Donald Trump, the US president has once again threatened to impose tariffs on EU products. The tariffs could now be as high as 30% across the board. The new rules will be implemented on August 1 if they are approved.
Trump made the announcement via his social media platform Truth Social while trade talks between the EU and US were ongoing.
Trump said that the US would simply add the EU’s retaliatory duties to its total.
What impact could these tariffs have on the EU food industry? What will be the response of companies?
Tariffs on food
Food industry concerns about potential tariffs are high.
In a recent statement, the industry group FoodDrinkEurope said that “further tariff escalation would severely jeopardise EUR27.9bn of EU food and beverage trade with the US – the EU’s 2nd largest export market – harming European farmers and producers while increasing costs and limiting choice for American businesses.”
Simon Geale executive vice president at supply chain consulting firm Proxima believes that a 30% tariff on cheese, wine and olive oil would “devastate” sectors which export to the US extensively.
He stresses that it is impossible to save 30% of the cost. It’s true that there are ways to cut costs, but anyone who imports to the US is going to see higher costs.
As can be seen by the dissatisfaction with current inflationary pressures in grocery prices, companies are able to pass on these costs to consumers to some extent.
Wine, olive oil, and cheese are among the markets that have been hit by tariffs most. The geographic origin of these products is important. (MEDITERRANEAN/Getty Images)
Tariffs and food: How they have affected the market
Since Trump delayed many of the tariffs announced by him in April, food manufacturers have worked to minimize the impact of their expected return.
Non-perishable food manufacturers have been hurrying to get their products into the US, before any tariffs go in place.
Geale says that warehousing prices increased significantly during this time, particularly in the cold storage sector and in bond warehousing, where goods are stored free of duty or VAT.
Warehouse costs increased after April tariff announcements (TomasSereda/Getty Images/iStockphoto).
The companies also tried to reformulate or change products to cut costs. For example, they wanted to avoid additional taxes on alcohol or packaging.
Geale says that manufacturers also looked for broader savings within their organisation, but larger companies have it easier.
What food products could be affected by tariffs?
Tariffs can be solved in a medium- and longterm manner.
Geale suggests that finding alternative markets could be a solution. Geale suggests that Europe has already penetrated some markets.
There are, however, still many challenges. Geale says that “you must take into account local tastes” and the fact that people may not always be open to new products. It takes time to increase your market presence.
He suggests that some food segments, like Scotch Whisky and specialty drinks, would be able to gain more ground. He says that, given the size of EU exports to US markets, it is not possible to switch the trade in both directions to another market within the next few years.
Can EU foods be imported to the US
Trump has said in the past that he hopes the tariffs will encourage more businesses to establish production within the US. This will not be possible with some of the food products that are most affected, as their popularity is tied to where they come from.
Geale says that “a very small section of food producers will be able” to move to the US. Geale suggests that “only a very limited section of food manufacturers will be able to” move to the US.”
He continued: “a great deal of our success with US food is due to its nicheness, specialization, and different origins from 95% of other products on shelves or menus.”
It may be more realistic to ship only the final stages of production to the US. Products can be sent in raw form or liquid to be packaged in the States. In these situations, tariffs may be lower.
What is the impact of market volatility on food?
The tariffs that President Trump has announced in the past haven’t always been implemented. Their announcements create market uncertainty and put pressure on the industry.
Geale explains that uncertainty will have already pushed out some businesses. Some companies may have even folded.
Preparation costs money. Even though some companies have taken steps to reduce tariffs, they are still expensive, particularly at a time where businesses want to cut back on expenses.
Geale says that if tariffs do not remain in place long enough, normalcy may return.
Let’s see what happens.