US bakery investment analysed:
- Tariff avoidance alone offers a weak case for building a US bakery when investment plans span 15–20 years.
- Established demand can support US acquisitions or manufacturing partnerships, while premium and specialist products may remain viable exports.
- Freight costs, shelf life and imported equipment duties all influence whether local production pays.
Democrats’ victory in both chambers of Congress has set up two years of divided government under President Donald Trump, with the incoming Congress due to take office in January.
European bakery groups selling into the US still need to decide whether to keep exporting or put more production closer to their American customers. Building a US bakery to sidestep tariffs means betting millions on a trade policy that could change long before the plant pays for itself.
The midterm result gives European bakers little certainty over how long those duties will last, says James Watson, partner at Argon & Co.
“Do they believe the Democrats will be able to carry this momentum to a win in two years’ time? Even then there’s no guarantee that they will unwind the tariffs, which leaves businesses in a tricky spot still,” he says.
When does US production pay?
That makes tariffs alone a difficult reason to commit to a new factory, particularly when investment plans typically span 15–20 years. “I think this probably does rule out large greenfield commitments solely based on avoiding tariffs.”
Watson nevertheless sees reasons for European bakers with strong US sales and an established customer base to keep investing. His advice is to tailor the commitment – acquire or partner with existing US co-manufacturers, build when demand is concrete or contracted, and retain some export capacity for premium, branded or differentiated products.
The right approach depends on what comes out of the oven and where it needs to go. “This is nuanced and depends a lot on their product shelf life, branding, manufacturing specialism and where customers are within US.”
Short shelf life can make exporting unattractive regardless of tariffs, while products requiring specialist manufacturing or substantial capital investment may be difficult to replicate locally.
“Anything with highly specialised manufacturing/high capital setup is probably hard to replicate and exports will be resilient to tariffs,” he says. “Strong brands/differentiated products will likely remain suitable for export.”
He believes frozen bakery could be particularly sensitive to tariffs because freight costs already make the export calculation tight. “Frozen baked goods for grocery/food service is where tariffs (alongside existing freight costs) could have the biggest influence on whether the investment is attractive as it is likely already a tight business case.”
Where shelf life allows exporting, Watson identifies freight costs as the starting point in assessing whether serving the US is viable. Tariffs affect how resilient that business case remains, while specialist manufacturing requirements determine whether the product can be made competitively in the first place.
Changing an investment decision already under consideration would require a policy commitment manufacturers could trust over a substantial period.
“Ultimately, any change would need to be specific, credible and durable to meaningfully influence any in-flight investment decisions,” says Watson.
He suggests a binding, multiyear commitment to tariff treatment of between zero and 5% as an example.
Producing in America also leaves European bakery groups exposed to duties on the machinery needed to equip their factories. “Bakery groups may still need to import European ovens/other specialist equipment and so policies reducing tariffs on those items could also reinforce/change any investment decisions,” he says.
Even a decision to manufacture locally therefore depends partly on the cost of bringing European technology into the US. “Sadly though I think uncertainty is likely the only certainty at the minute!”
