Trump's Tariff Policies Cast Uncertainty Over US Chocolate Industry

The election of the President of the United States (US) has created uncertainty within the chocolate industry, with stakeholders evaluating how his proposed policies, particularly import tariffs, might reshape the market. The President-elect’s campaign pledge to address inflation and high grocery prices resonated with many voters, but the potential implementation of steep tariffs raises concerns about unintended consequences that could affect both consumers and industry players.

Potential Impact of Proposed Tariffs on Chocolate Prices

One of the Presdient-elect’s cornerstone promises — a 10 to 20% tariff on all imports, with goods from China facing tariffs as high as 60% — is poised to disrupt supply chains and raise prices for chocolate and related products. Cocoa, a critical input for chocolate production, is primarily imported from West African nations like Ivory Coast and Ghana, regions heavily reliant on exports to sustain their agricultural economies. Cocoa tariffs could increase costs for US chocolate manufacturers, pushing prices higher for consumers.

Compounding this issue, many domestic manufacturers of chocolate and candy rely on imported intermediary goods, such as fertilizers, machinery, and packaging materials, to support their operations. Tariffs on these goods would inflate production costs, with the burden ultimately passed on to consumers. According to a professor from Duke University, importers often adjust retail prices to offset the financial impact of tariffs, intensifying inflationary pressures on households.

Economic Strain on Consumers

These tariffs could worsen the economic strain for American consumers already grappling with high grocery prices — nearly 25% above pre-pandemic levels in 2024. An analysis by the Peterson Institute for International Economics estimates that the proposed tariffs could cost the average household an additional USD 2,600 annually, disproportionately affecting low-income families. Retailers such as Walmart have indicated that price hikes on essential goods could be inevitable if tariffs go into effect, further constraining household budgets.

Figure 1. Consumer Loss from Proposed Tariffs Over a Year

Impact on Global Trade and Cocoa Supply Chains

Beyond domestic effects, the tariffs may alter global cocoa supply chains. With profit margins for cocoa farming already precariously low in countries like Ghana and Ivory Coast, the additional costs imposed by US tariffs could make the American market less attractive to exporters. These nations might prioritize trade with the European Union (EU), which offers more favorable tariffs and established supply routes. This shift could reduce the availability of cocoa in the US, creating supply bottlenecks and driving up costs for domestic chocolate producers.

Additionally, tariffs risk provoking retaliatory measures from trading partners. Historical precedents, such as China's response to the President-elect’s 2018 tariffs with retaliatory tariffs on US soybean imports, highlight the potential for escalating trade tensions. If countries like China implement retaliatory tariffs on US chocolate products, this could hinder American exports and disrupt the global competitiveness of US chocolate brands.

The Industry's Response and Mitigation Strategies

To navigate these potential disruptions, US chocolate manufacturers and retailers may need to adapt swiftly. Strategies could include:

• Diversifying sourcing options to reduce reliance on high-tariff regions, although this may increase complexity and cost.
• Investing in domestic production capabilities to minimize dependency on imported intermediary goods, though such transitions require time and capital.
• Collaborating with policymakers to advocate for exemptions or reduced tariffs on critical agricultural imports like cocoa.

West African suppliers may also explore strengthening their ties with the EU and other regions less affected by tariff hikes, while governments in these countries could push for policies that enhance the profitability of cocoa farming to sustain their agricultural sectors.

Outlook for the Chocolate Industry

While the President-elect’s promise to alleviate grocery costs appealed to voters, the implementation of his proposed tariffs could drive prices higher, particularly for products like chocolate that rely heavily on imported raw materials. The cascading effects on supply chains, production costs, and consumer prices could create challenges for the US chocolate industry and the broader food sector.

The next few months will be critical as the new administration's policies take shape. Stakeholders in the chocolate industry must remain vigilant, adopting proactive strategies to mitigate potential disruptions while continuing to deliver value to consumers in an increasingly uncertain economic environment.