Grocery prices could spike over trade wars
Many suppliers in limbo awaiting Trump talks
President Donald Trump is betting that his trade wars won’t affect U.S. shoppers as he seeks to rewrite – or end – international trade deals.
While U.S. exporters – farmers and manufacturers – are anxiously looking on as the Trump administration demands terms to bring jobs back to America, the average consumer isn’t seeing any fallout. Yet.
Nowhere is that disconnect more evident than at the American supermarket, where only mild inflation is underway.
But that could change as Trump plays hardball with Canada – a critical source of beef, seafood and processed goods from chocolate and cookies, to bread and cake mix. Trade tensions are also mounting with China.
The reason is that America’s dependence on imported foods has soared to all-time highs as shoppers snapped up more than $137 billion in 2017.
Imports now account for 20 to 25 per- cent of total U.S. supermarket sales. Those sales are more than triple what they were at the start of the millennium.
More than one-third of fruits and vegetables purchased by American shoppers are imported. Ditto for cookies and chocolates. And nearly one-fifth of meat consumed by Americans comes from abroad.
Trump hasn’t slapped tariffs on food imports yet, but he has threatened to scrap the rest of the North American Free Trade Agreement with Canada. Talks with that nation are approaching a critical Oct. 1 deadline.
Trade experts warn trashing NAFTA is an extreme step that could disrupt the long-established flow of goods between trading partners – including nearly $24 billion worth of food imported from Canada annually.
While Ohio trade attorney Dan Ujczo
believes Trump is angling to win the best terms and expects that Canada and the U.S. ultimately will cut a deal, he concedes there are real dangers.
If NAFTA was killed without a replacement pact, Canada’s trade status would revert to “Most Favored Nation” – and a raft of older, higher taxes would be levied on all imports.
A wave of inflation would likely hit food next year on both imported and then domestic goods.
For example, Canadian cucumbers – which the U.S. imported more than $203 million worth of in 2017 – would go from being duty-free to subject to a 9.6 percent tariff (tax).
“If it gets to that, there’s a whole host of horribles,” said Ujczo, at Columbus, Ohio-firm Dickinson Wright. He noted that U.S. steel producers upped their prices after tariffs made foreign steel more expensive. “You’ll see inflationary pressures.”
❚ Soothing elevator music in aisles, for now: Right now, at the supermarket, there’s no sign of possible trouble. At Kroger Marketplace in the Oakley neighborhood of Cincinnati, one shopper takes small price changes in stride.
“I try not to sacrifice what I eat. If prices go up, I get fewer extras, like sweets,” said Diana Vera, a 36-year-old high school teacher who lives in Fairfax, Ohio. She watches produce prices, noticing that tomatoes and avocados have edged up but bananas have ebbed.
During the first 18 months of the Trump administration, inflation on food purchased for consumption at home has climbed 1.2 percent versus an overall inflation rate of 2.8 percent.
Annemarie Kuhns, an economist with the U.S. Department of Agriculture, said international trade has contributed to the slow growth in prices.
Bumper crops and few major disruptions have made that trend possible. A strong U.S. dollar also helped flood America with cheaper food in two ways:
“Imports were cheap and more plentiful, and exports slowed and the food stayed here,” Kuhns said.
Total sales of imported food last year were nearly double what they were a decade ago. If all imported food were itself a supermarket chain, it would be larger than Kroger and every other U.S. grocer besides Walmart.
America’s biggest food trading partners are the same ones Trump is fighting with: the European Union, which sold $27 billion of goods; Mexico, which exported $26 billion to the U.S.; Canada, nearly $24 billion; and China, which sold $6.2 billion.
❚ Crazy or crazy like a fox? No one watching Trump’s NAFTA gambit believes the U.S. will scrap the agreement. Canada and Mexico are too important.
In late August, Trump announced a revised NAFTA deal proposal with Mexico (that the next Congress must approve in 2019). Negotiators have until Oct. 1 to hammer out a pact to include Canada in the NAFTA overhaul.
Trump’s reputation for erratic behavior and rash decision-making has strengthened his bargaining position – for now. The prospect of the U.S. cutting a deal with Mexico alone has scared Canadian negotiators back to the table.
If Trump pulled out of NAFTA, the consequences would be severe and swift. The political fallout could be dire.
If Canada is treated like a “Most Favored Nation,” thousands of food staples would switch from duty-free to subject to tariffs (taxes) – and a wave of food inflation would likely hit U.S. consumers. Imported beef would get a 4 percent tax; ketchup, 6 percent; cereals such as corn flakes would get a 1 percent tax; tomatoes, 12.5 percent; onions, 3.6 percent; and potatoes, 6.4 percent.
“The average person wants to know if this is going to make my bread or my cars cost more,” said Gene Beaupre, a retired political science teacher at Xavier University in Cincinnati. “Right now, trade is just a headline – people don’t feel like it’s going to turn around and hurt them.”