The administration at first tried to downplay the effect of the tariff on can prices. The day after Trump announced it, Commerce Secretary Wilbur Ross, in an appearance on CNBC, held up a can of Campbell’s soup and claimed that the tariff would add only six-tenths of a cent to its cost. But canning industry executives promptly replied that the increase would be closer to four cents. And in a conference call with stock analysts the following month, Anthony DiSilvestro, Campbell’s chief financial officer, cited “double-digit increases on steel and aluminum” as a factor in the company’s struggles.
In any case, there seems little doubt that the metal tariff has had an impact on the food and beverage industry. The 14 percent drop in the collective stock price of the top 10 publicly traded food processors took place entirely after March 2018, when the tariff was signed.
The impact is even more acute for smaller processors, says Phil Kafarakis, president of the Specialty Foods Assn. (www.specialtyfood.com). “Our community is much smaller than the big brands, so it impacts them even harder and even faster,” Kafarakis says. “Anything that might happen to a Kraft or a Cargill or a Campbell’s or a Conagra, it might take them four or five months to see the impact. My members will see the impact in a matter of weeks.”
This impact is not confined to the direct effect of higher metal prices. China, the European Union and other nations promptly slapped retaliatory tariffs, and even bans, on a number of U.S. goods – including food. These measures mostly targeted commodities, and often seemed designed to hurt farmers in states that had voted for Trump, such as China’s boycott of U.S. soybeans.
The measure with the most direct impact on processors probably is China’s punitive tariffs on several major categories of U.S. meat products, like a 62 percent tariff on pork (on top of an existing 12 percent one). This mostly affects farmers and ranchers raising beef and pork. But to retaliate for the metal tariffs, China also began keeping out or heavily taxing off-cuts like chicken feet and hog offal, for which there is virtually no domestic market.
See what the supply chain predictions looked like when the tariffs first went into effect
Meatpackers have taken to selling this material to pet food processors or just discarding it. If the situation continues much longer, it will profoundly affect the economics of meat processing, says Kafarakis, a former meat industry executive: “That’s the balance in making sure a strip steak doesn’t cost $200.”
As for commodities, export restrictions are driving down their domestic prices. Soybean prices, for instance, have dropped 11 percent since China stopped buying them last April. China had been buying up to 20 percent of the U.S. crop. This is good news for food processors right now, but if the situation continues, the long term is liable to be different.
“Ultimately the second round of plantings for soybeans is going to be vastly affected. They won’t plant as much,” Kafarakis says. “The economic impact of all these things across the entire supply chain truly will affect consumers at the grocery store.”
There’s even a possibility that the trade wars will undo USMCA, which is Trump’s signature trade triumph to date. The metal tariff led Mexico, the biggest market for U.S. dairy products, to slap a retaliatory tariff of 20-25 percent last summer on American cheeses – which it was free to do once Trump repudiated NAFTA. USMCA would presumably rectify that situation, but it still has to be ratified, and the metal tariffs may give both Canada and Mexico a motive to slow-walk, or even reject, ratification.
“I think there’s an expectation in Canada and Mexico, or maybe there’s ultimately going to be a demand, that the U.S. revisit the steel and aluminum tariffs as a condition for ratifying the new agreement,” says Peel of Oklahoma State.
Irregularity on regulation
One area of business where Trump promised to make a difference is regulation. He regularly denounced “job-killing regulations” on the campaign trail, and soon after taking office, he announced a policy of requiring federal departments to cancel two of their regulations before any new one could take effect.
The Trump administration has engaged in high-profile attacks on regulations in several sectors, most notably environmental restrictions on coal and other carbon-based energy. But when it comes to food, observers say that the policy of the FDA and other federal agencies under Trump has been surprisingly consistent with previous administrations.
“There’s a lot more regulatory consistency [in food] over the two administrations than really in almost any other area I can think of,” says Douglas Kantor, a partner with Steptoe & Johnson (www.steptoe.com), a law firm that specializes in governmental matters. “If you look at EPA, the Dept. of Education, and Labor, they’ve all changed things significantly; but in food, FDA really hasn’t. They’ve just kept pursuing the same stuff.”
Perhaps the most prominent example of this continuity has been a pair of label regulations, started under the Obama administration, that have gone forward under Trump: an initiative under USDA to require identification of food containing genetically modified organisms (GMOs), and one under FDA for revising information on the Nutrition Facts panel.
Both regulations are scheduled to be implemented on Jan. 1, 2020. The USDA published the final rule for GMOs in December, specifying that the term will be “bioengineered.” The Nutrition Facts panel will show more facts, most notably an entry for “added sugars.”