March 13, 2025 - Just like in his first term, President Trump is once again pushing tariffs, proposing a 25% duty on imports from Canada and Mexico, including aluminum and key food products. He also called for an additional 10% tariff on Chinese imports, bringing the total duty on goods from China to 60%. If enacted, these tariffs will raise costs for essential ingredients and packaging materials while disrupting supply chains via stricter border checks and customs delays.

For food and beverage (F&B) companies, understanding the full impact of these tariffs is imperative. Only then can they develop contingency plans to manage rising costs and disruptions.

This article is the first of a two-part series. Here, we discuss how these tariffs could affect every stage of the F&B supply chain, from raw material sourcing to production, compliance, logistics, transportation, inventory management, and distribution.

For tips on how to plan and act if this trade policy happens, read the second part here.

How the 25% Tariff Will Affect the F&B Supply Chain

Sourcing Raw Materials

A 25% tariff hike will make procuring raw ingredients significantly more expensive for F&B businesses, which rely on imports from Mexico, Canada, and China.

Take aluminum, for example — more than half of the U.S.’s aluminum imports come from Canada. If these tariffs take effect, packaging costs for beverage cans, food pouches, snacks, and dairy products will rise.

Mexico is also a major fresh produce supplier, accounting for 63% of U.S. vegetable imports and 47% of fresh fruit and nuts imports in 2023. Beyond produce, the U.S. imports billions of dollars worth of grains, seafood, beef, alcohol, oils, sweeteners, and other key ingredients. The tariff increase will drive up procurement costs across the board.

Beyond higher prices, we anticipate sourcing will become more challenging due to stricter inspections and longer processing times at ports, increasing delays and uncertainty in supply chains.

Producing F&B Goods

Rising raw material costs will increase production expenses for F&B companies. Many also import their processing equipment, refrigeration units, and industrial kitchen machinery, and we anticipate these higher import duties will make maintaining or upgrading production lines even more expensive.

Beyond tariffs, President Trump’s proposed immigration enforcement policies could further disrupt food production. The F&B industry relies heavily on immigrant labor, particularly in farming, food production, and processing. Undocumented workers account for 12.7% of the agriculture workforce and 5.4% of manufacturing. Deporting them could cause severe labor shortages, forcing businesses to pay higher wages while struggling with increased material, packaging, and equipment costs.

Complying With the FDA

Expensive production will force many businesses to balance quality with competitive pricing. Some may switch to cheaper alternative ingredients to bypass import tariffs, but if these alternatives fail to meet FDA safety standards, they could face fines, recalls, or regulatory warnings. Even when substitute ingredients comply with regulations, businesses must update labeling, packaging, and documentation to reflect the changes, adding to administrative and production costs.

Transporting F&B Products

Cross-border trucking traffic between the U.S. and Mexico surged 30% year-over-year in September 2024, but the impending tariffs could affect it. Higher import duties and stricter customs checks will likely slow the movement of goods, leading to longer transit times and congestion at border checkpoints. This poses a risk for perishable goods, increasing the chance of spoilage and rendering them noncompliant with the FDA.

President Trump’s tariffs also include motor vehicles and auto parts, likely increasing transportation costs. As trucking companies face higher expenses, shipping rates will rise, raising the overall cost of goods.

Managing Inventory

Many F&B brands use just-in-time inventory management for non-perishable items to reduce storage costs and minimize waste. However, tariffs could cause product shortages due to sourcing difficulties and customs delays, forcing companies to hold more inventory as a buffer. This shift increases storage costs, requiring additional warehousing space. Finally, this shift could also tie up working capital, affecting cash flow and financial flexibility.

Distributing Finished Goods

Tariffs will likely reduce demand, especially if businesses pass higher costs to consumers, who often cut back on discretionary spending when prices rise.

The U.S. also exports finished food and beverage products to Canada, Mexico, and other international markets. In 2023, Canada was the largest importer of U.S. processed foods, purchasing over $16.5 billion worth, followed by Mexico at $8.8 billion.

If the U.S. enforces the proposed tariffs, affected countries will likely retaliate with their own duties. Canada has already announced levies on over $100 billion worth of American goods if the tariffs go through. These retaliatory measures would make U.S. products more expensive and less competitive abroad, potentially leading to declining exports and revenue losses for F&B companies.

Could the F&B Industry Benefit from These Tariffs?

The proposed tariffs are part of President Trump's strategy to protect domestic industries, reduce trade deficits, and strengthen U.S. manufacturing. The idea is that higher import duties will encourage American companies to source locally, boosting domestic production and creating jobs. However, whether we will see these benefits remains uncertain.

The general consensus on the tariffs President Trump imposed in his first term is that they did more harm than good. Retaliatory tariffs from affected countries cost the U.S. more than $27 billion in food and agricultural exports between 2018 and 2019. Industries faced higher costs, disrupted supply chains, and reduced competitiveness in international markets.

If history repeats itself, F&B businesses that do not prepare could face similar challenges and severe consequences. Citrin Cooperman’s Food and Beverage Industry Practice understands that the growth and sustainability of your business are your key priorities. We can help by providing the tools and strategies for you to improve profitability, reduce costs, and combat impending tariffs. Please reach out to your Citrin Cooperman representative for more information.

To learn how to scenario plan and mitigate the risks, read the next article in this series where we outline exactly what to do and how to stay ahead.