Bloomberg Tax
Free Newsletter Sign Up
Bloomberg Tax
Welcome
Go
Free Newsletter Sign Up

Proposed Tax Hike May Worsen Plastic Shortages and High Prices

Dec. 22, 2021, 9:45 AM

The Covid-19 pandemic has thrown global shipping processes into complete disarray, with disruptions at every stage of the supply chain, and the supply chain crisis has translated to higher prices and shortages of a wide range of products. At this most inopportune time, lawmakers in Washington are now considering legislation that will only make things worse for consumers with new restrictions on the manufacturers of everyday goods. If enacted, the resulting price increases would be felt directly by consumers.

No industry has been immune to the bottlenecks that are wreaking havoc on supply chains. Businesses of all sizes are navigating a turbulent business climate that has made it difficult to provide consumers with the products they want when they want them. Shortages of all sorts of goods abound. 

These disruptions did not come about overnight. They stem from a myriad of problems that exist all throughout our supply chains. For example, there is an ongoing shortage of workers able to staff the ports and factories that are intrinsic to shipping. Meanwhile, shortages of essential raw materials and a lack of truck drivers have brought production cycles of many everyday items to a halt. 

One especially problematic supply chain constraint that may soon metastasize is a shortage of polyethylene terephthalate—or PET—resin, which is used to make plastic containers for shampoo, cleansers, and many foods and beverages, among other things. It is lightweight, durable, and meets stringent federal regulators’ safety standards in order to be used in packaging.

The producer price index for plastics materials and resin manufacturers has risen more than 50% since June 2020, the largest single-year price increase in decades, to its highest price ever.  Packaging costs have seen a commensurate 42% rise. This has contributed to higher prices for many consumer goods as businesses pass along increased costs and surcharges to consumers in the form of more expensive products. 

This has been seen most clearly on a visit to the grocery store, where shoppers are paying more for basic necessities such as meats and eggs.  Products with PET resin in their packaging have seen dramatic price increases year-over-year.  For example, the cost of bottled water is up 9% in the last year and soft drink prices are up over 10%.

Consumer surveys show that many expect these prices to continue to increase throughout next year. This perspective comports with what most of us in the supply chain industry are thinking as well, given that it appears that logistical disruptions could extend well into 2022.

Many shoppers are struggling to find everyday food and beverage items. Pandemic-related hoarding is not the main issue: Many analysts attribute it directly to a shortage of resin and the subsequent increase in the price of plastic. 

Yet lawmakers in Washington are considering legislation that would make the situation worse.  Rep. Thomas Suozzi (D-NY) recently introduced legislation that would impose a tax on virgin plastic resin as part of the reconciliation bill being debated in Congress. With plastic markets reeling from the pandemic and facing supply chain disruptions, such a measure would put more companies and jobs at risk, creating undue harm for those in the PET resin industry. Consumers would feel the pain as well with shortages and higher prices.

Many manufacturers already face shortages of raw materials due to duties on overseas resin purchases that the International Trade Commission first imposed in 2016. Although the measure may have been originally intended to support American businesses, it created logistical issues and higher costs for manufacturers and retailers, which were passed on to consumers in the process. As is often the case, the secondary, unintended effects of invasive and manipulative government involvement swamp whatever the intended effect was. 

It appears that our supply chains will not be returning to a sense of normalcy anytime soon. That is why it is even more important that lawmakers steer clear of imposing new taxes and fees on an already struggling market that has been upended by shipping disruptions.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Professor Michael F. Gorman, Ph.D., is the Niehaus Chair in Business Analytics and Operations at the University of Dayton School of Business in Ohio.

We’d love to hear your smart, original take: Write for Us.

To contact the reporter on this story: Kelly Phillips Erb in Washington at kerb@bloombergindustry.com