Photo: @KaiMitt via Twenty20
Will the price of avocados make Americans say enough to Trump’s tariffs?
President Trump last Thursday said he planned to impose a five percent tariff on all Mexican imports on June 10 to pressure the Mexican government into offering more help stemming immigration across the southern border of the U.S.
The president tweeted that the tariff would “gradually increase until the Illegal Immigration problem is remedied.” The White House later clarified the tariff would increase to 10 percent on July 1, 15 percent on Aug. 1, 20 percent on Sept. 1, and 25 percent on Oct. 1.
As the U.S.’s second largest export market and third largest trading partner, across-the-board tariffs would be significantly felt by U.S. consumers and corporations.
Imports from Mexico include agriculture, cars, machinery, fuel and medical devices. Mexico is the eight largest supplier of apparel and seventh of footwear to the U.S. market. Many U.S. industries have tightly linked supply chains with Mexico.
Nearly half of all imported U.S. vegetables and 40 percent of imported fruit comes from Mexico. Prices on tomatoes, avocados, peppers, lemons and other fresh produce are expected to soar should the tariffs be enacted. Lance Jungmeyer, president of the Fresh Produce Association of the Americas, said in a statement, “This is a tax on healthy diets, plain and simple.”
In 2017, U.S. retailers imported $128 billion in goods from Mexico, according to the National Retail Federation (NRF).
Mexico could make retaliatory moves against U.S. exports to Mexico or derail the USMCA, the Trump administration’s update to NAFTA. Tariffs are typically used to counter trade violations, not immigration disputes, so legal battles may follow.
As in past escalations of Chinese tariffs, retail organizations joined other business groups in issuing statements calling the tariffs a tax on U.S. businesses and consumers.
David French, the NRF’s SVP of government relations, said, “Forcing Americans to pay more for produce, electronics, auto parts and clothes isn’t the answer to the nation’s immigration challenges and this certainly won’t help move USMCA forward.”
Rick Helfenbein, CEO of the American Apparel & Footwear Association, said, “The bottom line is that these tariffs are disastrous for the American economy.”
- Trump Says U.S. Will Hit Mexico With 5% Tariffs on All Goods – The New York Times
- A US-Mexico border shutdown threatens more than just avocados — here are all the foods that could disappear from store shelves – Business Insider
- Retailers warn of growing tariff bill for American businesses and consumers – National Retail Federation
- Apparel and Footwear Industry Labels Proposed Tariffs on Mexico ‘Unfathomable’ – American Apparel & Footwear Association
- Tariffs on Mexican Imports Would Hit More Than Avocados in Grocery Stores – The Wall Street Journal
- Mexican tariffs would be bad news for denim – CNBC
- What Mexican Tariffs Would Mean For Retail – NPR
- ‘Dangerous and destabilizing:’ Businesses warn about the risks of Mexico tariffs – CNN
- A New Tariff on Mexican Goods Will Impose A $3 Billion Food Tax on American Consumers, According to U.S. Produce Importers and Distributors – Fresh Produce Association of the Americas
Discussion Questions
DISCUSSION QUESTIONS: Is the potential impact of tariffs on Mexican imports any greater for American businesses and consumers than those being placed on Chinese goods? How should retailers prepare and react?
Poll
BrainTrust
Michael Decker
Vice President, Marketing Strategy
Doug Garnett
President, Protonik
The impact on grocers is certainly potentially bigger than the Chinese tariffs. With margins already razor thin, food retailers have little choice but to pass on the additional costs to the consumer. There are not really any viable alternatives to the almost 50 percent of all fruit and vegetables that come from Mexico that won’t be just as or more expensive to get (e.g. higher transportation costs for goods south of Mexico).
To add to Dave’s comment, he’s absolutely right. Grocers and food service will be hit the hardest and there’s no short-term way to alleviate that pain. Current estimates are that we will see a minimum of 25 percent price increases on Mexico-produced goods within 2019.
