The week of June 16, 2025: Indigestible food taxes, the dollar, SALT, auto, drones, and much, much more.
The week of June 16, 2025: Indigestible food taxes, the dollar, SALT, auto, drones, and much, much more.
Americans love bananas, eating more of them than any other fruit and making the U.S. the planet’s largest importer of bananas. These affordable, nutritious delicacies swept the country at around the turn of the 20th century, an early preview of a better life, with a taste that could only come from the tropics, or somewhere close to them.
To quote from Chiquita’s legendary banana song (1944):
Bananas like the climate of the very very tropical equator,
So you should never put bananas in the refrigerator!
The U.S. was big, but inconveniently short of tropics or even sub-tropics. So its corporations set up large banana plantations in several mainly Central American states. They took an active interest in the politics of these original “banana republics” to help ensure the flow of fruit north.
Those republics still dominate imports of bananas into the U.S. American farmers prefer to concentrate on agricultural commodities more suited to local conditions, which they can produce more cheaply, more profitably, and, in export markets, competitively. American consumers can buy attractively priced bananas from countries better placed to grow them. That, roughly speaking, is how comparative advantage (a key intellectual underpinning of the case for free trade) is supposed to work. Case closed!
But no, back to tariffs. As Bloomberg’s Javier Blas relates:
While the White House granted widespread tariff exemptions for commodities — including for oil, natural gas, uranium, coal, gold, plus some fertilizers and numerous metals like copper — the administration didn’t extend them to a single agricultural commodity. Not one.
As a result, all foodstuffs imported into the U.S. will be subject to a tariff of at least 10 percent, other than those from Canada and Mexico exempted under the USCMA, the successor to NAFTA agreed during President Trump’s first term. That this will cover agricultural commodities, such as bananas, that the U.S. cannot produce on a scale (or at a price) that importers have been able to deliver makes no difference, and nor — shocking in an administration saturated in zombie McKinleyism — does the fact that imported bananas even appear to have dodged the Mckinley tariff. Instead there will be a “reciprocal” tariff of 10 percent (the lowest rate) on imports of bananas from Guatemala, the biggest exporter of bananas into this country, even though it has a trade deficit with the U.S. and 98 percent of U.S. agricultural exports to Guatemala are tariff-free, as are many other American exports to a country discovering that “reciprocity” sometimes only works in one direction.
It is impossible as yet to know what the effect of tariffs will be on food inflation. The final rates are still up for negotiation. Even when they are fixed, there’s no way of knowing how much retailers will pass on or how much they will choose to, so to speak, eat. Calculating the tariffs’ overall impact will be complicated by the fact that imports account for a higher percentage of some foods than others. In some cases consumers will be able to switch to domestic equivalents (possibly pushing up their prices as they do) of the foods they were once importing. There is even a Wisconsin Camembert. Unlike its French counterpart, it is made with pasteurized milk, a deviation which will horrify some impurists.
Other food tariffs will not be so easily avoided. To take some examples (there are plenty more), the U.S. imports as much as 80-85 percent of its seafood, nearly a third of its rice, and over 90 percent of its cocoa beans, another product where America’s climate is, almost everywhere, unhelpful. And it’s much the same for coffee, with the result that almost all the coffee in the U.S. is imported. Around 7 percent comes from Vietnam, which is facing the prospect of tariffs on its exports that could be as high as forty-six percent, a rate that owes more to the administration’s desire to dissuade Vietnam from acting as a conduit for Chinese-made goods into the U.S. than to concerns about American agriculture.
But a 46 percent rate, or anything close to it, would be another instance where the administration’s tariff strategy is at odds with other strategic objectives. Much of the president’s thinking about trade is, to say the least, flawed, but his determination to reduce America’s dangerous reliance on Chinese goods makes both economic and, given the threat China poses to the U.S., geopolitical sense. Tariffs clearly have a role to play in any project to loosen Sino-American trade ties, but they need to be deployed more skillfully than is currently the case. Thus the fact that Vietnam has a far longer unhappy history with its giant neighbor than it has with the U.S. is an opportunity that Washington has been trying to exploit. But squeezing Vietnam economically risks pushing Hanoi closer to Beijing.
