Grocery Industry Gives Grim Prediction on China Tariff Repercussions

President Donald Trump revealed late Sept. 17 that the United States will impose tariffs on an additional $200 billion on Chinese goods, many of which include agricultural items, common food additives and packaging materials that play major roles in the current U.S. food manufacturing supply chain.

A 10% tariff will go into effect later this month, rising to 25% on Jan. 1. While the timing of the heightened tariff will give holiday shoppers a break, it will likely have major impacts on food supply chains and grocery consumers' wallets nationwide once in effect, according to several industry experts. 

In the weeks leading up to the decision, grocery industry partners such as the National Retail Federation (NRF) participated in the formation of a multi-industry coalition called the Americans for Free Trade, which is working to oppose the tariffs. The National Grocers Association (NGA) and the Food Marketing Institute (FMI) also spoke out on the subject.

Andy Harig, senior director for sustainability, tax and trade for FMI told Winsight Grocery Business that while he believes that grocers will do everything they can to absorb the cost of the tariffs, the slim profit margin of the industry doesn’t allow for much flexibility to “build these kind of system shocks into it,” and the majority of the costs will ultimately get passed down to the consumer.

“When you're talking about food, in particular, this is not a sort of necessarily upper-middle class or upper class consumer who can easily absorb $20 or $30 in addition to their food bill a month,” he said. “This is everyone, including people on SNAP who are going to see their prices going up, other people who, quite frankly, just don't have money built into their budgets to absorb these things.”

GMA made similar statements in an undersigned letters to Trade Representative Ambassador Robert Lighthizer and in separate comments submitted to the Office of the United States Trade Representative (USTR) holding that while it appreciates the administration’s attempt to address “unfair Chinese practices” it is concerned about the effects the new tariffs would have on U.S. food manufacturers and consumers and requested that tariffs not be imposed on agricultural goods and other key ingredients.

In the case of tariffs imposed on agricultural goods, GMA urged that “exclusions be provided for ingredients used in food, beverage and consumer product manufacturing to avoid the most significant impacts on U.S. manufacturers, farmers and consumers.”

“Any increase in costs of foods, beverages and consumer goods resulting from proposed List 3 will be felt by all Americans, but most acutely by low and middle-income consumers,” GMA officials wrote in its comments to USTR. “Cost increases will also limit or even diminish growth in a major sector of U.S. manufacturing at a time when the Administration has worked so hard to advance tax reform.”

Additionally, NRF CEO Matthew Shay urged in an Americans for Free Trade statement that “every sector of the U.S. economy stands to lose in a trade war.”

“The stakes couldn’t be higher for American families, businesses, farmers and workers threatened by job losses and higher prices as a result of tit-for-tat tariffs,” he said.

GMA also warned that “it is important to remember that U.S. manufacturers must compete with manufacturers in many other countries,” and the tariffs will mean other manufacturers will still have access to the Chinese market, providing them with an “economic advantage.”

“Additionally, the U.S. currently has a trade surplus in the food, beverage and consumer products sector, making our industry especially vulnerable to retaliation should these tariffs be enacted,” GMA stated.

Harig says seafood is of particular concern, because China plays an integral role in sourcing fish and seafood.

John Connelly, president of the National Fisheries Institute, which is a member of the Americans for Free Trade, affirmed seafoods’ plight in a coalition statement, urging that the tariffs will also pose a major threat to American jobs, which he claims are “fueled by international trade in seafood.”

According to Connelly, once seafood is imported to the U.S., “it’s trucked, stored, processed, portioned, value-added, distributed and sold in grocery stores and restaurants,” and since the seafood supply chain works off a low profit margin, a 25% duty will “devastate them.”

Additionally, Harig said that the lack of certainty regarding the staying power of the tariffs will make it difficult for farmers to plan their output which could also in turn interfere with retail planning.

“[Consumers] are used to a pretty steady level of inflation and really a low level of inflation on both food and other consumer goods,” Harig urged. “This could create some real surprises.”