US Tariff Relaxation and Its Implications for Coffee
- Igor Bragato
- 1 hour ago
- 6 min read
Last week, the White House announced an agreement to cut certain U.S. import duties on goods from select Latin American (coffee-growing) countries, while fully removing the baseline 10% tariff applied to Brazilian products. In this article, we will provide a framework for understanding the tariff impact on the coffee market, then we will examine these tariff changes and explain their implications for coffee futures prices. Finally, we will see what the next tariff moves could mean for the market.
Framework
We thought tariffs would raise prices for US consumers and therefore stifle demand. However, while this did happen, it also increased the demand for certs as a cheap alternative. Since certs were low already, reducing certs further created a bullish dynamic in the coffee market.
Now that the US is taking some steps to reduce tariffs, we’re left with the question: how do the changes to the tariffs now impact coffee prices?
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We don't see the latest changes to tariffs being meaningful enough to have a big impact on coffee prices. However, this does open the door to a potential change in future tariff policy and a warming on US-Brazil relationship that could have a significant impact on coffee prices at some point.
United States & Latin America Tariffs
On November 13, the White House announced a deal to reduce some U.S. import duties on goods from certain Latin American countries, such as Guatemala, Ecuador, El Salvador and Argentina. The deal should include coffee, as it targets selected agricultural products that can’t be grown outside of the U.S.
The tariff relief is not yet in effect, with the White House noting that “in the coming weeks, the United States and El Salvador, Argentina, Ecuador, and Guatemala will work expeditiously to finalize the Agreements for signature.” Coffee is not explicitly mentioned in the fact sheet, but its inclusion is implied by the language used (below).
"The United States will also give Most Favored Nation (MFN)-tariff treatment for certain originating goods from these countries that cannot be grown, mined, or naturally produced in the United States in sufficient quantities."
Based on the text, coffee should fall under the category of goods eligible for relief because it isn’t grown in the U.S. in large quantities, and the mention of MFN tariff treatment further suggests that the resulting tariff rate would be minimal, possibly zero. At present, these countries face a 10% baseline tariff, except for Ecuador, which is subject to a 15% rate.
Tariff Reduction Implications
We don’t see the quantity affected by the reductions to be large enough to create a major impact.
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Guatemala is the only country among the four that ships a substantial volume of coffee to the U.S. We estimate that roughly half (50-40%) of its annual 3–3.5 million bags of exports are destined for the U.S., which amounts to 1.5 million bags per year. Ecuador and El Salvador also ship coffee to the U.S., but in much smaller quantities – somewhere around 100-200k bags per year. Finally, Argentina is not a coffee-producing country (or exporter) in any meaningful sense.
In essence, the tariff exception for the Latam coffee-producing countries benefits US coffee imports by making them more affordable and accessible.
However, this measure only partially addresses the tariff issue for the US coffee industry at large: Lifting tariffs would only boost annual imports by 1.5 to 1.8 million bags, a relatively small amount (roughly 6%) compared to the US's annual consumption of around 24 million bags, as per USDA data.
Price Implications of Tariff Reductions
In order to have a significant impact on coffee futures prices, the US will have to reduce tariffs on Brazil. The current countries included in tariff reductions just won’t be large enough in volume to have a major impact.
The current tariff reductions amount 1.5 to 1.8 million bags/year from Central America. This would only cover 2-3 months of imports from Brazil (in normal years), which tells us that Brazil is ultimately the key player in the tariff story. Hence, to effectively address the tariff issue, a solution would likely require a relief or exception for Brazilian coffee.
The US has also given a partial (10%) tariff relief to Brazilian products last week. This means that while some global (baseline) duty was removed, the additional 40% “extra” tariff on Brazil remains. Over the weekend, Brazil’s Vice President Geraldo Alckmin confirmed: key exports, including coffee, meat, and tropical fruit, will still face a 40% tariff.
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In practice, this remains a significant tariff, and so we can argue that Brazilian coffee imports remain prohibitively expensive in most cases. The exception of the baseline tariff doesn’t fully address the issue by any means. In fact, while Brazil's vice president reacted positively to Trump's decision, describing it as a "step in the right direction”, he also noted that a significant "distortion" still needs to be addressed to effectively reestablish trade-flows, something we agree on.
Notably, Brazilian coffee exports have taken a hit since the 50% tariff kicked in. From July to October, total exports dropped to 13.8 million bags, marking a 20.3% decline compared to the same period last year. Given that the US is the main destination for Brazil's coffee exports (~20% of them monthly - roughly 600k bags/month), it's reasonable to argue that the US tariffs might be the primary cause of this decline.
The US tariff reductions on Latin American coffee-producing countries alongside the 10% reduction for Brazil can initially be interpreted as bearish for coffee prices, since the move signals a slight increase in export flows to meet demand in the US, one of the world's largest coffee markets. However, the impact on prices should be minimal (as it's already being) unless there's a significant tariff reduction for Brazil, something we haven't seen yet.
Predictions for Further Changes in Tariff Policy
Predicting political moves can be difficult, but the incentives are clear.
From a consumer-cost perspective, it would make sense to relax tariffs on coffee, especially Brazilian coffees. Tariffs on essential imported goods, like coffee, have inflationary effects for the end consumers, especially so when US domestic inventories (likely) sit ~20-25% under typical levels already, much like the ones from other destination markets, like Japan and the EU.
Moreover, the Trump administration will be heavily focused on mid-term elections in November of 2026, and this will focus on the domestic economy and consumer prices.
While we don’t know exactly what the calculus of the current administration will be, we do know that they will feel increasing pressure to reduce prices for the US consumer over the next twelve months. Reducing tariffs on Brazilian coffee - e.g.: down to 10% instead of 40%, would be one seemingly easy way to achieve this.
If further Brazil reductions materialize, then we could see US importers and roasters rush to buy Brazilian coffee. This would likely cause a shift in demand for Brazilian coffee from Europe back to America.
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Finally, we need to consider the impact on certified inventory. While reduction in Brazil tariffs would almost certainly increase demand (lower prices, higher demand), it may reverse the trend of declining certified inventory. This was a major driving force in the recent rally, and we think it is conceivable that reducing the tariffs could reverse this trend.
In summary, a 10% reduction on Brazil likely will not have a huge impact. However, if and when the US reduces Brazil tariffs significantly, say by 30%, then we could see a significant increase in certified inventory. If the increase is large enough, it would signal an end to inverted markets and the beginning of a bear market.
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