Trump cuts tariffs on beef and coffee

On 14 November the White House abruptly exempted imported beef and raw coffee beans from all border tariffs. Voters were angry about grocery prices, and the holiday season was close.

The political signal had arrived ten days earlier. In the off-year elections of 4 November, Democrats won the governorships of Virginia and New Jersey and the New York mayoralty with campaigns built on the cost of living. The administration's response came in stages: an order to the Justice Department to investigate meatpackers, talk of $2,000 'tariff dividend' cheques, and then the exemption itself, whose list also covered tea, bananas, cocoa, spices and some fertilisers.

Where protectionism stops

With the exemption, protectionist doctrine collided with kitchen-table politics, and lost. Retail beef prices had risen by double digits after a historic drought shrank the American cattle herd, and coffee prices hit multi-year highs on poor Brazilian harvests. Adding 25 per cent import duties on top proved politically disastrous, and the administration backed down. Trade barriers, it turns out, stop at the grocery receipt.

Coffee shows the flaw most clearly. America grows almost none of the beans it drinks, so a tariff on them protected no domestic producer and worked purely as a sales tax collected at the port. Beef is different, because American ranchers supply most of the market, and they have resisted cheaper imports, including the administration's own proposal in October to let in more Argentine beef. The herd is the smallest in decades, and imports of Mexican cattle have been suspended over an outbreak of screwworm, so imported meat is one of the few quick sources of extra supply.

Brazil gets its turn

The first exemption left the biggest supplier out. Brazil is America's largest source of coffee and a major supplier of beef, and since August its goods had faced an extra 40 per cent duty imposed over the prosecution of Jair Bolsonaro, the former president. On 20 November the White House lifted that levy on Brazilian beef, coffee and a range of fruit, completing a retreat that the first order had only begun. The sequence suggests that grocery prices, rather than the original dispute with Brasília, now set the pace of trade policy.

Who pays, and who gets relief

The cost of a tariff moves down a chain. The importer of record pays the duty at the border, then passes as much as it can to distributors, processors and grocers, and they in turn pass it to shoppers. Removing the duty reverses the chain only partly, since a supermarket that raised prices has little reason to cut them quickly while demand holds up. Four large packers dominate American beef processing, which is why the administration has turned its attention to their margins as well.

The cost to the Treasury is small. Food is a modest share of American imports, and the exempted goods are a fraction of that, so customs receipts will barely notice. That makes food exemptions a cheap political gesture compared with, say, a tariff cut on cars or electronics, and it explains why the White House moved on them first.

The packers may prove a disappointing target. With cattle scarce, they have been paying record prices for animals and earning thin or negative margins on beef, so an investigation into their pricing may find less than the White House hopes. Most of the money in the chain has gone to the ranchers who raise calves, and they are enjoying the highest cattle prices on record.

Bad luck for early importers

Food distributors and supermarket operators get immediate relief. The rollback also shows how erratic and transactional trade policy has become. Importers who paid non-refundable tariffs on beef shipments in September and October now compete with rivals clearing untaxed stock in November.

Their only hope of recovering the money lies with the Supreme Court, which heard the challenge to the emergency tariffs on 5 November. Until it rules, every importer has to price stock on the assumption that the rules may change again, which argues for thin inventories and short contracts, and higher costs for everyone in the chain.

Cheaper coffee, not cheaper steak

The strongest objection is that the exemption will do little for prices. Beef costs are set mainly by the size of the domestic herd, and rebuilding it takes years because ranchers must hold back heifers for breeding, which tightens supply further in the short run. Coffee should respond faster, since import duties were a large share of the landed price, but futures markets and retailers' hedges mean the relief will reach shelves over months rather than weeks. That strengthens the political logic rather than weakening it: an administration that needs visible progress on prices will keep reaching for exemptions.

Governments that lean on beef prices have a poor record. In 1973 Richard Nixon imposed a ceiling on meat prices as inflation took hold, ranchers held cattle back rather than sell at a loss, and some butchers' counters emptied before the controls were lifted. Removing tariffs is a far milder intervention than a price cap, but the lesson carries over: supply of cattle responds to prices over years, and politicians working to an election calendar rarely wait that long.

The indicators to watch are the food-at-home component of the consumer price index, the next Agriculture Department cattle inventory report, and whether further exemption lists appear before the midterm campaign begins in earnest. The beef and coffee reversal shows that the administration's protectionism gives way as soon as grocery bills threaten its political standing. Tariffs on other everyday foods will probably go the same way if shop prices keep rising.