The very nature of food production is not something that can go faster (at least, I am not in support of any additional genetic modifications of plant and animals to make this happen). Long-term, if U.S. businesses are willing to invest in CapEx now, there will potentially be relief within a year or two.
Retailers should be looking for ways to minimize and absorb the price increases that are coming.
When consumers start to feel a more direct connection to their wallets being used to fund immigration challenges, they will get vocal and quickly.
Anecdotal evidence, but I saw frozen avocado chunks at Costco for the firs time yesterday. The product was sourced from Peru. Is Costco already making moves or is this simply a coincidence? Either way, I think it is an example of what you will start to see – products being sourced from outside Mexico whether that’s the U.S. or other countries. Retailers will make the effort to mitigate lost sales due to tariff-driven cost increases where the consumer is most price-sensitive and/or where the cost increases are the highest.
This one is a disastrous mistake on the part of Trump for lots of reasons but let’s clear away the most basic. These tariffs are short term taxes on U.S. consumers — not the trade partners we are attacking. Long term may be something else, but our consumers pay until our producers can move their infrastructure back to the U.S. or to “friendly” trade partners. And with the 2020 election coming, it may suit U.S. business to simply wait and see… Another problem with this one is Trump is mixing economics with politics. That makes us a very unreliable and mercurial business partner in world trade. It hurts our “brand” internationally. I think everyone is scratching their heads over this one.
The scary part is that the administration seems to forget that U.S. consumers are the collateral damage in these trade wars (tariff wars). Of course all this negatively impacts retailers. That ends up reducing jobs (people are laid off) as demand slows (people tighten their belts). And all this has a downward spiraling effect.
Will a small increase in the price of avocados spur a revolution? NO. The scary part is that after further escalations, higher prices of commodities and goods, the economy will start showing the impact of these decisions. By the time we see the impact, the negative spiral may already be in full swing. That’s scary… because then stopping or slowing it down is very difficult.
To prepare, retailers need to find their differentiators and make sure they have multiple sources for their goods. Don’t be dependent only on Mexico, or China, or any other single source. Always have alternatives … because those will probably become necessary if things keep on the current path. Then find the items that are less price sensitive. On these, make sure you provide great experiences, to encourage shoppers to choose your retail business when they want those products! Good luck … we all need it!
Anecdotally, my local Wegmans grocery store this weekend had raised prices on avocados, however these are imported from Peru, not Mexico. Perhaps this was testing the waters of consumer shopping limits given that the tariffs have not yet gone into effect?
Consumers always make their voices known to retailers by shifting their purchases elsewhere, or by vocally complaining about such prices. The real question is whether any vocal indicators from everyday consumers will have an influential effect on the powers that be in the White House. To date, the evidence says otherwise.
It isn’t an “either/or” question. Consumers are facing tariffs and the possibility of retaliatory counter-tariffs from both China and Mexico. Having a trade policy based on a “tweet from the hip,” strategy rather than something resembling sound economic practices places huge aggregate indirect tax burdens on all U.S. consumers, not just those munching avocado toast in their new cars while listening to music on their iPhones. As to what retailers should do, they need to start putting pressure on Republican lawmakers. As long as the President can characterize resistance to his trade policy as part of a Deep State, left-wing, partisan coup nothing will change. It will take cooler bipartisan heads to prevail, but in the current political climate I’d start thinking about whether avocados can be pickled or canned.
This president has enjoyed the previous Administration’s economy, but these new moves are about to apply the brakes. When avocados are too expensive, when fruit is too expensive, when cars are too expensive, the economy will slow. Grocers will have no choice but to raise prices. What’s unclear is whether consumers will blame their government, or retailers.
This is completely crazy. I don’t have any other way to say it. It’s almost reverse-protectionism — punishing the U.S. citizens because, I don’t know why, to be honest. I have heard nothing logical about it.
