Cheaper coffee and tomatoes won't fix the inflation problem

Earlier this year, President Donald Trump rolled out a carpet bombing approach to global trade: Tariff every country and every product, and don’t worry about collateral damage. The administration launched the policy under the auspices of a "national security" emergency, but it cast a net so wide that it encompassed coffee, Christmas toys and running shoes. What could go wrong?

Now, you’ll be shocked to learn, Trump has been forced to revisit his original strategy — but only after he realized that Republicans were starting to pay a political price for his recklessness. In an order Friday, Trump cut tariffs on agricultural products such as beef, tomatoes and the aforementioned java beans. Predictably, the move came shortly after an election that showed Democrats handily beating Republicans in gubernatorial elections that revolved, in part, around voters’ affordability concerns.

Rolling back agriculture levies is a sensible first step toward acknowledging that the tariff policy was flawed from the outset, but it’s also woefully insufficient.

Consider what’s happened to U.S. inflation since Trump’s "Liberation Day" tariffs went into effect. On the whole, year-on-year inflation is running at around 3%, up from 2.4% in March. About half of the increase is attributable to trends in "core goods" (household furnishings, auto parts, vehicles, etc.), the clearest evidence of where Trumponomics is hurting American wallets. The rest of the inflation increase stems from energy prices (electricity and piped gas), which may have more to do with the data-center boom than trade. Food prices are increasing, too, but they’ve made a negligible contribution to the uptick in inflation overall. Still, groceries are more salient when it comes to sentiment than many other products.

Because we repeatedly return to the supermarket and buy similar baskets of goods, we’re more likely to notice when prices rise a lot (such as the 15.3% seasonally adjusted increase in coffee prices since Trump took office, or the 11.5% jump in beef and veal). From the beginning, it was obvious that tariffing agricultural products was as politically foolish as it was economically self-sabotaging. That becomes especially apparent as we move deeper into the winter months, when "home grown" alternatives will become harder and harder to come by. Consumers may not immediately notice when the price of some intermediate good rises and subtly curbs American dynamism, but they do notice what they spend on groceries.

Take coffee, for example. Hawaii is the only state with major coffee-growing operations; the rest of our supplies come from countries including Brazil and Colombia. The plants require warm and wet climates and thrive in rich volcanic soils that most of America can’t provide. No amount of tariffs was ever going to bring more production back stateside. In the contiguous U.S., California and Florida may be the only viable alternatives one day, but their competitive advantages are tech startups and multi-million-dollar condominiums, respectively, not low-margin agriculture.

The tomato is another example of a crop for which the Trump administration has extended tariff relief — and none too soon. Though "love apples" grow in the U.S. in the summer, most of the winter supply is imported, and maintaining high tariffs through the frigid months was a great strategy to boost salad prices while helping absolutely no one.

The rollback on some groceries is welcome, but not nearly enough to assuage consumers, who have lived with broad-based inflation for the better part of five years and will struggle to keep up as the cooling labor market augurs lackluster wage growth ahead.

Fortunately, a broader reprieve may yet be coming. The administration has used the International Emergency Economic Powers Act, or IEEPA, to implement its sweeping duties while bypassing Congress, arguing that deficits are a national security emergency. In the Supreme Court, where a case challenging the legality of the tariffs is underway, a number of justices seemed skeptical of that line of argument. It’s possible that the administration could lose its broadest tool.

That doesn’t mean that a determined Trump administration can’t forge ahead with tariffs some other way, but they’d be forced to go through more rigorous procedures to do so. Under one scenario, they could launch investigations on an industry-by-industry basis. In another, they could coerce Congress into acting. All in all, while tariffs may remain higher than we’re used to, that process could produce an outcome that at least has some semblance of a strategy behind it. At the moment, we can’t even say that.

For now, Trump’s latest walk-back on agriculture products serves as a tacit acknowledgment of how absurd the current policy is. It’s also a cynical recognition that economic outcomes are still secondary to politics and public perception.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Jonathan Levin is a columnist focused on U.S. markets and economics. Previously, he worked as a Bloomberg journalist in the U.S., Brazil and Mexico. He is a CFA charterholder.