"Trade wars are good and easy to win."
BelGioioso Cheese Inc., a second-generation family company in Wisconsin, has seen sales to Mexico drop since officials there implemented tariffs of up to 15% in early June on most U.S. cheese. The levies were a response to tariffs the U.S. placed on Mexican steel and aluminum.
On Thursday, Mexico was slated to raise its levy on most U.S. cheese to as much as 25%, while China on Friday is implementing tariffs on $34 billion of U.S. goods, including cheese and whey, a dairy byproduct often fed to livestock.
"It’s a nightmare," said BelGioioso President Errico Auricchio.
The Mexican tariffs affect as much as $578 million in U.S. dairy goods, while China’s duties could hit $408 million of cheese, whey and other products, according to U.S. Chamber of Commerce data.
July milk futures have dropped 12% since Mexico announced May 31 that it would strike back with tariffs. The price for a barrel, or 500 pounds, of white cheddar last week hit its lowest level since 2009. More cheese is in cold storage in the U.S. than any time since the U.S. Department of Agriculture began keeping track in 1917.
U.S. dairy farmers have been caught up in a trade dispute with Mexico before. In 2009, Mexico imposed tariffs in response to a trucking disagreement that included levies as high as 25% on U.S. cheeses. U.S. shipments of cheese to Mexico fell by 26% during the 14-month dispute, according to the INTL FCStone Financial, a trading firm.
Since then, U.S. dairy exports have grown to account for about 12% of Mexican consumption last year, according to Rabobank.
More than 60 cheese and dairy producers wrote to the Trump administration last month, saying the trade war could cost them that foothold. "Our share of the Mexican market is in grave jeopardy," they wrote.
René Fonseca, general director of Mexico’s National Milk Industries’ Chamber, said Mexican processors are pushing U.S. producers to lower their prices to make up for the tariff.
Mexican dairies are also ramping up production and processors are looking for alternative suppliers for cheeses such as gouda in the European Union, Mr. Fonseca said. He said Mexican companies that find a new supplier likely won’t revert to their old U.S. trade partner if tariffs are removed.