due to existing U.S. oversupplies, such as for containerboard.
“If they do foresee the demand is not going to recover, then they would permanently close a manufacturing plant,” Li said. “We're seeing some of that happening ... and we absolutely expect that to continue.”
Chinese policy
Before China began introducing various recovered paper (RCP) policies in 2013, RCP exports to the country accounted for about half of global volumes, according to the report. But the trend shifted notably after China’s 2018 ban on RCP imports fully took effect in 2021, resulting in a steep dropoff in global RCP exports. From 2016 to 2023, global RCP exports declined by a compound annual growth rate of nearly 5%, and RCP exports to China are nearly zero, Li said.
Old corrugated containers represented one of the hardest hit sectors under China's RCP ban due to the large volumes of OCC that previously crossed its border. Much of the OCC that previously entered China from North America or Europe has been rerouted to other Southeast Asian countries or India, Li said.
A complicating factor is that China hasn't wholly exited RCP markets; rather, it has altered which forms of recovered materials enter the country.
Direct imports of RCP, such as OCC, have almost completely been replaced by imports of recycled pulp and containerboard, Li said. China largely gets these imports from Southeast Asian countries such as Indonesia, Malaysia, Thailand and Vietnam. Those countries serve as “an intermediate hub,” because they process RCP coming from the main exporters — the U.S., U.K. and Europe — into recycled pulp or containerboard, which they subsequently ship to China.
The new trade in recycled pulp to China grew tenfold between 2019 and 2023, according to the report. “It really was China's way of getting around their RCP ban,” Li said.
Recycled pulp activity is expected to stabilize going forward. However, China's recycled pulp imports from Southeast Asia face increasing cost competition from Latin American virgin pulp imports, especially material from Brazil. For one thing, recycled pulp is wet and heavier than virgin, which drives up transport costs, Li explained.
How does that correlate to tariffs? “If the U.S. is putting all kinds of trade restrictions on pulp and paper trade, it kind of gives the perfect opportunity for Latin America to step up even more,” Li said.
Waiting game
Although experts think China is unlikely to impose tariffs on RCP due to its limited imports of that material, it could target other fiber materials the U.S. exports. During Trump's first term, China slapped 25% duties on U.S. paperboard imports, RaboResearch notes, and that could happen again.
Similarly, the initial list of Canada’s tariffs on U.S. imports included corrugated and paperboard packaging. Trump has also expressed the desire to implement tariffs on products from the U.K. and European Union, which are also important U.S. pulp and paper trade partners.
Trade restrictions represent “an evolving story that we're continuing to monitor,” Li said. “It's not just impacting the pulp and paper sector. It's really impacting the consumers and the food and beverage companies who are buyers of those products as well.”
