An unintended consequence of the US tariffs on aluminium is that Coca-Cola may shift toward more environmentally damaging plastic packaging

With a 25% tariff on foreign aluminium, Coca-Cola faces higher input costs and may turn to plastic bottles as a substitute for cans to keep prices competitive. This shift could undercut sustainability efforts, as plastic waste remains a major environmental concern. While the company downplays the overall financial impact, the move illustrates how trade barriers can disrupt supply chains and force businesses into cost-cutting measures that may have broader, unintended effects.

Coca-Cola says Trump tariffs could force it to increase use of plastic in US | Coca-Cola | The Guardian

1. Explain the terms ‘unintended consequences’ and ‘government failure’.

2. Using a demand and supply diagram and the concept of cross price elasticity, show the impact on the plastic bottle market of an increase in the price of aluminium.

3. Discuss whether the proposed new tariffs on aluminium will cause a significant decline in Coca Cola’s profits.