Update: President Trump called off his threat to levy tariffs against Mexico on the night of Friday, June 7, stating that the Mexican government had agreed to take significant actions to reduce migration into the U.S. from Mexico. The New York Times reported on Saturday, June 8, that many of the actions that the president touted as part of the agreement had previously been agreed to months earlier.
Your avocados, tomatoes, berries, meat, beer—and countless other foods—could soon get more expensive. And not just those grown or produced in Mexico, but also those that come from within the United States.
That’s if the new tariffs—or taxes—on Mexican imports announced by President Trump come to pass. The U.S. is Mexico’s largest agricultural trading partner. In 2018, the country sent $25.9 billion worth of agricultural goods to the U.S. About two-thirds of those ag imports consist of fruits, vegetables, and beer.
When it comes to produce, experts say Trump’s tariffs will immediately impact American consumers and American companies bringing goods from Mexico into the U.S. In the longer run, it will also affect Mexican farmers and farmworkers, as well as American farmers and their workers, because Mexico will likely counter with its own retaliatory tariffs. The tax could also throw a wrench into the newly renegotiated North American Free Trade Agreement (NAFTA), called the United States–Mexico–Canada Agreement (USMCA), currently awaiting Congressional approval.
“I assume Mexico will retaliate,” said Daniel A. Sumner, professor of agricultural economics at the University of California, Davis. “Let’s all hope this is a bluff and as summer progresses we’ll be OK.”
Just two weeks ago, farmers and economists had cheered when Trump halted another trade dispute with Mexico and Canada by ending tariffs on steel and aluminum imports from those countries, which in turn rescinded the retaliatory tariffs those countries had imposed on U.S. dairy, pork, and other goods.
The president announced the new tariffs on Twitter last Thursday. He said they would begin on June 10 at 5 percent and rise by an additional 5 percent each month unless Mexico stems the flow of undocumented migrants crossing into the U.S. The tariffs, which Trump says he can impose by using the International Emergency Economic Powers Act, would be capped at 25 percent and remain at that level until Mexico acts, he said.
This is the second time Trump has waged a trade war using tariffs as the bargaining chip. Last summer, he ordered tariffs against $200 billion in Chinese imports. In May, when talks with China broke down, he raised the tariffs from 10 to 25 percent. Trump has also threatened Europe and Japan with tariffs, but this week’s move is unprecedented.
It’s Not Just the Avocados
According to the U.S. Department of Agriculture’s Economic Research Service, the U.S. is Mexico’s largest agricultural trading partner, buying 78 percent of Mexican agricultural exports and supplying 69 percent of its imports. And Americans rely on Mexico not just for avocados (80 percent of which come from Mexico). Many of the nation’s most popular fruits and veggies are imported from our southern neighbor, including tomatoes, peppers, cucumbers, squash, onions, bananas, mangoes, limes, and berries, to name just a few.
Americans’ predilection for year-round produce has led to such reliance on food imports, said Sumner. In the past, people ate what was available, and most fruits were only harvested for a few weeks out of the year. Now, retailers look to Mexico, with its extended growing season, to supply fruits and vegetables in fall and winter when they aren’t available in the U.S.
Tariffs on those goods will likely end up affecting Americans more than Mexicans: A recent study by Harvard economists found a “nearly complete pass-through of tariffs” to American importers and, for some goods, to consumers. The study looked at the Chinese tariffs and used price data collected at the U.S. borders and at retailers.
Although the tariffs will likely result in higher prices for consumers, “the timing makes it least damaging for Mexican producers and farmworkers,” at least for the moment, said Sumner, “because we’re entering the season when much more produce is grown in California and other states.” This won’t save avocado lovers, though, because California’s avocado season ends in early summer, he added.
Sumner said it’s unclear how much food prices will rise because large U.S. importers such as Walmart, Safeway, and Costco and their wholesale middlemen may devise a strategy to absorb some of the cost of the tariffs. (Importers have to pay the tax as soon as they physically cross the border with the produce.) The farmers south of the border could also absorb some of it, he said, though this depends largely on whether U.S. retailers can look for the product elsewhere for a better price.
The real victims of the tariffs could be farmworkers, said Sumner. “The [large] farmers have built this [cost] in. They have lost millions on other things before, it’s part of doing business. But for farmworkers, if a family misses a couple of weeks of work and pay, that could be significant.” Those farmworkers could, ironically, end up migrating to the U.S. to find better jobs.
Tariffs Hard to Absorb in Industry with Tight Margins
But farmers say absorbing the tariffs may be difficult, given that agriculture is an efficient industry with small profit margins at every level.
“The 5 or more percent increase that the Trump administration is threatening us with, we would pass that on to the customers who buy the products,” said Larry Jacobs, owner of Jacobs Farm/del Cabo, which grows organic, fair-trade tomatoes, vegetables, and culinary herbs. “It’s more than our margins. It’s more than everybody’s margins. There’s no way to absorb this.”
Although Jacobs’s company is based in America, the produce it grows in Mexico will face the tariff. It’s the case for many companies that grow on both sides of the border. And Jacobs said Mexican and American growers who import fresh tomatoes from Mexico into the U.S. already are hammered by a steep 17.5 percent tariff imposed by the Trump administration last month. That tariff came after Florida tomato growers complained that their counterparts south of the border are selling tomatoes at artificially low prices. Adding another tariff on top of that would again increase the price for consumers, Jacobs said.
