I used to be pondering whether or not the US is a massive nation insofar as tariffs on avocados are involved. Since 90% of consumption is from Mexico, one may suppose the US is a big nation; then again, elasticities matter. This research by Ambrozek et al. (2019) signifies 0.2 demand elasticity at shipper stage. Let’s guess that offer elasticity is 0.2 (about 80% of Mexican exports go to the US, and about 85% of manufacturing is exported; Carman and Kraft (1998) cite 0.2.
This means a few 50%-50% break up of the tariff, counterfactual February worth equal to December, and no alternate price offset.
Determine 1: PPI avocado n.s.a., 1991=100 (blue), implied worth (pink sq.). NBER outlined peak-to-trough recession dates shaded grey. Trump administrations shaded orange. Assume counterfactual February worth is identical as precise December worth, and no alternate price response. Supply: BLS through FRED, NBER, writer’s calculations.
I’ve assume little alternate price response, because the Mexican peso has not moved a lot even within the face of tariff threats. If there’s a Mexican depreciation in response (it might come from greenback appreciation towards all currencies as uncertainty rises), then the after-tax avocado worth might rise much less.
Fascinating timing as avocado consumption picks up in February, when about 5% of annual consumption takes place in the course of the Superbowl.