A small thing, perhaps, but the recent transfer of a third former U.S. coast guard ship to Vietnam at a time of increased Chinese expansionism in nearby waters is smart in a way that drastically hiking tariffs on Vietnamese exports would not be.
Meanwhile, back in the U.S. two sets of tariffs may combine to increase the price pressure shoppers face. They risk being hit by tariffs not only on what they eat and drink, but also on any cans they come in.
New tariffs are reigniting tensions over an object that is critical to the food and beverage industry but that most consumers give little thought. Cans are likely to be more expensive after President Trump’s move to double tariffs on imported steel, the main material used in cans for food, and on aluminum, commonly used for beverages.
Roughly 80 percent of the specialized tin-plated steel — steel with a thin layer of tin — used for cans for food comes from abroad. And while roughly 70 percent of the aluminum used in cans for beer, energy drinks and sodas comes from recycled material, the other 30 percent that is virgin, or new, aluminum is largely imported.
Perhaps the food and beverage industry can adjust by finding alternative forms of packaging, and perhaps America’s aluminum and steel industries can increase production to replace some of the metals hit by high tariffs, but, if that happens (past precedent would suggest that that is far from clear) it is unlikely that they will be able to match the pre-tariff import prices. And any increase in production will take time.
Trump’s food tariffs will push up food prices (even if we don’t know yet how much). The increase in packaging costs may give them an extra nudge.
Trump’s willingness to put tariffs on food arises, it seems, in part out of the fact the U.S. has recently started running a trade deficit in agricultural products after roughly six decades of surpluses. In the executive order establishing “liberation day,” the president writes:
Just as a nation that does not produce manufactured products cannot maintain the industrial base it needs for national security, neither can a nation long survive if it cannot produce its own food.
Obviously that’s true. No less obviously, running out of food is not anything that the U.S. need fear. Its trade deficit in food products is expressed in dollars (and exaggerated by the way that the imports tend to be more weighted toward highly priced items), not calories. It says nothing about the country’s ability to feed itself. In 2021, American farms produced three times as much as in 1948 on roughly the same inputs (adjusted for changes in their quality, such as improvements in the efficacy of chemical fertilizers) meaning that the increased output is due to improved productivity. The wolf is very far from the door and there is plenty of capacity to push it even further away.
In reality, Trump’s food tariffs have nothing to do with any looming food crisis but a great deal to do with the sense of a ripped-off America that permeates his view of trade:
Eviscerated by a slew of new non-tariff barriers imposed by our trading partners, it has been replaced by a projected $49 billion annual agricultural trade deficit.
Unfair tariffs and non-tariff barriers should be challenged, but if they do bear any responsibility for America’s trade deficit in agricultural products, it is only partial. Blas lists others, including American consumers’ desire for products the whole year round, even if they are out-of-season domestically, and surging prices for certain products, such as coffee and cocoa. He also cites America’s loss of market share in the increasingly competitive market for grains and oilseeds, a process, he argues, accelerated by the fall-out from Trump 45’s tariff battles with China.
Writing for the Cato Institute a week ahead of liberation day, Tad DeHaven recalls how those battles went:
[S]oybean farmers were one of the biggest victims of Trump’s costly trade policies in his first term. Following retaliatory Chinese tariffs on American soybeans, exports to the soybean farmers’ largest foreign market dropped by 77 percent, according to the US Department of Agriculture. Of the $27 billion in total reduced US agriculture exports from mid-2018 to the end of 2019, soybeans represented 71 percent of the lost value.
While US soybean exports to China rebounded with a 2020 agreement between the two countries, American farmers’ share of the Chinese market has not recovered to pre-trade war levels. One reason is that Chinese importers can turn to Brazil and other countries.
China imported $29.25 billion worth of U.S. agricultural products in 2024, a 14% decline from the previous year, extending a 20% drop in 2023.
U.S. agricultural exports to China have declined since 2018 after Beijing slapped tariffs of up to 25% on soybeans, beef, pork, wheat, corn and sorghum in retaliation for duties on Chinese goods imposed by Trump.
