In an effort to bring more manufacturing back to the U.S., President Donald Trump recently made good on promises to increase tariffs on Mexico, Canada, and China through the use of the International Emergency Economic Powers Act (IEEPA tariffs) – an unprecedented move as the IEEPA has never been used to impose duties.
The IEEPA tariffs are in addition to a slew of other tariffs that were imposed during Trump’s first presidency – e.g., Section 301 tariffs on all goods from China, Section 232 steel and aluminum tariffs – all of which were maintained by the Biden Administration. The IEEPA tariffs against Mexico and Canada, imposed on March 4, mark a significant shift in U.S. trade policy, as both countries have been close economic allies to the U.S., and ones with which we’ve built integrated supply chains based on the assumption/guarantee that goods would move freely throughout the countries via free trade agreements (e.g., USMCA, NAFTA). While Trump announced a temporary exemption for USMCA qualifying goods, the tariffs could take effect for all goods coming from Canada and Mexico on April 2.[1]
The IEEPA tariffs on Mexico, Canada, and China, however, are only a first step as the Trump Administration is currently mulling tariffs on other countries, either through the use of reciprocal tariffs, Section 232, and other trade authorities. Indeed, additional tariffs on all steel and aluminum imports are expected to be implemented on March 12, and which will be in addition to any other tariffs already imposed.
Steel and aluminum are critical materials for packaging in the food industry, and higher steel and aluminum prices will likely lead to increased production costs for canned goods, affecting a wide range of products from beverages to canned vegetables and soups.
All these tariffs will have profound implications for the food and beverage industry, as imports – from fresh produce to packaged goods – are essential to food manufacturers, foodservice operators, and importers and distributors writ large. While other industries may be able to absorb somewhat the increased costs of these tariffs, the food industry – which typically operates under tight margins – will likely have no other option but to pass on the increased costs to consumers.
In addition to navigating increased costs of imports, the food industry should also brace for impacts on exports of U.S. products, as countries prepare to implement their own set of retaliatory tariffs.
Canada and China have already announced their own tariffs on U.S. goods with additional Canadian action anticipated over the course of the next month. Mexico is also expected to follow suit. This retaliation could significantly impact U.S. food exports, reducing demand for American agricultural products and potentially harming farmers and food producers. Particularly vulnerable crops include corn and soybean, as soy and corn farmers rely on global demand and exports to purchase yields beyond what can be consumed domestically.
The uncertainty surrounding these trade tensions may also deter investment and disrupt long-term planning within the industry.
While some hope the tariffs might encourage some domestic production, offering opportunities for local producers to fill the gap left by reduced imports, the overall impact is expected to be challenging, with increased costs and market volatility posing significant hurdles for the U.S. food industry.
Some best practices in this current environment include not only traditional tariff mitigation strategies – e.g., diversifying suppliers, use of first sale for customs valuation, tariff engineering, renegotiation of contracts, duty deferral, etc. – but also working with trade associations.
Trade associations serve as a collective voice for smaller companies, advocating for their interests in high-level government policy discussions. By doing so, they help ensure that the concerns of their members are heard and can influence legislation and regulations that affect the industry. This collaborative approach not only strengthens individual businesses but also enhances the industry’s ability to navigate complex trade challenges.
As a last point, we would offer the advice to stay informed. The tariff landscape seems to change every day, and we expect this dynamic to continue for the foreseeable future.
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[1] As tariffs have already been paused and reinstated a number of times, the situation remains fluid and can change at any moment.
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