Outside the political ramifications, the golden rule of any business is to be agile, flexible and have a clear cut diversification strategy in place if and when these sorts of situations happen. The United States has grown increasingly dependent on imported produce, particularly in the winter season. However, as any business will need to do when tariffs increase, they extend the costs over to the customers.
A positive outcome out of all of these tariff discussions could be an increased interest in locally-sourced produce, which will also reduce some of the carbon emissions of imported fruits and vegetables. In addition, customers always have a choice. The imported produce, especially avocados, are already priced at a premium so increasing the price 10 percent to 20 percent really won’t make that much of an impact.
Bottom line, the U.S. produces some of the best fruit in the world. There’s nothing better than ripe peaches, nectarines, plums, or strawberries in the summer that come from local farms.
Shoppers don’t typically connect product tariff to immigration issues, but in this case, drastic measures are waking people up to the harsh reality of the need for action. It’s not pretty, but America must get its ducks in a row.
I think the real question is, will people understand that their own country is causing the price increases or will many continue to think and blame China, Mexico, et. al.? Will they realize that if the Mexican tariffs go to 25 percent it will be the biggest tax increase in 30 years? Will they realize that companies are already changing their global supply chains to avoid the U.S. and even if the administration changes, they won’t change them back?
I guess the pocketbook is the right place for the initial realization that tariffs are not good for anyone, but the long term damage to the U.S. in overall business, jobs, global competitiveness and economy will be long, long lasting.
Gene, good point on global supply chain changes. We’ve been enjoying in many ways what years of supply chain investment, development, and various machinations have created – only to now endanger them all. Once changed, there is no going back – only forward into whatever comes next. Good or bad!
For those who travel, please tell me if they can march into another country without proper ID and a reason to be there? Of course not, and why should we allow free reign on getting into our country with no consequences? This problem has been ignored too long, and we as Americans better wake up to the fact that things need to be secured for our safety, and if Mexico does not want to cooperate then the heat on them will continue. I’m sure many disagree, but if every other country has borders that are strictly enforced, than it is about time we do the same. Paying a little extra for avocados is the price of our security.
In addition to the points made by others about the possible repercussions on the economy, the main objection here is the way Trump is tying two complex issues together in a less-than-rational way. You may believe immigration across the Mexican border is a national crisis, but many (probably most) American consumers would disagree, and it’s unlikely they or the retailers that serve them feel they should suffer the brunt of the costs to finance Trump’s campaign to secure the border. Trump said he’d get Mexico to pay for the wall. Maybe he should go back to that tactic and not ask American consumers, workers and business to pay.
I guess I’m in the minority here, and yes there is a crisis at the border in spite of what the new leaders in the Congress say to the contrary. Ignoring it will not make the problem resolve itself, and no other previous administrations would touch the issue. My nephew lives in Texas serving in the military, and says it is a disaster on the border. I’ll take his word for it, as he deals with it daily. It is very dangerous for their safety as well.
Tony – I think we’d all agree if we actually thought this tariff would have any impact on the border, but this assumes Mexico has no choice but trade with us. We may have no choice but to buy from Mexico, so we are the ones who get punished. Were I Mexico, I’d see who else wants my products and cut better deals with them.
49 other countries allow asylees and refugees with fewer rules and higher rates than the U.S. Americans should wake up to the fact that the U.S. ranks 50th in the world in its openness to those who accept people “without proper ID and credentials.” What is about time is that a Great America would lead the world in welcoming those “huddled masses yearning to breathe free.”
This whole issue of tariffs is outrageously, egregiously stupid. The lie that the Chinese or Mexican governments are writing checks to pay these tariffs is outrageous. Putting American companies and consumers in this position is appalling. This is deal making? We can only hope that voters finally break the code.
To add some context to the impact. From Chipotle:
Chipotle (CMG) says tariffs could increase its costs by about $15 million this year due to the higher prices of avocados.