Since 2018, Beijing has also diversified its agricultural imports, ramping up purchases from suppliers led by Brazil, and boosted domestic production in pursuit of greater food security.
In another blow to U.S. farmers, their exports to China are among those threatened with retaliatory tariffs by Beijing. Most of those have been suspended (for now), but, given the increasing availability of alternative sources of supply, China’s own growing agricultural production, and continuing tension between the U.S, and China, it seems inevitable that longer-term decline in American agricultural exports to China will persist whatever the outcome of this year’s brawl.
Reuters:
About half of U.S. soybeans, the country’s largest agricultural export to China, were shipped to the Asian nation in 2024, totaling $12.8 billion in trade, according to U.S. data.
However, China has increasingly relied on cheaper and abundant Brazilian soybeans to reduce its dependence on U.S. supplies. This has resulted in the U.S. market share in China dropping to 21% in 2024 from 40% in 2016, according to Chinese customs data…
The U.S. was China’s dominant corn supplier for decades until Beijing approved Brazilian purchases in 2022.
China’s imports of U.S. corn plummeted to $561 million in 2024 from $2.6 billion in 2023 as domestic production increased, according to Chinese customs data.
While China’s corn demand has grown over the past decade to support its massive livestock industry, Brazil has rapidly surpassed the U.S. as China’s leading supplier.
Other areas of vulnerability for U.S. farmers include cotton (by value China accounts for about a quarter of American cotton exports), sorghum (a corn substitute), wheat, and, Reuters reports, “exports of chicken legs, pork ears and offal – products for which there is little demand in the United States.” Odd, that.
Looking at the overall picture, the shift in Chinese demand looks like a response to a wider range of alternative sources of supply made more attractive by the way they enable China to reduce areas of dependence on the U.S. (in many respects, a mirror image of what Trump is trying to achieve) and use its market power to develop closer political connections with, say, Brazil. The strong dollar — an object of unfriendly attention from the Trump team, if some stories are to be believed (one source of the greenback’s weakness) — also played a role in this shift of demand, and not only by China.
It is a painful irony that the structural changes that have led to America’s farmers losing market share were accelerated by Trump’s earlier bout of tariff warfare and there is no reason to think that it will be different this time. Making it more painful still is that one winner from this is Russia, which has becomethe world’s largest wheat exporter.
The difficulties inflicted upon American farmers by Trump’s latest tariff offensive do not stop there. Theretaliatory measures taken by Canada include tariffs on a range of U.S. exports, some of them agricultural. For its part, the administration imposed tariffs on imports of Canadian potash, a key source of fertilizer (the U.S. imports 90 percent of its potash, mainly from Canada). These have now been reduced to ten percent (from an initially proposed 25 percent), other than for that portion covered by the U.S.-Mexico-Canada Agreement, which will remain tariff-free. That helps, but American farmers now face the prospect of Canadian tariffs making it more expensive to produce food and American tariffs making it more difficult to sell it.
Cato’s DeHaven:
Farmers getting squeezed on both ends of a renewed and potentially uglier trade war likely means taxpayers will get squeezed to help cover the consequences. The first Trump administration took $23 billion from taxpayers and gave it to farmers to compensate for their losses. In her January Senate confirmation hearing, Agriculture Secretary Brooke Rollins referenced the bailout, noting, “We are prepared to execute something similar … we can’t reinvent the wheel.”
Ah, so more billions will be added to the debt pile. Golden age!
In conclusion, Trump’s food tariffs are likely to give a boost to food inflation, hit U.S. agricultural exports, and help both Putin and Xi. Apart from that, Mrs. Lincoln…
A more charitable way to look at this topic is that food tariffs are just one type of tariff among several being used by the administration in its campaign to rebalance U.S. trade. Putting to one side the question of whether this is the way to go (with exceptions, most notably in the case of China, it is not) the self-inflicted wounds likely to be caused by food tariffs are yet more evidence of a failure to think the implications of a policy through, a failing that has become a recurrent feature of Trump’s tariff wars. What preparations were made to deal with the likelihood that China would use its domination of the rare earths market as response to higher U.S. tariffs?
