Trump's tariffs favor Canada and Mexico - American chocolate producers face higher costs than neighbors
US President Donald Trump's trade tariffs are intended to boost domestic production. But in the chocolate industry, they are doing the opposite: They are raising the cost of importing cocoa and hurting the competitiveness of local factories against Canadian and Mexican firms that supply the US.
Under the United States-Mexico-Canada (USMCA) free trade pact, which the Trump administration has confirmed remains in effect, Canada and Mexico can export chocolate to the U.S. tariff-free, regardless of where they source their cocoa, a tropical plant that does not grow on American soil.
Canada also benefits from zero tariffs on imports of raw and semi-processed cocoa such as butter and powder. Mexico, meanwhile, grows its own beans, meaning factories north and south of the U.S. border can produce more cheaply than domestic ones that currently have to pay tariffs of between 10-25% on cocoa inputs. Rates could rise to 35% on August 1.
Leading American chocolate maker Hershey, which produces mainly in the US but has factories in Canada and Mexico, has estimated it will face $100 million in tariff costs in the third and fourth quarters if the taxes remain in place.
Customs data shows that Canada's chocolate exports to the U.S. rose 10% in volume in the five months to the end of May, indicating that some Canadian producers are taking advantage of the opportunity created by the tariffs.
The companies that benefit are mainly Canadian and Mexican contract chocolate manufacturers. These firms produce raw chocolate, to which American factories add ingredients and sell it as an American product.
The tariffs, a pillar of Trump's economic agenda, come at a delicate time for American chocolate makers. Consumers are already buying less, having absorbed double-digit inflation in recent years. Prices have risen sharply, reaching record levels last year, and remain well above historical averages, due to adverse weather and disease in major producers such as Ivory Coast and Ghana. Cocoa accounts for about 30-50% of the cost of a bar of chocolate.
The chocolate market in the US, the world's largest consumer, is worth $25-30 billion, and imports from the main supplier, Canada, account for about 10% of this total. Imports from the second largest supplier, Mexico, account for about 2.5%.
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