Guac Shock: Understanding Tariffs With Avocados
from RealEcon
from RealEcon

Guac Shock: Understanding Tariffs With Avocados

The majority of avocados consumed in the United States come from Mexico. Here’s how tariffs could make the price of avocados—and other goods—more expensive.

February 7, 2025 10:06 am (EST)

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Current political and economic issues succinctly explained.

Tariffs are a tax on foreign-made goods. When the United States imposes tariffs on another country, it means that U.S. businesses and consumers must pay a tax to the U.S. government whenever they import products from that country. As part of the Donald Trump administration’s planned tariffs, U.S. businesses and consumers will pay a tax whenever they buy goods from Canada, China, or Mexico. Let’s use the price of an avocado to see how this works in practice.

This is a highly simplified example, as the supply chains of most goods are far more complex. The price of an avocado after tariffs would also depend on decisions made by shipping companies, wholesalers and other intermediaries, and the Mexican supplier. More complex products such as cars involve importing many components—some of which cross the border multiple times, meaning the net price increase from a 25 percent tariff could end up being significantly larger than 25 percent.

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And this is not just a hypothetical. The vast majority of avocados eaten by U.S. citizens come from Mexico, including an estimated $2.7 billion worth of avocados imported in 2024. In fact, free trade with Mexico is partly responsible for the rise of avocados in the U.S. diet.

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Blanket tariffs on Canada, China, and Mexico would also result in higher prices for many different products, not just groceries. Everything from cars and crude oil to smartphones and computers could be significantly affected. Inflation was a core issue for many voters in the 2024 U.S. election, and price increases from tariffs could add to this concern.

Nor does this example account for inevitable retaliation. Trade partners could choose to impose their own tariffs on the United States in response, as China did in Trump’s first term, cutting off access to markets for U.S. exporters. The business these exporters lose will force them to ultimately make painful cuts to jobs, wages, and investment. 

To be sure, tariffs are not all bad. They can be a legitimate tool for countering unfair trade practices—such as the dumping of artificially cheap Chinese goods into U.S. markets—that harm U.S. industries. They can also be used to support U.S. sectors critical to national defense and economic stability, or to protect certain U.S. industries from competition. These advantages provide a rationale for the current bipartisan consensus across the Joe Biden and Trump administrations around tariff use. But what ultimately matters is how they’re used—like a surgeon’s scalpel, targeting specific products and minimizing economic harm, or a blunt weapon, pummeling economies across the board. 

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Tariffs also generate revenue for the government, although economists generally agree that these gains are far outweighed by the economic pain tariffs cause and cannot replace U.S. income taxes as a source of government income. According to the nonpartisan Tax Foundation, the Trump administration’s planned tariffs would generate some $90 billion in revenue in 2025, but lead to 330,000 fewer jobs. This pales in comparison to the some $3 trillion that the federal government received from corporate and individual income taxes in 2024.

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