The restaurant chain could take a 20 bp to 30 bp margin hit or pass on the extra costs to consumers through a modest price increase (~$0.05 on a burrito) on certain products.
Five cents can be absorbed by either the consumer or Chipotle. Higher prices will have a bigger impact.
Consumers quite often remain unaware of the ways tariffs affect their lives. Loud discussion about a few extra cents per avocado isn’t a tremendously moving argument.
At the other extreme, for companies those few cents per sale add up into massive costs that threaten their existence. I’m already aware of Chinese companies who are ceasing to export to the U.S. — due to the impact of tariffs.
In no way do I support these tariffs nor the impact they’re having. But we need to recognize that even 5 percent on a weekly shopping trip is not clearly noticeable not easily attributed to the tariffs. So it’s a very big communication challenge fighting them.
Consumers deserve a clear view of how these tariffs will damage their pocketbook and their choices. Unfortunately, the NRF approach to the discussion seems targeted to congress and not consumers.
I do not think the Adminstration has a feel for what the consumer needs and is willng to pay for. Sure this will hurt the Mexican farmer and their economy. But it will also have an effect on the regular everyday housewife trying to fill the family menu. This is what the Administration has lost grasp of.
As one of the Millennials on the BrainTrust, I’ll speak on most of our behalf to say that avocado toast is already too expensive! Like, totally.
In all seriousness, avocados were already at a premium price, comparatively. If it was a 25 percent spike in cost then I think we would just buy less. I’m not sure it’s going to be the straw that breaks the camels back. I think business and the donations to his campaign might have more of an impact.
Companies require regulatory stability and predictability to invest and hire for the long term. This stew of politics, economics, and egos is simmering in a sea of fear that purposely negates the logical with the irrational while creating a constant stream of uncertainty. Agility, be it strategic or tactical, cannot anticipate or keep up with the next policy salvo in the twitter sphere.
I don’t anticipate that most retailers, especially grocers, will pass through the initial 5 percent in tariffs; however, the floodgates will open with the scheduled monthly increases which grocers will not be able to contain. The most pain will be felt by U.S. consumers and the economy. Disentangling economics from policy and elections is needed lest we become pawns to those who have the power to create and frame problems in ways that only they can solve.
Clearly they should react by moving winter produce production domestically: Minnesota for strawberries, Iowa for melons … It’s all so simple…right?
Mexico plays an important role in the manufacturing supply chain for thousands of business owners across the country, specifically in southern border states.
Small business owners simply don’t know what the next few months will look like for their bottom line. As tariffs increase and expand to different countries, these businesses are losing what little flexibility they have in changing markets and finding new business partners. Small businesses simply are not able to react to sudden policy changes as quickly as large companies can.
Uncertainty can sink a small business, damaging their supply chain beyond repair, and potentially putting them entirely underwater.
Retailers can proactively analyze their supply chain to identify where they can save and leverage programs like our tariff relief initiative to mitigate increased costs associated with new tariffs. The U.S. government also offers Drawback programs to alleviate some of the cost, which we recommend that businesses should start researching. Mexico is a vital trade partner for U.S. small businesses. USMCA has made Mexican suppliers more cost-effective and the transit for goods is much cheaper.
These tariffs are hurting businesses, not helping them. We need to consider the human effects of policy, especially as we look to bolster our economic output.
If the Mexican tariffs escalate to 20% or 25%, which is very likely, the impact will be more noticeable for U.S. consumers because it impacts their grocery staples – fruits and vegetables. Many of the China tariffs impact more discretionary products, which low income consumers can choose to live without. However, groceries are a necessity.
The prices of produce fluctuates with supply and demand and consumers are accustomed to changes in prices. However, if it is an across the board increase in prices, it will be noticed. Retailers have no choice, but to pass it on to their customers or find alternative sources for produce.
Let’s hope we can end this tariff mania soon. It’s not good for our retail economy, our people or our country.