How a 25% tariff on food and beverage from the EU will impact the US

Dive Brief:

Starting Oct. 18, the Trump administration plans to place 25% import tariffs on $7.5 billion worth of foods, beverages and other goods from the European Union.
The final product list from the Office of the U.S. Trade Representative includes single-malt whiskey, olives, butter, cheese and olive oil. Most of the tariffs will be on products from France, Germany, Spain and the United Kingdom, the USTR said in a release.
The announcement came just after the World Trade Organization's said the U.S. can impose tariffs in retaliation for illegal EU loans and subsidies to Airbus. However, the EU could retaliate against the new tariffs once the WTO rules on whether the U.S. government illegally supported Airbus' American competitor Boeing.

Dive Insight:

These latest tariffs could have a serious impact on companies on both sides of the Atlantic. Trade has been a contentious topic for the food industry throughout Trump's presidency, and this 25% import tariff does not seem to be helping the situation. The escalating tariff strategy from the U.S. can hurt businesses financially, and industry groups were quick to voice concern about how this latest move will raise prices for consumers.

The Specialty Foods Association said in a statement emailed to Food Dive that it was "deeply disappointed" in the decision, particularly since the dispute centered on industrial products and not food. The association noted higher prices for imported specialty foods "will hit Americans in the wallet just as the holiday season is approaching."

"The increased costs to consumers on imported foods will be dramatic," the association said. "The cheese/charcuterie board that currently cost you $45 will put you back $60 after tariffs."

Many in industry seem to share the frustration that this increase is caused by something unrelated to food and beverage. Ulrich Adam, head of Europe's largest spirits lobby, said in a statement it was "particularly irritating" for unrelated sectors to pay an extra 25% when the aircraft sector will only have to pay 10%. He said the spirits sector is "already disproportionately hurt" from the ongoing steel and aluminum dispute between the U.S. and the EU.

Some smaller businesses are especially in jeopardy. Bob Bauer, president of the New Jersey-based Association of Food Industries, told Reuters that many of the 1,000 food importers and exporters he represents are small family-owned businesses "that can’t absorb a 25% tariff because food has low profit margins to begin with."

Job losses are another area of concern. The Associated Press reported a recent open letter from U.S. alcohol importers, wholesalers and distributors pressed for an end to the tariffs because of the anticipated financial impact. Almost $3.4 billion in imports is about to be affected by tariffs on Scotch whiskey, liqueurs and wine, the group said, and 13,000 jobs could be lost.

The impending duties could be good news for some U.S. producers of cheese, wine, olives, butter and olive oil, however. The California olive oil sector has been working to increase domestic consumption — which accounts for about 6% of the total consumed in the U.S. — so there could potentially be new production opportunities.

But the U.S. beef industry might be nervous. In August, the U.S. and the EU agreed to nearly triple the annual amount of duty-free, hormone-free U.S. beef allowed into the EU during the next seven years. That deal still needs approval from the European Parliament, which may be tougher to achieve with these new tariffs in place.

The trade relationship between the U.S. and the EU is robust. The EU is the No. 1 export market for the U.S., which last year sent $318.6 billion worth of goods to its 28 member countries — 19.1% of total exports in 2018, according to the USTR. Last year, the U.S. imported nearly $488 billion worth of goods from the EU, accounting for 19.2% of total U.S. imports. According to the AP, total U.S. investment in the EU is triple that in all of Asia, and EU investment in the U.S. is eight times what it spends in China and India.

Because of that history, it's possible the tariff situation will right itself before serious impacts are felt — particularly if enough industry representatives pressure the administration to back off. If the administration's ongoing trade disputes with China, Mexico, Canada, Japan and now the EU aren't resolved to some degree fairly soon, it could increase consumer prices and rattle the stock market.