Sean Riley: So with all the fancy introductions out of the way, welcome back to the podcast, Shawn.
Shawn Jarosz: Thank you. It's a pleasure to be here.
Sean Riley: Oh, the pleasure is all ours, and we love getting your information on this never-ending tariff situation. And it feels, to me, and maybe it's just me not paying attention, but kind of like the mainstream media had been quiet on it for a while, and then it suddenly picked back up again. Maybe it's just because it picked back up with the administration. There have been a lot of announcements lately on new tariff actions. So I guess to kind of kick things off, what does the current US tariff environment look like for us in packaging and processing?
Shawn Jarosz: Yeah, I think you're right. The media has been quiet because the tariff landscape had seemed relatively stable, I'll be honest with you, earlier this year, which provided some predictability for our industry. But in the second half of the year, we are now seeing a bevy of trade policy and tariff actions, and so I think we're returning to some fluidity in tariff levels. And fluidity may not mean volatility, but it is just that we've seen movement in tariffs.
First, just sort of recapping the year, the first half of the year, we had IEEPA tariffs lifted. We had these 10% additional tariffs from Section 122 replace the IEEPA tariffs, but those just expired on 24 July. USMCA-qualified machinery has remained duty-free and without these additional Section 122 tariffs. And then we have this IEEPA tariff refund process that has been launched, and we're starting to see this trickling of the refunds starting to come to importers.
But then we've also had sort of this ongoing underlying current of Section 232 tariffs, which have been modified, expanded, and changed, which are hitting a lot of our members because we're now seeing tariffs applied on the full value of goods, not just on the steel and aluminum content. And I think that has wreaked havoc on some of our members. And then now that we're in the second half of the year, we're starting to see, again, sort of new tariffs. These Section 301 tariffs on forced labor are hitting 86 different countries. And those countries are at any level, from 10% to 12.5%. And so we're seeing that the tariffs haven't changed a lot, but marginally, we're starting to see those tariffs. And we're anticipating that this tariff action will eventually mirror the levels of tariffs under IEEPA. The goal of the administration is to come back to some level. We've been telling our clients to anticipate, on average for this year, somewhere between 10% and 20%. So around 15% on average for the year.
But throwing into the wrench and all of this is this new Section 338 tariffs on imports from Canada announced this past month. And that is announced for implementation in mid-August of tariffs of 50% on certain tariff lines, not all goods from Canada. But it is somewhat problematic because we have seen some tariff lines in our sector being targeted, and the President has taken away that carve out for USMCA-compliant goods. So we will see if the President will pull the trigger on that, but that is concerning because of how important the North American supply chain has been for our industry. And so we are concerned, and we are watching this to see if the President, if this is just a shot across the bow, if this is, again, just meant to bring the Canadians back to the negotiating table, or if we're going to see actual tariffs and at what level? Will they be at 50%? Will they roll back? But, again, that's what we're talking about, this fluidity of the tariffs.
I will say that we've also been looking at the Section 301 investigation on structural excess capacity, and that's expected here in the next week or so. Those will be tariffs potentially stacked on these Section 301 tariffs. And we are also watching; we've seen Brazil Section 301 tariffs imposed at 25%. We are watching other tariff actions, including Section 232 on robotics and advanced machinery, which is really the equipment and machinery we need as an industry to build our machinery. So we are watching to see if there will be tariff action in that investigation. So there's a lot coming down the pike that is going to create this, I think, fluidity of new tariff levels that we haven't seen in the first half of this year. And we've had this cash infusion starting to come in to replace all those tariffs we've paid, but we are starting to see, again, at a minimum, about a 10% tariff across the board, likely getting somewhere closer to 15%, I think, on average for the full year.
Sean Riley: I feel like you kind of, earlier in the year, predicted that this was going to kind of happen, not to toot your own horn, but kind of said this was going to happen, where the IEEPA was going to be pulled back, but they were going to do something else to sort of ramp it back up. Is that correct to say?
Shawn Jarosz: Yeah. We all want to be able to look into our crystal ball and predict the future, but the President has been very focused on. He's sort of been announcing and projecting what his plan is, and he's been very particular in his America-first trade policy that he will continue to use tariffs as his primary tariff tool, primary trade policy tool, and as such, we just anticipate it. And when he started with these investigations, we knew where he was going.
