Trump's trade tariffs could drive EU businesses to set up US sites

'When America sneezes, the world catches a cold' is a common expression coined to describe the fact that, what happens in the US economy tends to hit the global economy.

A key pillar of Trump’s economic plan is 10-20% tariffs on all imports, and 50-60% on goods from China. How significantly could this impact European food exports to the US?

The US is one of Europe’s largest markets. Last year, Europe exported €27bn in food and drink to the US​, up 19% on the previous period, according to FoodDrinkEurope.

The US imports a range of food and beverage commodities from the EU, including beer, wines and spirits, cheese, chocolate, olive oil, and fruit and vegetable preparations. With tariffs, could European food companies be badly affected?

The tariffs, if put in place, would be "not great news for European food and drink companies", said Cyrille Filott, global strategist for consumer foods, packaging and logistics at Rabobank.

Trump's trade tariffs and their impact on EU business

While the tariffs aren't a dead cert, if Trump did enforce them, Europe would undoubtedly push back, Filott predicted.

Push backs could include like-for-like taxes, some economists have suggested, but it's also is possible US consumers may be forced to take the brunt of the extra costs.

Other ways to counter the tariffs could include scaled down exports to the States or even for EU companies to set up shop in the US, said Filott.

Alternatively, and likely the last option, European companies could lower their prices, which would hit profits.

Opinion: Is Donald Trump stoking an EU/US trade war?​

“I’m not hugely concerned [about 10% tariffs]," Filott said. Although, anything above 10% would give cause for concern, he admitted.

European manufacturers' interest in the US market, however, is in growth, especially in private label. Additional costs would make business here difficult as it is usually a more price competitive segment. 

Could European companies set up shop in the US?​

Through the tariffs Trump aims to incentivise international companies, including European ones, to operate in the US. Not only would this circumvent the extra costs for EU businesses, it would bring more jobs to the US – one of Trump's campaign pledges.

Could European companies make such a change? They already are. A glut of European bakery businesses have bought facilities in the States​ in recent years, with investments predicted to rise even before the US presidential election.  

There are even predictions the US bakery M&A activity will grow among Europe's larger bakery businesses​.  

A European frozen bakery company with a big contract to supply pastries to a US retailer would gain from maintaining that agreement, explained Filott. 

It would be in their interest, if they could guarantee the same quality and output, to build or buy a factory in the States. "This is what might happen," he predicts. 

In fact, Trump's tariffs, if they were enforced, could lead some companies to accelerate any plans to expand into the States, suggested Filott.  

Some have even speculated that Trump could provide companies with a two-year grant period (two tariff-free years) if they commit to building something in the US.