Priorities need to be set too. Is trying to lure Vietnam further away from China more important than forcing Vietnam to improve its trading practices? Similarly, is it better to use carefully targeted tariffs focused on China to reduce a dangerous American dependence or to take a wild swing at China while declaring a trade war on much of the world at the same time? The answer to these questions ought to be self-evident, but on too many occasions, these questions do not even appear to have been asked.
The Capital Record: Sound & Vision
We released the latest of our series of podcasts/playlists, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which is hosted by financier David L. Bahnsen makes use of another two formats to deliver Capital Matters’ defense of free markets. The original podcast continues, but if you want to watch David talk, please click on the YouTube link.
The 238th episode: (Podcast/YouTube)
If the claim in the title is true, why do both parties resist this issue? Why is robust new housing supply so hard for the right and the left to claim as their issue, when doing so would be so wildly popular politically, and is the right thing to do?
The YIMBY Movement Is for Conservatives, Too
Abundant Housing Creates Abundant Opportunities
The Capital Matters week that was . . .
The Dollar
Something troubling is happening to the dollar. Despite many reasons to think that the dollar should be appreciating, since the start of the year it has depreciated by around 10 percent. President Trump would be well advised to pay attention to the causes for the dollar’s decline before he proceeds with his budget-busting tax-cut proposal that could precipitate a real dollar crisis. With his import tariffs likely to exert upward pressure on prices, the last thing that Trump needs is for a dollar decline to add more inflationary pressure and for it to add to the government’s borrowing costs…
It seems clear that fiscal worries as well as some of the wider implications of America First (some of which Lachman discusses) are damaging the idea of the U.S. and, by extension the dollar and treasuries, as the ultimate financial safe haven, even at a time of geopolitical tensions on a scale that would usually draw foreign investors to dollar-denominated assets…
Thanks to American domination of the “plumbing” of the global financial system, even holding dollars could be a risk for a country that had found itself subject to U.S, sanctions, something that is also likely to have weighed on countries that thought that they might one day find themselves on the wrong side of Uncle Sam…
Economic Development
The introduction of factory manufacturing in the developing world helped to lift over a billion people out of extreme poverty. Yet factories in developing countries are often portrayed as hot, uncomfortable, dangerous, and wholly unwelcoming places where workers are conscripted against their interests to toil for the betterment of the faraway West…
Autos
Unfortunately, like many a religious or quasi-religious movement before them, climatists are consumed by a relentless quest for purity. This has meant that in Europe anyway (the U.S. took a somewhat more sensible approach) hybrids (even plug-ins), doomed by their carbon connection, were also destined for the junkyard. This was despite voices such as that of Toyota’s Akio Toyoda arguing (correctly) that there ought to be room for hybrids in any auto transition, a commonsense stance that got him into trouble with a number of ESG-crazed U.S. institutional investors…
Labor Law
If complying with employment laws is straightforward and economically sensible, most people will do it. Most people, especially the kind of people who employ other people, want to follow the law. They want to be able to show their shareholders or investors that they are following the law. They don’t want to be tied up in court cases for breaking the law…
Tariffs
There are biased left-wing judges who rule against Republicans improperly. But the U.S. Court of International Trade, in striking down Trump’s tariffs imposed under the International Emergency Economic Powers Act, was not engaging in such behavior. In fact, the decision was remarkably evenhanded and sober…
The SALT deduction makes it easier for fiscally irresponsible states to dodge accountability with voters. By allowing taxpayers to write off their state and local taxes on their federal returns, the SALT deduction shields residents of high-spending states from bearing the full burden of the government they have. Last week, I wrote about the example of New York, in contrast with Florida, based on an article by David Ditch of the Economic Policy Innovation Center.
