Trade war 2.0: Strategies to navigate tariff whiplash

Love them or hate them, businesses can plan for tariffs if they know when they are happening, which goods are impacted, and how long they might last. It’s considerably harder if these things change from one day to the next, says a new report from Rabobank focusing on the food and ag sector.

“Market volatility driven by fluctuating rhetoric and tariffs is a major challenge for food companies, with uncertainty complicating decision-making. US food companies must navigate this uncertainty by adopting short-term strategies such as absorbing costs and building inventories, and long-term strategies like reshoring, diversifying suppliers, and investing in technology.”

The report was released as the Trump administration announced 25% tariffs on most goods from Canada and Mexico, before abruptly changing course and announcing a nearly one-month tariff delay on all products from Mexico covered by the USMCA free trade treaty, and hinting that tariffs on Canada could also change at short notice. A temporary reprieve has also been secured for cars from Canada and Mexico following lobbying by US carmakers.

Short- and long-term strategies

In the short term, predicts Rabobank, many food and ag businesses are likely to try to absorb cost increases to maintain market share. “Companies may integrate the tariff costs into their existing cost structures, sharing the burden with partners in the supply chain with the aim of mitigating the immediate impact on consumers and preserving their competitive position.”

Alternatively, they may have to pass prices through to consumers, “accept there may be a hit to demand, and adjust financial performance expectations” accordingly.

We can also expect to see some firms “hedging against FX [foreign exchange], commodities, and interest rates due to high uncertainty” and building up inventories to ensure supply and pricing in anticipating of upheaval to come, adds Rabobank.

Should tariffs last more than a year, food and ag firms will have to diversify key suppliers, invest in technology to drive efficiency, and engage in reshoring and nearshoring, which carries risks given current uncertainties about which markets will remain “friendly,” notes Rabobank.

Firms outside the US in turn may seek to acquire or partner with US-based companies to avoid tariffs, it predicts.

How would tariffs on Canada and Mexico impact food prices?

According to Rabobank, 25% tariffs on imports from Canada and Mexico could mean a 3% increase in fresh produce prices and a 1% overall rise in food spending. That said, currency depreciation in Mexico and Canada might reduce the effective tariff impact, potentially lowering the inflationary effect to 0.7%, it predicts.

“Products with high exposure to these import markets such as avocados, tequila, and snow crabs could see significant price increases and the seasonality of produce imports could lead to more acute spikes in the winter months.”

Meanwhile, tariffs could upend the sweeteners market, with the US importing 10% of its sugar from Mexico and Mexico importing large amounts of high fructose corn syrup from the US, notes Rabobank.

“In short, tariffs on sugar will inevitably lead to higher prices for sugar and sweets for Americans and could destabilize the USMCA’s fragile accord on sweeteners.”

As for farmers, one widely-publicized impact will be on potash (potassium-based fertilizer, of which Canada is a major supplier for geological reasons), says Rabobank.

“We estimate a 5-10% increase in the price that US farmers would pay for potash, depending on FX pressure to the Canadian dollar. At the high end, this could increase soybean production costs to the tune of 5 cents per bushel.”

“US farmers may find opportunities here, particularly those who can grow produce, but more broadly, for export-oriented agricultural producers in the US, this second iteration of the trade war will be detrimental.” Rabobank, March 2025

How will tariffs impact consumer behavior?

Should Trump apply tariffs more globally, Americans would likely see “demonstrable increases in the prices of seafood and fats and oils, which are also imported in large quantities from the rest of the world,” predicts Rabobank.

How consumers respond will depend on substitutability (whether products can easily be substituted), elasticity (how much price increases impact demand for a given product), and premiumization.

In alcoholic beverages, for example, consumers tend to stick with their preferred brands, demonstrating lower elasticity in their choices. Conversely, consumers of frozen French fries may exhibit higher elasticity and lower brand loyalty, says Rabobank.

