Consumers Should Brace Themselves for Higher Food Prices

Many observers have been surprised that the Trump administration’s tariff hikes and threats since the start of the year have had a relatively mild impact on the U.S. economy to date. The weak jobs report issued on August 1 is a sign that the data may be turning. Moreover, a recent conversation with a food importer near the Mexican border made clear that American businesses are already feeling a range of adverse impacts from the tariffs—and that pain for consumers is likely to follow.  

Despite a rebound in gross domestic product (GDP) in the second quarter, U.S. growth in the first half of the year has clearly slowed. Meanwhile, the consumer price index (CPI) report in June registered a four-month high of 2.7 percent over the previous year. CFR Senior Fellow Rebecca Patterson foresees an increased likelihood of stagflation.  

A particularly sensitive part of the CPI is the food index, which increased 0.3 percent in June 2025 and is up 3 percent year over year. Although this is not a staggering increase, rising food prices are a long-term trend that slowly tightens families’ weekly budgets. Many consumers are feeling anxious about prices at grocery stores and are already shifting their spending habits.  

Trade relations, especially with Mexico and Canada, play a critical role in food prices. Driven by tariff reductions under the U.S.-Mexico-Canada Agreement (USMCA) and its predecessor, the North American Free Trade Agreement (NAFTA), those two neighboring countries have grown to be the largest suppliers of agricultural goods to the United States, averaging $41.6 billion and $35 billion a year, respectively, between 2020 and 2024.  

To get beneath those numbers and understand the impact of the Trump administration’s tariffs on the ground, CFR’s RealEcon team reconnected with a produce distributor in Nogales, Arizona, whom the team had met on its nationwide listening tour in 2024. CFR agreed not to use his name to let him speak more freely, but we will call him “Jim” here. 

Jim’s family business imports Mexican fruits and vegetables for distribution to grocery stores across the United States. He and his father have maintained relationships with farmers south of the border for decades and invest $2 million to $3 million a year in crops and infrastructure such as shade houses, tractors, and retention ponds.  

Highlighting the USMCA’s effect, Jim explained that Canada is a major investor in Mexican agriculture, ultimately benefiting all three North American countries. Part of Canada’s financing includes millions of dollars in glass for greenhouses that increase productivity sixfold. Increased productivity in Mexico not only benefits farmers there but also increases supply for American grocery stores.  

The historically strong trade ties between the United States, Canada, and Mexico have made it possible for Americans to access out-of-season and non-native products, contributing to the explosion of fine dining in the United States. Mexican agriculture and supply chains work in conjunction with domestic producers to ensure a wide variety of fresh produce on American shelves 365 days a year at relatively stable prices. Agricultural imports also help fill domestic supply shortages caused by labor shortages, weather events, and other factors.  

Looming tariffs present a potential threat to this system and American produce distributors. Under current USCMA trade rules, about 63 percent of agricultural imports from Canada and Mexico into the United States are exempt from tariffs. Food imports not covered by USMCA could be subject to increased tariffs threatened by the Trump administration, depending on the outcome of continuing negotiations and court cases. When asked about the future of the USMCA, which is up for renegotiation in July 2026, President Donald Trump explained that the agreement was a “transitional deal,” creating even greater uncertainty for American importers like Jim.  

If more agricultural products are subject to tariffs, Jim noted that he will be responsible for paying the tariffs as the importer of record. He will likely need to obtain a larger line of credit to cover the additional costs, which has led him to preemptively speak to eight banks. If Jim is unable to cover the tariffs, his supplier in Mexico will find another distributor to pay the duty and get produce across the border. In that case, Jim would risk losing his commission to a competitor or would need to negotiate the commission to recuperate investments he has already made in the farmer. Those complications distract distributors from their core business.  

Another headache is that a 17 percent antidumping duty on Mexican tomatoes went into effect on July 14, adding to Jim’s costs. The United States and Mexico had agreed to suspend application of the duty five times since 1996, most recently in 2019. However, this time around, the Trump administration decided to pull out of the suspension agreement and impose the duty.  

Jim could face additional losses if he cannot fill bids with retailers across the United States. Agriculture requires long lead times; production and volume are decided well in advance (usually two years). The uncertainty of the current economic environment, weather conditions, and other factors have led to a diminished appetite for farming. When Walmart asked Jim if he would bid to sell bell peppers this fall, he was unsure he would have the volume to meet the previously agreed upon quantity, meaning a potential loss of business.  

Part of the reason Jim is unsure if he can bid on bell peppers is because tariffs on aluminum and steel also hit his business. Although he does not import the metals himself, Jim had long planned to construct a shade house on a forty-hectare plot in Mexico to grow bell peppers. However, he decided to put this project on hold due to increased aluminum and steel prices. Even though most of the aluminum and steel for the shade house would have been purchased in Mexico, manufacturers there have reduced their overall output because they are exporting less to the United States, causing prices in Mexico to rise.  

Consumers will not immediately notice these changes, but Jim anticipates that within six months the ripple effects will begin hitting grocery stores. During the summer months, the United States sources most of its produce domestically. But as temperatures drop and the domestic growing season ends, American consumers can expect shortages at the end of the year that will only worsen in 2026.  

Uncertainty is natural in the agricultural sector. Droughts, natural disasters, and rainy seasons can wipe out crops and threaten harvests. But current trade policies are piling on further uncertainty, leading one farmer to tell Jim that he will only farm half of his acreage to save capital to make sure he survives for the next two years. Jim relies on a certain volume of produce to maintain profitability; if his farmers begin pulling back their acreage, he, too, will need to make hard choices. 

In addition to trade policy, Jim noted that current immigration policy is hurting the agricultural sector by exacerbating domestic labor shortages. Despite Trump’s initial statement that U.S. Immigration and Customs Enforcement (ICE) would not target farm workers—which the president later retracted—many immigrants are afraid of losing their livelihood in a raid. Jim has seen large caravans of self-deporting immigrants traveling southbound to Mexico over the past few months, unusual outside of Christmastime in a typical year. Without this labor, Jim said, domestic farmers will be forced to reduce production, likely raising prices and reducing the availability of certain products. 

Even one conversation with a local businessperson shows that the impacts of tariffs and trade policy are more complex and fluid than debates in Washington often suggest. The likely effects of those policies on U.S. economic growth, business profitability, and consumer prices are only just beginning to be felt.