So, Section 338, for instance, we knew that was in his back pocket. It had never been used before. It's to counter discrimination specifically against US goods. It's being used to go against certain longstanding barriers in Canada on dairy, for instance, but new barriers on wine, and problems we have in the motor vehicle sector. But I don't think we expected him to use it on Canada. I thought we were expecting him to use it, not on our allies and our closest regional neighbors, who we rely on. We expected him to use it against some of our other partners. So this has been an interesting, and again, fluid time for our sector, but I don't think we're yet at the volatility. We're just letting people know to expect what's on their radar, that there's more coming.
Sean Riley: Okay. That's fair. And you touched on the USMCA. What's the status of that? I know that the trilateral review date passed in early July. Where are we with that? What's it look like going forward?
Shawn Jarosz: Yeah. So the USMCA is quite a dynamic agreement. President Trump negotiated it himself. And all trade agreements that we have in place always have a withdrawal mechanism. Anybody can withdraw. You give, usually, 6 months notice, you can pull away, and a trade agreement can dissolve. What was unique about this trade agreement that President Trump put in was to put in this sunset review, this trilateral review that was mandatory to come together after 6 years and say, "Is this agreement working for us? If it's not working for us, how can we expand it, modify it, tweak it so that it remains dynamic, it remains relevant?" And so that's sort of the intent of this.
The President did, in July, make the announcement that it's not going to renew the agreement in its current form. That triggers this basically 10-year negotiation on an annual basis to come and look to see what's working and to begin those discussions and negotiations with our trading partners. So it does remain in force, we can still benefit from USMCA, but when we see action like Section 338 potentially against Canada, it does raise concerns about whether we are starting to erode the benefits of USMCA. Are we starting to see the President really undercut the intent and the spirit of the agreement by taking these sorts of shots across the bow? Again, these may be negotiating tactics, but he's trying to address, again, these trade barriers to US goods and discrimination against US goods as he's defined it.
So USMCA is in place and will continue to be so. We had said at the outset that we didn't think that USMCA was in danger of going away in 2026 at all, but we'll see how the President continues to play this out. I don't think there is an appetite to leave USMCA, but there are many, many tweaks and modifications that the President would like to see.
Sean Riley: Okay. So it's kind of an ongoing negotiation.
Shawn Jarosz: Yes.
Sean Riley: Yeah.
Shawn Jarosz: That's the short of it.
Sean Riley: Yeah. How does our current relationship with China sort of impact those negotiations, or the North American supply chain in general, since that's not going swimmingly?
Shawn Jarosz: Yeah. So there's a lot there. I mean, USMCA, one of the concerns the President has had is that we're seeing inputs from China come in through Mexico, come in through Canada, being manufactured, and then taking advantage of USMCA. And it really is meant to be a regional agreement. It's really meant to be about our manufacturers and our suppliers in the region to be able to benefit from this agreement. And the President wants to minimize what he considers to be loopholes for those Chinese inputs coming in. So we're seeing a lot of pressure on Mexico and Canada to put higher tariffs on goods from China, to limit investment of Chinese companies, especially in Mexico. So, really trying to take a regional approach to China relations, so a North American approach to China relations.
I think that is what will be an ongoing negotiation, and it will impact what we call "rules of origin," the criteria to benefit under the agreement. We may see new changes for industrial products in terms of whether there'll be limits on inputs from China or whether there'll be more regional value content required, and especially US content requirements, in order to benefit from the agreement. So we're going to see modifications and rules of origin.
I will say what's interesting is that China has been our economic adversary; they are the ones that we have been targeting for so many years, and yet at the same time that we're putting this pressure from the North American supply chains onto China, the President is also taking a slightly more congenial type of approach with China. We have this new Board of Trade that the President has announced with China, in which we're going to nominate different tariff codes that we can roll back some tariffs, including some of those longstanding Section 301 tariffs that have been in place since 2018, and ways that we can potentially minimize the economic burden between our two countries. And so in some ways we may be treating China, again, more favorably than our own regional neighbors.
Sean Riley: Interesting.
