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Tariff volatility leaves food manufacturers in limbo

Rapid US trade policy shifts and tariff escalations are creating uncertainty for food manufacturers and ingredient suppliers.

In early March, the US imposed 25% tariffs on imports from Mexico and Canada, only to exempt or delay some of them just two days later.

Around the same time, the US increased its blanket tariff on Chinese goods to 20%, prompting China to introduce retaliatory tariffs of 10 to 15% on US agricultural products, including chicken, beef, pork, wheat, and soybeans. The Trump administration has also threatened tariffs on products imported from the European Union (EU).

US stock markets have experienced a swift and steady decline since the latest round of tariffs, with Trump’s inability to rule out a domestic recession adding fuel to the fire.

The resulting economic headwinds and unpredictability are making it difficult for businesses to plan long-term sourcing and pricing strategies, but manufacturers are increasingly turning to nearshoring, supplier diversification, and currency hedging to reduce exposure to tariff risks.

Some manufacturers are looking at expanding production in the US to minimise dependence on imports affected by trade restrictions.

Rising costs and supply chain instability

US tariffs on Mexico and Canada have already disrupted ingredient supply chains, even as some products have been exempted.

According to Rabobank analysts Tom Bailey and Owen Wagner, the impact on fresh produce prices is estimated to come to around 3%, while overall food costs could increase by 1%. Some importers have put purchases on hold, uncertain whether further policy adjustments will be made.

The impact extends beyond finished food products. According to Rabobank’s latest agribusiness report, Canada is expected to reduce its canola planting area by 0.4 million hectares, contributing to continued price volatility in oilseeds and vegetable oils.

At the same time, rising fertiliser costs from Canada are expected to increase expenses for US grain and oilseed farmers.

Food manufacturers are adjusting sourcing strategies to cope with uncertainty. Some are delaying purchases, while others are seeking alternative suppliers.

Industry groups, including the Food Industry Association (FMI) and the Consumer Brands Association, have warned that thin profit margins leave little room to absorb additional costs, meaning some businesses may eventually have to pass higher prices on to consumers.

Global trade realignment

China’s response to US tariffs is also affecting US agricultural exports.

“By imposing unilateral tariffs, the US has violated WTO [World Trade Organization] rules and disrupted the security and stability of the global industrial and supply chains,” said National People’s Congress spokesperson Lou Qinjian.

China’s retaliatory import duties on soybeans, pork, beef, wheat, and chicken are expected to significantly reduce demand for US exports in these categories. The Financial Times reported that US grain prices have been dropping since mid-February, as traders anticipate lower Chinese purchases of soybeans, wheat, and corn.

While the Trump administration has signalled interest in imposing tariffs on European food and agriculture products, those have not yet been enacted.

According to Rabobank analysis, if US tariffs on EU goods are introduced, wine, spirits, dairy, and processed foods would likely be the hardest hit. While US importers would initially bear the cost, European producers could face pressure to cut prices or shift supply to alternative markets.

It should not come as a surprise that the EU has recently expanded its trade partnerships with other nations. In recent months, the EU has finalised a trade deal with Mercosur, updated its trade agreement with Mexico, and resumed free trade negotiations with Malaysia.

Brussels has also sought to strengthen trade ties with India, with European Commission President Ursula von der Leyen and other senior EU officials visiting the country last month.

US tariffs: What comes next?

If there is one certainty in the current global trade environment, it is uncertainty.

With multiple possible outcomes and no clear timeline for resolution, food manufacturers must contend with an unpredictable landscape. The extent of disruption will depend on whether tariffs become entrenched or remain a bargaining tool in broader trade negotiations.

Having long embraced the moniker of “Tariff Man”, Trump’s eagerness to use tariffs as a negotiation tool means that there will likely be further tariff threats, implementations, revocations, and modifications.

If trade tensions do continue to escalate, further retaliatory measures could snowball. China has so far targeted US agricultural exports, but additional tariffs on processed foods or ingredients cannot be ruled out.

Similarly, if the US moves forward with tariffs on European imports, the EU could respond with duties on American food and beverage products, affecting exports of items such as spirits and processed grains.