Ditch has a new article out today about California, and the numbers are just as shocking…
One of the top things that tax policy should seek to avoid is double taxation. That’s why the inheritance tax, for example, is bad tax policy. A person pays income taxes his entire life on money that he earned. There is no good reason to tax it again after he dies. The business tax code is especially full of double taxation that harms economic growth and costs American jobs and investment…
Advocates for the state and local tax (SALT) deduction will often try to twist this correct principle of tax policy into an argument for their cause.
Trains
Now that the Trump administration has decided to defund California high-speed rail, it should take a hard look at a related project in San Francisco that promises to wastefully absorb taxpayer funds. The project, known as the Portal, is intended to extend passenger rail service underground from the edge of San Francisco’s downtown to its gleaming but seriously underutilized Salesforce Transit Center. The tunnel adds 1.3 miles of passenger rail at a cost of $8.25 billion, making it the costliest rail project on a per-mile basis ever…
The Fed
The Fed has cut its GDP growth forecast for 2025 from 1.7 percent to 1.4 percent (slightly lower than some expectations). That’s compared with GDP growth of 2.8 percent last year. Six months ago, the central bank was expecting 2.1 percent growth for 2025.
Forecasts are not infallible (far from it), but the declining trend in expectations (in March the Fed was forecasting 1.7 percent) is unwelcome, and it underlines just how poorly timed “liberation day” was. There was never any way that tariff increases on this scale could be implemented (or renegotiated) without significant disruption to consumer and corporate spending patterns and thus a slowdown in the economy…
The Trump administration’s case for rate cuts also undercuts itself. David Malpass, although not serving in the administration, fleshed out this case in a recent op-ed. If it’s really the case that Trump’s policies are “transforming the economy for the better” and making “growth prospects improve,” then the natural or neutral rate of interest should be climbing. And if it is, then monetary policy is already loosening just because the Fed isn’t raising the target interest rate alongside it.
Nationalization
Jim Geraghty posted on Monday about the government takeover of U.S. Steel. Japanese firm Nippon Steel had offered to purchase the company, a deal that the shareholders of both companies approved. But politicians stepped in. First, Joe Biden blocked the sale entirely. Before the election, Trump said he would do the same. Now that he’s president, he has allowed the deal, but only in exchange for what can be described as nationalization.
Drones
How war is fought is changing. If the U.S. is to build drones on the scale that, if only for prudential reasons, will clearly be needed, one obvious question is how those drones are going to be powered. And one obvious answer is that those drones could be powered by batteries built in the electric vehicle (EV) factories that the U.S. taxpayer has been subsidizing at such enormous expense. But is that obvious answer the right one?
Net Zero
Britain’s reckless net zero experiment may be a disaster, but at least it is providing educational opportunity after educational opportunity to see how dysfunctional central planning can be. Determined to outdo the climatist zealotry of its hapless Conservative predecessors, Britain’s Labour government is set on decarbonizing all but a scrap of the country’s electricity (the scrap was a concession) by 2030, a counterproductive deadline designed to create that sense of urgency without which central planning’s greatest follies would be incomplete.
ESG
One of the frequent complaints thrown at those, typically on the right, who have objected to the rise of ESG has been that they are “politicizing” the investment process. It was — and remains — an absurd argument. But ESG’s activists, propagandists and rent-seekers have been found out, and they have had to try something…
School Choice
Six states this year created or expanded school-choice programs to include all students, bringing the list of states with universal eligibility to 19. But one state, New Hampshire, didn’t stop at access. It joined a growing list of states to raise the bar even further and ensure its students can benefit from true educational freedom…
Nuclear Power
Christopher Koopman & Josh T. Smith:
Energy Secretary Chris Wright declared on June 9 that taxpayer-backed loans are the “best way to get shovels in the ground” for new nuclear projects. The soundbite is part of the administration’s campaign to convince Congress to maintain his department’s enormous financing subsidiary, the Loan Programs Office — but it misses the mark. The real bottleneck to nuclear progress in America isn’t a lack of federal financing. It’s federal regulation that strangles the “nuclear renaissance” sought by President Trump…
Selling Federal Land
When Republicans talk about selling federal land, people’s minds immediately go to national parks and their unparalleled beauty. The government should not sell off any national parks, but it should absolutely sell off a bunch of land…
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