Shawn Jarosz: So we're seeing, I think, some mixed messages on how we're treating China as sort of the "enemy" of the North American supply chains, but yet how do we engage to reduce some of our tariffs into their market? And how do we gain access while putting pressure on our trading partners? So this is just highly dynamic. The President sees China as an economic equal. I don't necessarily think he considers Canada or Mexico as an economic equal, and so he's treating them differently and placing different parameters on that US-China relationship vis-a-vis our supply chains.
Sean Riley: So it seems consistently inconsistent.
Shawn Jarosz: Yes. Consistently inconsistent and oddly inconsistent because of how China has been just the focus of our trade policy for so long and how we've sort of pivoted, in some ways. And, again, that relationship has its ups and downs and backwards and forwards, but it's just interesting how we're watching this play out in 2026.
Sean Riley: Okay. And how is PMMI in the manufacturing industry? Are we able to engage with the administration and get our two cents in on tariffs and the trade policy and the US manufacturing investment? How are we kind of trying to get our voices heard? Yeah.
Shawn Jarosz: Yeah. So I think PMMI has been well engaged, I think appropriately engaged, in terms of submitting and sharing our priorities with the administration. We've really been focused on, again, submitting comments and engaging on the Section 232 robotics and advanced manufacturing investigations to say, again, "We need this type of innovation and this type of manufacturing to happen in the United States, but until it does, we need to be able to source these types of equipment and machinery into the United States. And don't penalize the manufacturing industry. We need to support US jobs. We need this type of investment to happen. But don't penalize us in the process. Make sure we can have access to these types of equipment and machinery that we need."
And at the same time, we're expecting, when these Section 301 tariff determination announcements come out in August, that there'll be a comment period, and PMMI has already said that it's important for them to get their voices heard when it comes to the structural excess capacity to make sure that we're, again, responding to the administration on what our priorities are. And structural excess capacity may be happening in certain sectors, but the point is don't hit every sector equally, we need to make sure that we are protecting our ability to bring products into the United States, our equipment and machinery into the United States without additional tariffs being stacked on.
And I will say that the way that PMMI is positioning itself is very much in line with the rest of the manufacturing sector and industrial goods, that we're really focused on facilitating open markets where it makes sense and making sure we can boost US manufacturing, that US jobs are important, and let's find ways to incentivize our industry rather than just having sticks. We need some carrots in order to help continue to bolster us so that we're not seeing our sector leave entirely. We want to see a way to incentivize new and expanded investments in our sector.
Sean Riley: Awesome. Okay. Well, this has been great. And I've already taken a bunch of your time, but I had one more question I wanted to put out there that I don't want to leave us on this note, but I think I have to, is should PMMI members expect retaliatory trade actions from our US trading partners? Are there things that they need to brace themselves for from, what are our allies in trade, but are dealing with these tariffs on their end?
Shawn Jarosz: We've seen pretty restrained activity from our trading partners till now. Yes, China has taken some action, the EU proposed some action, Canada took some retaliation, but it's been quite quiet. I don't anticipate many retaliatory actions. Canada may retaliate against this action, which I think could be problematic. But most of our trading partners have been fairly silent. That's good for us as exporters. I think that remains an important aspect that we can continue to sell our goods with minimal impact into these important export markets. So that's the good news.
I will say, though, that I think new and higher tariffs that we just explained are expected here in the United States and there's this increasing likelihood that this will be a permanent feature of US trade policy over the Trump Administration and possibly into future administrations. And that could put pressure on our trading partners to potentially increase their tariffs as well. If we're not going to see a rollback of tariffs, we could see some potential action in the future. I don't think that's an immediate, except Canada may retaliate, but I think it's something we are watching just to keep in the back of our mind. I don't think it needs to be right on the front of the radar, but it is... So that is some good news.
Sean Riley: Yeah, exactly. It's some good news. That's what I was hearing.
Shawn Jarosz: And let's end on good news.
Sean Riley: Yeah, I was just going to say that's perfect that we don't have to go any further. I know that things have probably changed five times in the conversation that we've had that you're going to have to go back and juggle through, so I don't want to take any more of your time away from that. So I want to thank you again, Shawn, for coming on here and kind of explaining tariffs in a way that everybody can understand.
Shawn Jarosz: My pleasure, Sean. Take care.
