The latest wave of tariffs imposed by the Trump administration, particularly targeting Mexico, Canada, and China, is reshaping the food and beverage (F&B) industry. With Canada and Mexico serving as critical trade partners for US food companies, these tariffs are disrupting supply chains and increasing costs. Additional levies on Chinese imports, particularly those affecting raw materials and packaging, further compound the issue. As firms navigate this new trade environment, they’re being forced to reassess procurement strategies, suppliers, and pricing strategies to mitigate potential effects. President Trump’s new tariffs, set in effect today (March 4), include a 25% tax on all imports from Canada and Mexico and a 10% tariff on all Chinese imports. He also reinstated a 25% tariff on steel and aluminum imports that removed previous exemptions. While these measures aim to protect domestic industries, they’re projected to reduce US real GDP, increase consumer costs, and lower federal revenue by an estimated $130 billion over a decade. In this article, we break down tariff impacts on the food and beverage industry, including our recommendations for potential short-term and long-term solutions. 

Tariff Effects 

One of the most immediate effects of the tariffs is a strain on supply chains with Canada. The US F&B industry relies heavily on Canadian imports, including raw ingredients and finished goods. Tariff-induced price hikes are thus a significant concern for bottom lines. As costs rise, companies must decide whether to absorb the impact and shrink margins or pass it on to consumers, which may affect demand. Additionally, US firms exporting to Canada may see reduced sales as Canadian consumers boycott or choose local products.  

Similarly, tariffs on Mexican goods presents another substantial challenge. Many US food companies, especially in states like California and Florida, depend on fresh produce and other food products from Mexico. New tariffs will likely drive up costs for fruits, vegetables, meats, and other essential items. While this may create opportunities for American farmers to expand production, scaling presents its own challenges with labor shortages top of mind. Additionally, businesses relying on Mexican ingredients face the risk of supply chain disruptions if they can’t secure alternative suppliers in time. 

Solutions 

To navigate these challenges, food and beverage companies must prioritize agility in their sourcing and procurement strategies. Diversifying suppliers across multiple regions can help reduce reliance on tariff-impacted countries and mitigate risks associated with supply chain disruptions. Companies should also explore local sourcing opportunities to minimize exposure to international tariffs. Firms may opt for shorter supplier contracts to allow themselves flexibility in adjusting to new trade policies.  

Additionally, investing in inventory visibility and supply chain analytics can help businesses anticipate shortages and respond swiftly to market changes. This data can help inform the choice of secondary suppliers and supplier diversification to ensure backup options in case of disruption. Firms should always have a switching plan if new tariffs impact existing suppliers. These secondary suppliers should be diverse and largely regionalized where possible. 

Additionally, re-negotiating existing contracts can prove cost-effective if tariffs remain for at least four years. But beyond sourcing, businesses must also build repeatable processes to address logistical bottlenecks. Tariffs often lead to port congestion, customs delays, and extra documentation demands. Developing contingency plans for expedited shipping, securing extra warehouse space, and rerouting shipments, for example, can help mitigate these risks and prevent inventory shortages. It’s imperative that firms have a plan for unexpected delays in both incoming and outgoing shipments. 

On the financial side, creating liquidity buffers is essential to absorb any increased costs from the tariffs. This may be as simple as increasing cash reserves held at all times. In addition, temporary cost-sharing agreements with suppliers or customers can ease financial strain and hedging against foreign exchange fluctuations can help mitigate currency-related risks. 

To sustain consumer demand despite rising costs, some approaches that companies can take include continuously assessing competitive positioning, doubling down on loyalty programs, and introducing promotional offers. Leveraging “Made in USA” branding, for instance, can resonate with customers looking for domestically produced goods. Ultimately, small- to mid-size firms must stay focused on value provided to the consumer, as larger firms can eat costs and gain margin on less cash-heavy businesses.  

Finally, retaliatory tariffs imposed by Canada, Mexico, and China in response to US trade policies will add complexity to the landscape for US food and beverage firms. These countermeasures often target key agricultural exports, such as dairy, meat, and processed foods, which will reduce demand for American products in global markets. Demand may also drop as angered international consumers choose to boycott US goods. As a result, domestic companies with large international presences will face declining export revenues and must find alternative markets or absorb losses. The added uncertainty in trade relationships underscores the need for firms to strengthen domestic sales strategies. 

As of now, Canada has announced retaliatory measures, implementing 25% tariffs on approximately $155 billion (CAD) worth of US goods, including live poultry, dairy products, and vegetables. Similarly, Mexico has vowed to impose retaliatory tariffs, though specific targets have not been detailed yet. Finally, China has also retaliated by imposing tariffs on about $21.2 billion worth of U.S. exports, with rates of 10% and 15%. 

Looking Ahead 

The tariffs imposed on Mexico, Canada, and China are presenting significant challenges for the U.S. food and beverage industry. From supply chain disruptions and cost inflation to shifting consumer behavior, firms must adopt strategic alternatives to remain competitive. By diversifying suppliers, enhancing supply chain resilience, and maintaining a strong focus on consumer value, businesses can mitigate some of the financial and operational impacts of new trade policies.  

To continue the conversation, reach out to our team today. 

Contributions from Jake Park-Walters