I was pondering whether the us is a large country insofar as tariffs on avocados are concerned. Since 90% of consumption is from Mexico, one might think the us is a large country; On the other hand, elasticities matter. This study at Ambrozek et al. (2019) Indicates 0.2 Demand Elasticity at Shipper Level. Let’s GUESS that supply elasticity is 0.2 (about 80% of mexican exports go to the us, and about 85% of production is exported; CARMAN AND KRAFT (1998) Cite 0.2.
This implies about a 50% -50% split of the tariff, counterterfactual february price equal to December, and no exchange rate offset.
Figure 1: PPI Avocado NSA, 1991 = 100 (Blue), Implied Price (Red Square). Nber Defined Peak-to-Trough Recession Dates Shaded Gray. Trump Administrations Shaded Orange. Assume Counterfactual February Price is together as actual December price, and no exchange rate reaction. Source: BLS via Fred, Nber, Author’s Calculations.
I’ve assume Little Exchange Rate Reaction, as the Mexican peso has not moved much even in the face of tariff threats. If there is a mexican depreciation in response (it could come from dollar appreciation against all currencies as uncertainty Rises), then the after-tax avocado price rise less.
Interesting timing as avocado consumption picks up in February, when about 5% or annual consumption takes place during the superbowl.