Ultimately, some Mexican farmers could bear the tariffs’ brunt as the companies that import the produce look for other markets or buy less. And as prices go up and consumers limit their purchases at the supermarket, Jacobs said, farmers will grow less. Lower availability, in turn, will lead to even higher prices.
Trump has said the high tariffs will force some American companies based in Mexico to move back to the U.S. But, when it comes to produce, that really isn’t an option, Jacobs said. Growers in the U.S. are limited by the finite amount of land, water, and farmworkers to harvest crops. “We couldn’t grow more [in the U.S.]. Labor is the biggest choke point,” Jacobs said.
When Trump Imposes Tariffs, Others Counterattack
There’s another problem for American farmers: retaliatory tariffs and other reprisals. In the trade war with China, that country swiftly retaliated with its own duties on American imports, including food. And just last week, China announced it would stop buying U.S. soybeans.
American farmers have been especially hard hit by those counterattacks. At the end of May, to lessen the pain, the president offered farmers a $16 billion farm and ranch aid package, including $14.5 billion in cash payments to crop, dairy, and pork producers. Trump said the money will come from the tariffs on Chinese imports. Last year, farmers received $12 billion in programs to compensate for the impacts of the trade war.
Soon, the administration might have to ready another aid package. Agricultural and food exports to Mexico totaled $19 billion in 2018, according to the U.S. Department of Agriculture and for top commodities such as corn, Mexico is a primary market. At the end of last week, Mexico’s main farm lobby—the Consejo Nacional Agropecuario, or national agricultural council—told Reuters the Mexican government should impose its own “surgical” duties to target American farm products such as corn, pork, and potatoes in Republican states that voted for Trump. GOP lawmakers in those states have are also considering blocking the tariffs.
Trade disputes with Mexico and China have already cost U.S. pork producers approximately $2.5 billion, according to the National Pork Producers Council. “We appeal to President Trump to reconsider plans to open a new trade dispute with Mexico,” president David Herring said in a statement. As of April, the value of U.S. pork exports to Mexico dropped 28 percent from the same period last year. “American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement,” Herring said.
U.S. Wheat Associates and the National Association of Wheat Growers said the proposed tariff “puts crucial wheat demand in Mexico at great risk.” The groups said the wheat industry is already smarting from the previous retaliatory tariffs, which led Mexican flour millers in 2018 to broaden their supply sources beyond the U.S., where wheat exports decreased. The new tariff would only make things worse. “The potential fallout for farmers would be like struggling to survive a flood then getting hit by a tornado,” said Wheat Associates’ Chris Kolstad.
The National Corn Growers Association’s president, Lynn Chrisp, urged the president to “reconsider using tariffs to address non-trade issues.” Mexico was the top market for U.S. corn in 2017 and 2018, with corn and corn product exports valued at $3.3 billion. “Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring,” Chrisp said in a statement. And the U.S. Dairy Export Council expressed “serious concerns” about the tariff. Mexico is also American dairy’s number-one market. The U.S. last year shipped $1.4 billion, or more than one-quarter of U.S. dairy exports, to Mexico.
These groups’ criticism is no small deal; these commodities are the economic engine in many of the electoral battleground states that president Trump needs to woo for reelection. Michigan, Wisconsin, and Pennsylvania, for example, are big dairy states. And Iowa is number one in both corn and pork production.
Mexican Tariffs and USMCA’s Uncertain Future
As with many of the president’s announcements, it’s still unclear whether last week’s tariff tweet was meant as political posturing or a warning of real action. It’s also unclear what measures, specifically, the Trump administration wants Mexico to take to prevent the tariffs from going into effect. In a White House press release, Trump equated the migrant problem with “gang members, smugglers, human traffickers, and illegal drugs and narcotics of all kinds… pouring across the Southern Border” and said effective action by Mexico would be “determined in our sole discretion and judgment.”
In a letter posted in response to Trump, Mexico’s president Andrés Manuel López Obrador said he did not want confrontation and called for a dialogue. But, he also called for humanitarian treatment of the migrants. “President Trump: social problems don’t get resolved with taxes or coercive measures,” wrote López Obrador. He also immediately dispatched his government officials to negotiate in Washington. They met with their American counterparts on Monday, and another meeting is planned for Wednesday.
American farmers hope the negotiations can avert the new tariffs so that they won’t hinder the movement on USMCA. The new agreement, meant to replace NAFTA, was hammered out by the three countries last year but still needs Congressional approval. Trade in agricultural products has grown exponentially between the U.S. and Mexico since 1994, when NAFTA was implemented. Similar growth is expected after the new agreement is put in place.
Sumner, the U.C. Davis economist, says that if there’s a silver lining to the Mexican tariff snag, it’s the fact that the Trump administration has advanced, inadvertently, the idea of the value of free trade—and that may help get the new version of NAFTA passed more quickly.
“Trade is human, it far predates the idea of a nation,” Sumner said. “I’ll take any messenger I can take to spread that message.”