President Donald Trump says his tariffs will re-shore U.S. manufacturing, yet food businesses like those in Illinois are especially hard hit by his trade war since supply chains are tied to local agricultural conditions and can’t easily be shifted, say business leaders and officials.
Produce such as bananas, pineapple, mangoes, lemons and oranges grow in certain climates and seasons, said Peter Testa, CEO of Testa Produce, a Chicago food distributor founded in 1912. The company supplies restaurants, schools and hospitals in Illinois, Wisconsin and Indiana.
Testa Produce’s massive warehouse in Back of the Yards stores and distributes products from across the U.S. and around the world, including fresh produce, dairy, canned and dry goods and frozen foods. Shelves in its 91,300-square-foot facility are stacked high with boxes of pineapple, oranges, cantaloupe, apples, coconut water, hominy, refried beans, pasta and more.
Produce from warm climates can’t be re-shored to the U.S. for year-round consumption, like some industrial and consumer goods. Perishables also can’t be stockpiled.
“We’re not going to grow bananas in the U.S. or coffee. But it feels like food is being used as a weapon,” U.S. Rep. Raja Krishnamoorthi, D-IL, who represents the 8th Congressional District, said last month, during visits to Illinois food businesses, including Testa Produce. “It shouldn’t be used as a weapon, especially when everybody needs it.”
“Fresh produce trade is uniquely complex, shaped by seasonal and regional factors that require a well-functioning market for year-round availability,” the International Fresh Produce Association said last month in a statement. Broad application of tariffs as a “blunt tool disrupts markets, raises consumer costs and places unnecessary strain on growers and producers across the supply chain,” IFPA added.
On April 2, Trump announced tariffs on about 60 countries, but then paused them for 90 days after global financial markets plunged. Despite the reprieve, most imports from those countries to the U.S. currently face a 10% tariff. After the pause lifts in July, tariffs on other countries could soar again.
In April, Trump exempted many goods under the United States-Mexico-Canada Agreement from tariffs. But Testa Produce sources food from other countries that face tariffs such as Costa Rica, Ecuador, Guatemala, El Salvador, Brazil and Venezuela, as well as Asian nations.
Food buyers such as Testa Produce are unsure whether to buy now or to wait, in case Trump rolls back his tariffs. That makes planning and budgeting very difficult, Testa said during Krishnamoorthi’s visit to the food distributor. “Many customers are wondering how this will all end. I don’t have answers for them,” said Testa. “There’s mass confusion.”
In April, Trump ordered 145% tariffs on goods from China. But on Monday, U.S. Trade Representative Jamieson Greer said the U.S. agreed to drop the tariffs to 30%, while China agreed to lower its rate on U.S. goods from 125% to 10%.
“This is a substantial de-escalation,” said Mark Williams, chief Asia economist at Capital Economics. But he warned “there is no guarantee that the 90-day truce will give way to a lasting ceasefire.”
Dani Rodrik, an economist at Harvard University, said the two countries had stepped back “from a needless trade war’’ but that U.S. tariffs on China remain high at 30% “and will mainly hurt U.S. consumers.’’
In general, small businesses bear the brunt of tariffs and their “devastating impact,” Elliot Richardson, president of Chicago-based Small Business Advocacy Council, said last month.
“Their margins will be smaller or they will pass costs onto customers. Larger companies have the means to absorb lower margins. Small businesses do not,” said Richardson, who also joined Krishnamoorthi’s visit to Testa Produce. “I don’t want to see small businesses fail because of a trade war they have no control over. Small businesses should not be collateral in a trade war.”
Testa Produce CEO Peter Testa (left), U.S. Rep. Raja Krishnamoorthi, D-IL, and Steve Grinstead, CEO of FreshEdge, parent company of Testa Produce
Amy Yee/Sun-Times
Farmers in the crossfire
Tariffs also affect U.S. farmers when other countries place retaliatory tariffs on the crops they export. Illinois is the nation’s second-leading exporter of both soybeans and feed grains and related products, according to the Illinois Department of Agriculture.
On Krishnamoorthi’s tour of food businesses last month, he also visited Kindred Farms in Atlanta, about two hours south of Chicago. Owner Ron Kindred is busy planting this year’s soybean crop at his 1,700-acre farm. Krishnamoorthi timed his visits to Illinois food businesses nearly two weeks ahead of his May 7 announcement to run for the U.S. Senate to replace Sen. Dick Durbin.
Tariffs create extreme uncertainty about the price soybeans will fetch later this year, whether $10 per bushel or $7, Kindred said. Even before Trump’s trade war, margins on soybeans were shrinking. Market prices for soybeans have dropped from $16 per bushel two years ago to about $10 now, he added. “If it goes down to $8, there’s no way we can re-coup our costs.” Soybean farmers might not break even at $10 per bushel, he said.
Last fall, Kindred fertilized about 850 acres for soybeans on his farm so it’s too late to make any big changes to his crop.
“We’re just out here, caught in the crossfire,” said Kindred, who is also chairman of the Illinois Soybean Association.
Kindred Farms owner Ron Kindred handles crop on the company’s 1,700-acre farm.
Illinois Soybean Association
Across the U.S., farmers export 60% of their soybeans and China is their largest market, Kindred said.
Meanwhile, because of uncertainty created by the trade war, farmers will likely pause spending on new equipment and other investments, said Kindred, who had been thinking of buying new tractors for his farm.
Tariffs also raise prices on potash fertilizer from Canada. “They drive the prices of everything up,” Kindred said.
China’s retaliatory tariffs on U.S. imports particularly hurt American food producers, the American Farm Bureau Federation said. “We know from experience that farmers and rural communities will bear the brunt of retaliation,” the Washington, D.C.-based group said in February.
In response to this week’s truce between the U.S. and China, American Farm Bureau Federation President Zippy Duvall said in a statement, “China is one of the top three export destinations for America’s farmers and ranchers, so word of the 90-day pause was welcomed news.”
The International Fresh Produce Association said in a statement, “We are encouraged by the recent progress between the U.S. and China to ease reciprocal tariffs and reduce trade barriers. As one of the largest global markets, China plays a critical role in the produce and floral industry’s international supply chain, and this agreement marks a positive step toward creating a more stable trade environment.
But the 90-day reprieve provides temporary relief and uncertainty remains.
“The long-range impact of tariffs make our soybeans uncompetitive in the world marketplace. That’s our big concern,” Kindred said. When Trump ordered tariffs on China in 2018, U.S. soybean farms “lost market share to counterparts in South America who expanded production,” he added.
Between 2018 and 2019, tariffs resulted in approximately $27 billion in lost exports for U.S. agricultural producers, according to a U.S. Department of Agriculture report. Soy and pork producers suffered the most significant economic damage.
“I know what Trump is trying to do. He is trying to level the playing field with China. I just don’t agree with the tactic,” Kindred said of the trade war with China. Trade representatives should negotiate and “use tariffs as a last resort.”
The International Fresh Produce Association last month shared concerns about U.S. farmers losing their competitive edge. “Once businesses lose market share, reclaiming it is difficult — if not impossible — dealing a lasting blow to an industry vital to food security and economic stability.”
Contributing: AP