Tariff Tides: How Grocery Prices in the U.S. Are Facing Upward Pressure
The humble grocery trip, a cornerstone of daily life for millions of Americans, is facing a potential price surge. The culprit? A complex web of tariffs, both existing and threatened, on imported goods that feed into the U.S. food supply chain. Experts across the food industry are sounding the alarm, predicting that consumers will likely feel the pinch in their wallets, though the magnitude of the impact will vary across different products and shopping habits.
David Ortega, a food economist and professor at Michigan State University, cuts to the chase: "The short answer is yes, prices are going to go up." He emphasizes that tariffs, by their very nature, are inflationary. They represent a tax levied on imported goods, directly increasing the cost for businesses that rely on these inputs.
Thomas Gremillion, director of food policy at The Consumer Federation of America, echoes this concern, framing the situation as a significant financial burden for American households. He points to the existing 10% baseline tariff on all goods, coupled with even higher duties already in place on Chinese products, as a substantial increase in food costs. Gremillion goes as far as to characterize the 10% default tariff as potentially "the largest in my lifetime, with a highly regressive impact," disproportionately affecting lower-income families.
While the tariff itself is only applied to the value of the product as it crosses the border, the overall price impact is more nuanced. Ortega explains that numerous other costs are layered on top, including transportation, distribution, wholesale expenses, and retail markups. These domestic costs remain unaffected by the tariff, meaning the final price increase at the grocery store may not directly mirror the tariff percentage.
However, even a seemingly small percentage increase can have a significant impact, especially when considering the large volume of imported food consumed in the U.S. According to the Consumer Federation of America, relying on data from the U.S. Food and Drug Administration, imports account for roughly 15% of the nation’s overall food supply. This dependence is particularly pronounced in specific categories like fresh vegetables (32% imported), fresh fruit (55% imported), and seafood (a staggering 94% imported).
Some staples, like coffee and bananas, are almost entirely sourced from abroad, leaving them particularly vulnerable to tariff-driven price hikes.
The introduction of tariffs creates a climate of uncertainty that ripples throughout the food industry, impacting everyone from individual families managing their budgets to large-scale food companies navigating complex supply chains. Gremillion warns that this uncertainty can lead to "havoc on supply chains" potentially resulting in increased food waste and heightened food safety risks.
Michael Swanson, Chief Agricultural Economist at Wells Fargo Agri-Food Institute, highlights the potential complexities, particularly within the seafood sector. He describes a common practice where seafood caught in the U.S. is shipped to China for processing, taking advantage of lower labor costs for tasks like deboning, skinning, and deveining. The processed seafood is then repackaged, frozen, and shipped back to the U.S. for consumption. The question becomes: how will these goods be treated under the current tariff regime? Will they be tariffed both when entering China and again when re-entering the U.S.? If so, this could render the entire process economically unsustainable.
Fresh produce is another area where consumers are likely to notice price increases. Ortega notes that American consumers have come to expect year-round availability of a wide variety of fresh fruits and vegetables. To meet this demand, the U.S. relies heavily on imports, especially during off-seasons for domestic production. The increased cost of imported produce will inevitably be passed on to shoppers.
Ortega points out that for certain products, like bananas, domestic production is either impossible or severely limited by climate constraints. Additionally, even for products that can be grown domestically, it is often cheaper to import them due to differences in labor costs. Coffee, while grown in small quantities in Hawaii, is another example of a product largely dependent on imports to satisfy consumer demand. These items, now subject to tariffs, are almost certain to see price increases.
The burden of these price increases will likely fall disproportionately on low-income households, which allocate a larger portion of their income to food expenses.
Chris Costagli, vice president and food insights lead for NielsenIQ, raises another potential driver of price increases: industry price gap management. He explains that manufacturers constantly monitor the prices of their competitors. Even a U.S.-based company, producing goods entirely within the country, may raise prices if its competitors are facing tariff-related cost increases. This is because they can take advantage of the overall higher price environment to increase their own profitability.
Additionally, Costagli notes that even domestically produced food products may be indirectly affected by tariffs if their packaging or certain ingredients are imported. These hidden costs can also lead to price hikes.
NielsenIQ conducted a study in March, revealing that a significant majority of consumers (81%) were at least somewhat aware of the potential impact of tariffs on grocery prices, and 73% believed that tariffs would indeed lead to higher prices. This survey, however, was conducted before the full scope of the current tariff policies, particularly those impacting China, were implemented.
Navigating the complexities of current tariff policies can be a challenging task. As Ortega points out, some agricultural and food products are covered under the United States-Mexico-Canada Agreement (USMCA), potentially exempting them from tariffs. However, verifying eligibility under the USMCA can be an extra burden for importers, leading some to simply pay the tariff instead. The constant shifts and ambiguities in tariff policies leave many businesses and consumers uncertain about what products are subject to tariffs and to what extent.
Despite the potential for price increases, Swanson offers a glimmer of hope. The United States is a major food producer, often generating a surplus that necessitates exports. About 15% of U.S. poultry and 20% of U.S. pork are exported. If tariffs and trade disputes limit access to these international markets, this excess supply could remain within the U.S., potentially driving down prices for certain products like pork and poultry.
Swanson advises consumers to mitigate the impact of tariffs by focusing on foods grown, produced, or manufactured in the United States. For items that are subject to tariffs and lack readily available substitutes, consumers may need to adjust their spending habits or explore alternative options. For instance, opting for domestically produced Parmesan cheese from Wisconsin instead of the imported variety from Parma, Italy, or choosing Kentucky bourbon over Scotch whisky.
In summary, the landscape of grocery prices in the U.S. is being reshaped by a complex interplay of tariffs, trade agreements, and global supply chains. While some products are poised to become more expensive, consumers can proactively adapt their shopping strategies to minimize the impact on their wallets.
