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You may have heard of the chaos theory: a butterfly flutters its wings in New Mexico and a hurricane starts in China.
Have you heard the tariff version?
A New York hedge fund buys a paper mill in Washington, it petitions the Trump administration for a tariff on foreign newsprint, and the paper the Post Bulletin uses to deliver facts to your doorstep five days a week becomes much more expensive.
The Post Bulletin is just one of many local newspapers that's been affected by the surge in newsprint prices triggered by the tariff and fears of a trade war, and newspapers are in the same boat as farmers, agribusinesses and many other American companies being hurt by the administration's foreign trade policies.
While it's awkward to write about our own business, we think it's relevant to our readers and illustrates the unintended consequences of starting a trade war.
In late 2016, the New York hedge fund One Rock Capital acquired the North Pacific Paper Co., which produces newsprint. After a round of layoffs, which the company blamed on unfair competition from Canadian paper mills, the owners filed a complaint with the Commerce Department.
In January, the department responded by imposing an average 6.5 percent duty on imported Canadian paper. In March, the department upped that to as much as 22.1 percent.
The impact on newspapers has been brutal. Aside from payroll, paper and ink are the biggest expenses for most newspaper companies. If newsprint prices keep going up, the Post Bulletin and newspaper companies nationwide will be forced to raise prices, cut costs or both. The Tampa Bay Times announced layoffs this week directly attributed to skyrocketing newsprint costs.
The Post Bulletin buys its newsprint from the nearest supplier possible, also a cost control measure, and that company is in Thunder Bay, Ontario, less than 200 miles from Duluth. The company wasn't affected by the tariff, but its prices have gone up regardless, as they have at other companies due to market pressure. Canada produces 70 percent of the newsprint in North America; there's not nearly enough produced in the U.S. to meet demand.
The tariff fits with Trump's America First approach: it protects American paper producers and penalizes foreign ones. The trouble is, and this is true in other industries where tariffs are being imposed: it hurts other American industries and consumers, who eventually will bear the increased costs, the impact on employment and lost services.
Minnesota farmers know only too well how the brewing trade war with China is rattling markets and threatens to upend their business. Minnesota is the third largest producer of soybeans in the country, but China may impose a tariff on imports in retaliation for Trump's tariffs on steel and aluminum.
That's just one example of the collateral damage that can be done by raising barriers to trade.
In the case of newspapers, the damage done by the paper tariff has an impact on journalism, local news and information that's vital to you. While the government is under no obligation to help media companies control costs, it’s relevant that these trade policies are having a costly and damaging effect on the free press in America.
The federal International Trade Commission, which has the authority to reject the tariffs, will hold a hearing on July 17. We and just about every other newspaper in the country will be watching closely and hope the ITC and the White House find a better way to address trade imbalances than to impose tariffs that hurt vital American businesses and their workers -- not just for newspapers, but for many other industries caught in the crossfire.
-- Rochester Post-Bulletin