Former President Trump insisted that his tariff strategies would bring manufacturing jobs back to the U.S. However, the impact of these tariffs was notably felt by food enterprises in regions such as Illinois. Such businesses often found it hard to adjust as their supply chains are closely tied to local agricultural conditions which can’t be easily maneuvered. Fruits like bananas, oranges, mangoes, lemons, and pineapples thrive in specific environments and seasons, as articulated by Peter Testa, the CEO of Chicago-based food distributor Testa Produce.
Founded in 1912, Testa Produce is an integral supplier to restaurants, educational institutions, and hospitals in Illinois, alongside Wisconsin and Indiana. It’s unfeasible for produce from warmer climates to be relocated domestically for year-round consumption, unlike some industrial goods and consumer items that can be. Similarly, perishable goods don’t have the capability to be stockpiled, rendering the trade of fresh produce a uniquely intricate field, influenced by both seasonal and geographical factors.
This niche requires a smoothly operating market system for maintaining availability throughout the year, as noted by the International Fresh Produce Association (IFPA) in a statement. According to them, doing a broad sweep with tariffs as a one-size-fits-all approach disarrays markets, spikes costs for consumers, and imposes unnecessary burdens on growers and manufacturers along the supply line.
On April 2nd, Trump introduced tariffs on around 60 countries. However, following a severe downturn in global financial markets, the implementation was temporarily halted for three months. As it stands, most imports into the U.S. from these countries are currently subjected to a 10% tariff. After the temporary pause expires in July, tariffs on imports from other nations could escalate sharply again.
During April, many products under the United States-Mexico-Canada Agreement were excused from these tariffs by Trump. Still, Testa Produce finds its supplies mostly from countries still under tariff imposition and these include countries from both Central and South America like Costa Rica, Guatemala, Brazil, and Venezuela, alongside some Asian countries.
Food purchasing companies such as Testa Produce find themselves in a state of uncertainty in deciding whether to do their procurement now or later as there’s a chance Trump might retract his tariffs. Such an uncertain climate makes strategic planning and budgeting considerably difficult, leading to widespread confusion.
In April, Trump implicated a steep 145% tariff on Chinese goods. Mark Williams, the chief Asia economist at Capital Economics, viewed this as a significant step-down in tariff confrontation. However, he cautioned that there’s no assurance that the three-month-long armistice would indeed lead to a definitive end in the trade conflict.
This tariff tug-of-war heavily impacts small businesses. These miniature enterprises often find themselves on the receiving end of the devastating effects brought on by tariffs. They are left with two options – either to narrow down their benefit margins or to transfer the additional costs to their consumers. As opposed to these smaller firms, larger corporations possess the means to cover their reduced margins.
Small scale businesses shouldn’t be pawned in trade wars. Subsequently, tariffs can also negatively affect U.S. farmers when other countries impose retaliatory tariffs on the crops they import. For instance, Illinois is acknowledged as the U.S.’s second-largest exporter of soybeans and feed grains alongside other related products as per the Illinois Department of Agriculture. The consequences could be so dire that soybean farmers might struggle to break even at a price of $10 per bushel.
Farmers, who are exporting around 60% of their soybeans with China as their predominant market, feel like they are stuck in the middle of a trade crossfire. Tariffs amplify prices on essential commodities like potash fertilizer imported from Canada. In turn, this increases the prices of all items.
According to a statement from the International Fresh Produce Association, they are hopeful about the recent positive strides between the U.S. and China towards lowering mutual tariffs and diminishing trade barriers. Nonetheless, the fact that the three-month reprieve provides only temporary solace creates an atmosphere of lingering uncertainty.
The distortion caused by tariffs in the long term can potentially make U.S. soybeans uncompetitive in the global market, and this raises serious concerns. When Trump laid down tariffs on China back in 2018, U.S. soybean farms lost market shares to their South American counterparts who boosted production.
Between the years 2018 and 2019, tariffs have triggered approximately $27 billion in lost exports for U.S. farmers according to a report by the U.S. Department of Agriculture. Trade representatives should be diplomatic and reserve tariffs as the ultimate recourse.