Trump threatens more coffee pain with massive Brazil tariff
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President Trump's threat to put a 50% tariff on Brazil, the world's largest coffee producer, risks making your morning cup — already way more expensive than a year ago — even pricier.
Why it matters: Retail coffee costs have been surging for months on the back of record wholesale prices, but there'd recently been at least a little hope of relief.
- That might be out the window now.
Catch up quick: Trump said Wednesday he'd impose steep new levies on Brazil, in an angry letter demanding the country drop criminal charges against his ally, former president Jair Bolsonaro.
- Brazilian officials were quick to promise retaliation.
By the numbers: Coffee futures rose 1.8% in early trading Thursday, bouncing off the eight-month lows hit earlier this week.
- They hit all-time highs in February, but lately have fallen substantially.
Yes, but: While wholesale prices may have been falling, that hadn't worked its way through to the breakfast table.
- The consumer price index for urban coffee prices is up almost 12% over the last year, per CPI data.
- Relief, market watchers say, was still at least a couple of months away, assuming no intervening shocks — like a huge new tariff.
Between the lines: Even assuming some ability to substitute Brazilian coffee with imports from other (also heavily tariffed) countries, wholesale prices could rise more than 40% from current levels, per a market analysis from AI investment analytics group Reflexivity.
- That, in turn, would eliminate any chance of consumer relief, and send prices soaring again.
- The impact to consumers would be as much as an extra $162 a year in coffee costs, per Reflexivity's analysis.
Zoom out: Add uncertainty about the price of a cup of coffee to the general cloud over the economy, investors say.
- "We likely won't see clear signals until the effects flow through the entire economic system, specifically when retailers or suppliers begin passing through the new normal in the cost structure of imported goods, both in terms of tariffs and the weaker dollar," says Josh Rubin, client portfolio manager at Thornburg Investment Management.
The bottom line: Maybe it's time for a nice cup of tea.
