LONDON/NEW YORK: U.S. President Donald Trump's tariffs are designed to strengthen domestic manufacturing. But in the chocolate industry, they're having the opposite effect, raising cocoa import costs and making U.S. production less competitive than factories in Canada and Mexico, industry executives and experts say.

Thanks to the U.S.-Mexico-Canada Agreement (USMCA), chocolate exported to the U.S. from Canada and Mexico is tariff-free, regardless of where the cocoa is sourced. Meanwhile, U.S. manufacturers must now pay between 10 percent and 25 percent in tariffs on cocoa imports. Those rates could rise to 35 percent starting August 1.

Canada has no tariffs on imported cocoa products like butter and powder, and Mexico grows its own beans, giving both countries a cost advantage over U.S.-based factories.

Top U.S. chocolate producer Hershey, which has facilities in Canada and Mexico, estimated earlier that tariffs could cost it US$100 million in the second half of this year if they remain in place. The company recently introduced double-digit price hikes on products like Reese's cups, but said the increases were not related to tariffs.

Smaller producers are also feeling the pressure. Taza Chocolate, based in Somerville, Massachusetts, had to pay over $24,000 in duties for a single container of cocoa from Haiti. Its next shipment from the Dominican Republic will cost more than $30,000 in tariffs. "For a company our size, that's our profit margin gone," said CEO Alex Whitmore. While he considered moving part of the production to Canada to benefit from USMCA, the investment was too risky in today's uncertain environment. "We're just hunkering down and hoping this will pass," he said.

Customs data from Trade Data Monitor shows Canada's chocolate exports to the U.S. rose 10 percent in the first five months of this year. Industry insiders say Canadian and Mexican contract manufacturers are gaining market share, including multinationals like Barry Callebaut, which operates multiple facilities across North America. Barry Callebaut declined to comment, but CEO Peter Feld noted the company's presence in the U.S., Canada, and Mexico "allows us to navigate this environment."

Contract chocolate makers supply raw chocolate to U.S. brands, which then add ingredients and market it as American-made.

The timing is especially tough for U.S. chocolate makers. Cocoa prices have surged due to poor weather and disease in major producing countries like Ghana and the Ivory Coast. Cocoa accounts for 30 to 50 percent of a chocolate bar's total cost. Hershey said in May that it is lobbying the U.S. government for an exemption on cocoa imports.

In Mexico, the chocolate association Aschoco Confimex said American companies have shown growing interest in outsourcing production south of the border. "The sentiment… and requests… to manufacture in Mexico is real and has been increasing," said director general Paolo Quadrini.

The U.S. chocolate market is worth $25 to 30 billion. Imports from Canada and Mexico now make up roughly 12.5 percent of that total.