My daughter is a teenager, so naturally she likes Starbucks (“Starbys,” if you speak Generation Z). We go out for “coffee” a lot, partly because it’s a convenient way for fathers to get their 14-year-old daughters to spend time with them. I put “coffee” in quotes because Bret usually orders some lemonade concoction, while I stick with a simple black coffee. On our most recent visit, she made an observation.
“Your coffee was expensive,” she said.
“How much?” I asked.
“More than three dollars,” she replied.
I shrugged. That didn’t sound like much, but I didn’t really have a benchmark. Bret usually places our Starbucks orders through her phone, and my wife often orders all of our coffee online, so I rarely have a clear sense of what I’m paying for coffee these days.
Still, the comment stuck with me. Later, I checked, and Bret was right: Coffee prices have climbed sharply.
Federal Reserve data show that the U.S. city average price of a pound of ground coffee was nearly $9 in August, about 80% higher than in February 2022, when media were warning of “staggering” price increases. That year marked the peak of America’s inflation wave, when consumer prices rose more than 8% annually, the fastest pace in four decades.
Inflation, however, has cooled since then. So why are coffee prices up nearly 50% over the last 15 months?
Prices are complex, so there’s no single explanation. Rising consumer demand for coffee or bad harvests could play a role. For example, Vietnam, a country that accounts for 10-15% of U.S. coffee imports, has struggled with droughts and low yields.
Still, there’s a far simpler explanation that has nothing to do with rising consumer demand, droughts, or an expanding money supply: tariffs.
In April, the Trump administration imposed a uniform 10% tariff on nearly all countries as part of its “Liberation Day” policy. This included Colombia, which accounts for 17% of U.S. coffee imports. Vietnam, another large coffee exporter, was hit with a 46% tariff, which was later reduced to 20%.
To be fair, the price of coffee was already at historic highs before April. Yet instead of prices falling following increased production or lower consumption (the typical response to high prices, all else equal), the opposite happened: Prices shot up nearly 20%.
“We’re taxing the world’s best coffee exporters,” Stephen Moore, a Trump supporter, observed on X. “Economics 101: Tariffs don’t punish producers — they punish consumers.”
Moore is right. President Donald Trump and his Cabinet have routinely trotted out the claim that these tariffs protect Americans and hurt other nations, especially China. The reality is Americans are the ones paying. Goods coming into the country are taxed, which makes them more expensive, and the cost is passed along the supply chain. Take coffee beans. The first to take the hit are roasters and distributors, then cafés and grocery stores, and finally consumers.
A 50% tariff doesn’t increase the cost of a cup of black coffee by 50%, of course. Purchasing coffee beans is only a small percentage of Starbucks’ overhead, as labor and location costs are higher. However, pricier beans will increase costs, and consumers pay virtually the entire cost as it is passed down through the supply chain, economic research indicates. And those costs are about to get worse.
In August, Trump imposed steep new tariffs on two of the world’s biggest coffee exporters: Switzerland and Brazil.
Switzerland, the third-largest supplier of coffee to the United States, was hit with a 39% tariff after negotiators failed to reach a trade deal with the White House. Brazil, which provides nearly 30% of all U.S. coffee imports, faced an even higher 50% tariff.
Contrary to the White House’s talking points, tariffs on coffee don’t offer “protection” to a favored domestic industry: Less than 0.1% of coffee consumed in the U.S. is grown domestically, mostly because of climate, with Hawaii being an exception. The only real beneficiaries are the government, which saw its coffers swell with juiced tariff revenues, and perhaps politicians who can wield them as a club.
THE FREE RADICAL DATING STRATEGY
Yet tariffs come with steep costs. One needn’t have a Ph.D. in economics to notice them driving up consumer prices, one cup at a time.
Unfortunately, record-high coffee prices are likely to get worse, not better, as Trump’s latest tariffs on Switzerland, Brazil, and possibly Colombia are all but sure to drive coffee prices even higher. Consumers and coffee houses alike will feel the pinch, but perhaps the pinch will remind Americans that international trade is a path to prosperity, not a rip-off.
Jon Miltimore is senior editor at the American Institute for Economic Research. Follow him on Substack.
