Yesterday President Trump announced a cut in tariffs on beef, coffee, and other foods. I wanted to make an observation and a prediction.
My observation is that not imposing the tariffs in the first place would have been better.
Here’s the prediction. To use economic jargon food prices will turn out to be downwards inelastic. In other words although prices rise quickly when a tariff, for example, is imposed, removing the tariffs won’t cause prices to return to the status quo ante. At least not nearly as quickly. Competition among retailers won’t bring them down quickly.
One of the reasons that’s the case is how concentrated the grocery business has become. There used to be dozens of major chains and thousands of mom-and-pop grocery stores.. Now there are just a few chains and they don’t actually compete with each other. And then there’s the effect of regional concentration.
I don’t think that national grocery chains should be allowed to exist but I’m a dinosaur.
The short version of this is that prices went up fast. Don’t expect them to come down fast whatever happens.
It’s also the case that Trump could raise tariffs again. He’s a master at breeding uncertainty and retailers are unlikely to reduce prices until they can be certain that tariffs won’t return, which just adds to the factors you cite.
Beef might be different though. If fewer cattle are being raised for environmental constraints, then imports are the only option.