Americans could face toilet-paper shortages and price hikes if U.S. President Donald Trump makes good on his threat to enact sweeping 25-per-cent tariffs on all goods from Canada and Mexico, this country’s leading maker of bathroom tissue is warning.
“This is our story to Trump,” said Dino Bianco, the chief executive officer of Mississauga-based Kruger Products Inc., maker of the Cashmere, White Swan and Purex lines of toilet paper, plus Canada’s leading facial tissue brand, Scotties, and Sponge Towels. “Whether you’re a red or blue state, you still use toilet paper, and if you can’t buy it at your local Walmart or Costco, you’re going to be screaming at the government because you’re going to blame tariffs. People will be mad whether they voted for Trump or not because, at the end of the day, they’re paying a lot more. It will be bad news for manufacturers and ultimately very bad news for the consumer.”
Mr. Bianco, who also leads publicly traded KP Tissue Inc. KPT-T, which owns 12.6 per cent of Kruger (the balance is owned by Montreal’s Kruger family), said his company has been scenario-planning for tariffs since Mr. Trump was re-elected last November. He has pressed provincial and federal ministers to lobby the U.S. government so they “understand what they’re about to unleash, specifically as it relates to a very sensitive and known consumer product. Ultimately this shows up in the poor consumer who’s already under stress and trying to recover from inflation. And this won’t just be a tissue problem.”
He explained how a run on toilet paper, reminiscent of the start of the pandemic five years ago, could unfold.
The United States is not self-sufficient when it comes to toilet paper production. Even with its domestic manufacturing facilities operating at full capacity, the country is a net importer, with 10 per cent of its estimated 10 million tonnes consumed annually supplied from abroad (Canada accounts for about half those imports, and Kruger generates 45 per cent of its $2-billion in annual revenues from the U.S.).
“The U.S. is a significant importer of Canadian wood products,” TD Securities forestry products analyst Sean Steuart wrote in a note last week. “Contrary to rhetoric from President Trump, the U.S. needs Canadian wood products and Canada is heavily reliant on the U.S. as its primary end market.”
All 13 Canadian premiers are in Washington, D.C. meeting with politicians, lobbyists and business groups trying to make the case against tariffs.
The Canadian Press
The price of imported toilet paper would immediately rise 25 per cent, and non-American producers would pass on the full increase to retail clients, who would pass that on through higher prices to consumers within two weeks, Mr. Bianco said. “No company can absorb a 25-per-cent cost increase.”
Saint John-based J.D. Irving Ltd., Canada’s second-largest producer, said in a joint statement with New Brunswick Lumber Producers and Forest NB last week that tariffs “will lead to higher prices and could lead to fewer choices for Canadian forest products” and have “severe impacts” on the province’s forestry sector.
Canadian softwood also accounts for a significant portion of the raw inputs that go into toilet paper made in the U.S., where Kruger has one of its 10 plants. Mr. Bianco figures U.S. producers would face a total cost increase of 6 to 8 per cent owing to the tariffs, which they would also pass on through higher prices. “You’ll see general inflation to the consumer whether you produce in the U.S. or Canada,” he said.
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If it looks like across-the-board tariffs, announced Feb. 1 and subsequently postponed for 30 days by Mr. Trump, will come into effect (the White House this week announced tariffs on aluminum and steel and threatened further reciprocal tariffs on trading partners), Mr. Bianco predicts inflation-battered U.S. consumers will engage in “pantry-loading,” or bulk-buying of toilet paper, before prices jump. That demand shock would empty shelves and could spark further panic buying, as happened in early 2020. Canada has threatened counter-tariffs on imported tissue and other goods, which would affect U.S. giant Procter & Gamble Co. PG-N, the third-largest seller of toilet paper and leading supplier of paper towels in Canada.
“If you have a supply disruption or unavailability because of tariffs in the U.S., you’ll have empty shelves and it will be front-page news because it will have a direct, immediate impact on the consumer,” Mr. Bianco said. “We’ve been trying to help governments understand this is a very constrained supply chain. I’m not trying to panic people. The market works very efficiently, but the market is so tight that there’s no room to absorb a hiccup of any kind. It would be felt immediately, and there’s no buffer. There’s no running a third shift to make it up,” nor a strategic reserve as there is for oil.
The fast-evolving tariff situation is affecting Kruger/KP’s business in other ways. Kruger launched a “Made by Canadians for Canadians” marketing campaign this week to tap into a growing “Buy Canadian” movement. It has already benefited from Kimberly-Clark Corp.’s KMB-N 2023 decision to pull its Kleenex brand from Canada, as Scotties has increased its market share in facial tissue to 44 per cent.
A weakening Canadian dollar is also increasing manufacturing and debt-service costs for Kruger, as those are transacted in U.S. dollars. KP Tissue, whose stock touched six-year lows this month, could see its free cash flows per share fall 15 per cent due to tariffs, Mr. Steuart wrote.
A tariff war could also determine where Kruger builds its next manufacturing plant, a US$600-million project the company has been scoping out. Revenue from its U.S. operations has been growing at nearly three times the rate of its Canadian business, and the company prefers to limit shipping distances to within 800 kilometres of factories because transportation is its second-highest cost after raw materials.
But Mr. Bianco said he believes the tariff war will be short-lived. “It just doesn’t make sense,” he said. “Hopefully it is just noise” and will just lead to a renegotiation of trade agreements. “That’s my hope.”
Canada, Mexico and the European Union condemned U.S. President Donald Trump's decision to impose tariffs on all steel and aluminum imports next month, a move that has fanned fears of a trade war.
Reuters