“For less premium products and brands where there are substitutable products, price increases lead to a moderate decrease in demand and more brand switching. In contrast, more premium products and brands show less sensitivity to price changes. For example, a premium imported beer like Mexico’s Modelo is likely to retain more consumer loyalty than a private-label frozen French fry product.”

Food & ag associations urge restraint, carve outs

Its comments came as a series of food and ag groups issued statements warning the Trump administration of the potentially devastating effect of a trade war with America’s biggest trading partners.

“Farmers support the goals of ensuring security and fair trade with other nations, but additional tariffs, along with expected retaliatory tariffs, will take a toll on rural America.

“Farmers and ranchers are concerned with the decision to impose increased tariffs on imports from Canada, Mexico and China – our top trading partners. Last year, the U.S. exported more than $83 billion in agricultural products to the three countries.

“Approximately 85% of our total potash supply – a key ingredient in fertilizer – is imported from Canada. For the third straight year, farmers are losing money on almost every major crop planted. Adding even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear.

“We ask the president to continue working with our international partners to find ways to resolve disagreements quickly, so farmers can focus on feeding families in America and abroad.” American Farm Bureau Federation President Zippy Duvall  

“Mexico and Canada are valuable trading partners that American agriculture depends on, and trade with those countries is critical to the well-being of dairy farmers. Let’s focus on getting the concerns ironed out quickly so we can focus on bolstering these critical trade relationships. Then, let’s put those tariff tools to work, driving change with the trading partner that’s brushed off U.S. concerns for far too long – the European Union.”  Gregg Doud, President and CEO, National Milk Producers Federation

“Exports are fundamental to the health of the US dairy industry. One day’s worth of milk production out of every six is destined for international consumers and US dairy sales to Mexico, Canada and China account for 51% of our total global exports. That’s a lot at stake. Dairy farmers and manufacturers are counting on a swift resolution to this impasse and urge a redoubling of efforts at the negotiating table to find a workable way forward that addresses U.S. national security concerns while also preserving export flows that are vital to supporting American farmers and workers.” Krysta Harden, President and CEO US Dairy Export Council

“TFI continues to urge the administration to provide a strategic carveout for Canadian fertilizers from these tariffs, including through designation as critical minerals. With the spring planting season fast approaching and US agriculture continuing to face serious headwinds, maintaining reliable and cost-effective fertilizer supply chains is essential to ensuring a productive harvest and protecting American farmers from unnecessary financial strain.

 “Today, 85% of our potash imports come from Canada. Potash is an irreplaceable component of modern agricultural production, and the US has historically sourced nearly all the potash used by farmers from international markets. Potash deposits are geographically specific and mine development in the US is time intensive and costly.

 “Additionally, Canada supplies US growers with nearly 10% of their nitrogen fertilizer needs, accounting for 25% of total nitrogen fertilizer imports, and nearly 20% of sulfur consumed by US farmers and others.

 “An open, fair, predictable, and transparent trade environment between the U.S. and Canada is vital to supporting a strong, competitive fertilizer industry that meets the needs of American growers. Restrictions on this critical cross-border trade will drive up costs for farmers, which could ultimately be felt at the grocery store by consumers.” Corey Rosenbusch, President and CEO, The Fertilizer Institute

However, some farmers said they were prepared to “buckle down” and ride the storm.

Russell Hedrick, a first-generation farmer growing corn and soybeans on a 30-acre farm in Hickory, North Carolina, holds his state’s record for soybean yield and the world dryland corn yield record.

He told AgFunderNews: “My opinion as a farmer is, I don’t like the tariffs as they are driving up the cost of the goods I need but I understand it’s making our countries trade more fair on a world market so we are buckling down as most farmers are and only buying what’s needed now until we see more available ‘Made in America’ products.”

Further reading:

Tariff whiplash: Uncertainty is driving inefficiencies in CPG supply chains, says consultant

From fertilizer to machinery, how might tariffs impact the agtech sector?

Navigating tariffs and trade in 2025: ‘There will be carnage’

Trump’s tariffs won’t help US agrifood industry, says ex-Congressman Charlie Dent: ‘There are no winners’