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Tariffs Threaten Food Supply Chain
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Tariffs are suddenly all the rage. You can hardly make it through a single news cycle without hearing about them. In August 2018, China announced a new round of 25% tariffs on U.S. goods worth about $16 billion.
Nevertheless, most Americans know little about them, even though they're nearly as old as the United States itself. Until the imposition of the income tax in 1913, tariffs remained the single greatest source of federal income. By the end of the Civil War, for example, tariffs generated nearly two-thirds of federal revenue.
Trump's Tariffs
Tariffs came back in a big way this year as a critical component of President Trump's "Make America Great Again" campaign. In January 2018, Trump levied "global safeguard tariffs on $8.5 billion in imports of solar panels and $1.8 billion of washing machines."
Just two months later, the Trump Administration took it to a whole new level, imposing tariffs "on all trading partners of 25% on steel and 10 percent on aluminum under national security grounds." These tariffs covered an estimated $48 billion in imports, mostly from U.S. allies such as Canada, the European Union, Mexico, and South Korea.
China responded in April with a broadside against agriculture, imposing a nearly 200% tariff against U.S. sorghum.
The back and forth has raged on ever since, with the president threatening further tariffs against China that could target as much as $550 billion worth of goods – more than the United States even imported from that country last year.
What Does This Have to do With Food?
The funny thing about tariffs is that they tend to have a ripple effect, typically in the form of increased prices for consumer goods and job cuts. You might even say that tariffs are a textbook example of unintended consequences. Usually, higher steel and aluminum prices drive up the cost of cars and trucks, while tariffs on Canadian lumber will undoubtedly make it more expensive to build new homes.
Another example is Element Electronics, a South Carolina company that announced it would lay off nearly all of its employees by the end of the year because of Chinese tariffs.
The food supply chain is starting to feel those ripples as well.
Those same steel and aluminum tariffs force some manufacturers, whether its canned fruit makers or beverage companies, to begin exploring other packaging options.
The U.S. dairy business, however, could be hit especially hard. Dairy producers are already struggling with a supply glut and changing consumer tastes. Traditional dairy sales are down while non-dairy products are thriving. Worse still, Chinese and Mexican tariffs on U.S. dairy products come at a time when the industry was starting to see a rise in exports to those areas. That won't help the industry address its surplus problem.
Farmers across the board have been hit so hard, in fact, that the Trump Administration has announced $12 billion in short-term emergency aid to help them get by while the world battles it out over imports and exports.
Other players that face significant headwinds driven by tariffs include bourbon distillers, pork producers, produce farmers, and maple syrup producers.
Despite all of this, the food and beverage industry remains optimistic overall. The "Mazars USA 2018 Food & Beverage Industry Study," reveals that 90% of executives expect sales growth, 84% anticipate higher profit, and 69% plan to hire more. Respondents elaborated that "the top trends predicted to drive sales growth are private label foods, healthy/nutritious foods, and organic foods. The top internal concern for participants was increasing sales, and the top external concerns were rising commodity costs and food safety/traceability and quality assurance."
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