Tariffs, Coffee and Commodities
- Ryan Delany
- 3 hours ago
- 4 min read
Coffee and the USD are both selling off this morning in the wake of the US tariff announcement yesterday. This is an unusual combination given the steep sell off in the USD (normally inversely related with coffee and commodity prices). A lot of uncertainty remains as to exactly what the impact will be on global markets.
The stated intention behind the tariffs seems to be reciprocity, the idea that trading partners should not be charging tariffs on US goods, or the US will charge tariffs on their goods. Therefore, one possible outcome is the ultimate reduction of bilateral tariffs.
However, President Trump’s bombastic and aggressive style, seems likely to provoke escalation to trade war and therefore higher tariffs on both sides in the short term.
Higher tariffs for longer may actually be the real goal of Trump’s policy anyway. It is no secret that Trump has something of an affinity to tariffs and his rhetoric on trade deficits suggests that he has a mercantilist view of trade.
Trump appears to be gambling on the idea that high tariffs are going to stimulate domestic GDP growth, especially in the manufacturing industry, however, he is also interested in providing protection for US farmers.
This brings us to the impact on Coffee and Commodities.
In this article, we will look at what happened, and examine the impact in two key areas: currencies and consumption.
What Happened
President Donald Trump announced “Liberation Day” tariffs on 4/2/2025. These are new reciprocal tariffs that have already sent shockwaves through global financial markets.
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The U.S. administration introduced a universal 10% tariff on all imports, with significantly higher rates targeting specific countries—such as 34% on Chinese goods, 20% on EU imports, and 24% on Japanese products. The aggressive move has heightened fears of an escalating global trade war, prompting sharp declines in major stock indices worldwide.
Consumption
The US grows very little coffee in terms of volume (we love you Kona Coffee!), so there is no economic benefit to protecting US coffee farmers. However, the tariffs include Vietnam 46% and Brazil/Colombia 10%. In these countries, if the tariffs do indeed apply to agricultural products like green coffee, it would be an economic cudgel designed to open up markets as opposed to protect a domestic US industry.
The Trump administration would need to balance this cudgel with combatting inflation, a key voter concern in the US. If inflation skyrockets on account of tariffs, the Democrats will take the midterm elections in November 2026 and make the Trump administration a lame duck. The administration knows this so they will be taking any steps they can to reduce prices.
Inflation reduction strategies may include exemptions for key products (energy is already exempted for example). I would guess that coffee stands a good chance of being exempted from the point of view of helping the American consumer, but unfortunately if agricultural products form a big portion of the partner countries' economies, it makes the tariff cudgel strategy more effective.
Currencies
The new policies also had a powerful impact on currencies, with the dollar suffering a sharp depreciation—although other heavily impacted currencies, such as the Chinese yuan, fell even further. The move led the DXY index to drop to 101.3 points, reaching its lowest level since October 2024.
Typically when the dollar crashes as it did today, we see a spike in commodity prices. However, bizarrely enough many commodity prices have fallen. Coffee, Cotton and Sugar are all down, although Cocoa rallied sharply. Ags have been mixed but nothing too exciting outside of soybean oil. Energy has fallen significantly.
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Clearly the market is trying to unravel the interconnected chain of which currencies are affected the most by which tariffs, and which commodities are affected.
Going forward, many affected parties, like China and the European Union, have already announced their intention to respond to the U.S. policy with increased tariffs of their own. The impact of a global trade war, along with increased economic uncertainty, has created an inverse effect on the currency market, weakening the dollar.
Additionally, the U.S. tariffs, and any others that come in response to them, seem likely to produce an inflationary impact over the coming months. Currently, most countries are still dealing with the inflation surge after the pandemic, and many inflation indexes, including in the U.S., remain above target.
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The new tariffs are likely to put further pressure on prices, possibly driving interest rates upward and consequently reducing global activity in a context where many economies are already struggling to grow.
Going forward there are still some unanswered questions surrounding trade policies & what lies ahead. Will there be exemptions for certain key consumer goods like coffee? Will there be mutual reductions in tariffs? Will inflation roar back?
For now, the thesis that the market seems to be agreeing upon is that the US dollar will be less in demand on global scale.
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