CryptocurrencyInvestingBanksReal Estate

When Trade Wars Hit You in the Stomach—Tariffs on This Beloved Italian Cheese Go Into Effect in a Matter of Hours, and the Markets Are Grumbling

October 17, 2019, 11:42 AM UTC

The clock is ticking, parmesan fans.

Unless a trade accord is reached in next few hours, the United States will slap a whopping 25% tariff on some of the most beloved European cheeses at midnight tonight, meaning your cravings for cheese are very likely to get more expensive in the near future.

Cheese importers in Italy reacted quickly to the U.S. Trade Representative’s decision earlier this month to unleash a new round of tariffs on their products, part of a $7.5 billion move by the U.S. to punish the European Union for a decade-old spat over airline subsidies that bewilderingly spiralled into all manner of export-heavy industries.

“The first thing that happened when the tariffs were announced is that two of my importers called to ask for a discount that would cover the higher import tariffs,” said Luciana Pedroni, co-owner of Grana d’Oro Vacche Rosse, a small parmesan cheese producer in Cavriago, around 15 miles southeast of Parma, the city that gives the cheese its name. 

Pedroni’s company produces around 2,000 wheels of Parmigiano Reggiano cheese per year, each weighing between 84 and 89 pounds. The wheels are aged for at least 24 months and sometimes as much as four or five years. Grana d’Oro is one of a small handful of producers still using milk from an increasingly rare cow breed called Vacca Rossa Reggiana, which is falling out of favor with larger producers because it produces less milk than other breeds. But the milk results in a cheese that is deep yellow in color, sweeter and softer than other kinds of parmesan. 

“I had to tell them, no. Absorbing the cost of the tariffs would mean we’d be selling the cheese at a loss,” Pedroni told Fortune. “I haven’t heard back from them yet. I don’t know what’s going to happen. I’m already looking for other markets.”

If impacted cheesemakers like Pedroni vow to hold firm on price, it will be American consumers who stomach the worst of the tariff hit. In the short run, it could mean paying the equivalent of an extra tax on the product. If the impasse drags on, it could distort cheese supplies as both buyers and producers reconsider the economics of doing business with the American market. And it’s not just Parmigiano Reggiano that was pulled into the trade wars. Other favorites such as gorgonzola, Pecorino Romano and Grana Padano—to name a few—will also be impacted.

In most years, around a tenth of Grana d’Oro production is sold in the U.S. Pedroni said she hates the idea of leaving the market completely, since her company and other producers have invested so much in carving out a niche in the country.

“What choice do we have?” she asked. “We are being put in an impossible situation.”

According to Coldiretti, Italy’s main agricultural association, Italy sells around $200 million worth of aged cheese, including parmesan, to U.S. distributors every year. Starting Friday, all of it will be slapped with a 25-percent tax, an increase so steep that sales of Italian cheese in the U.S. have climbed more than 220 percent in the leadup to the increase, as consumers and retailers stock up before prices rise.

“There is no way to know what the impact will be but I can say it won’t be small,” Lorenzo Bazzana, Coldiretti’s chief economist, explained to Fortune. “Italian cheesemakers will suffer because they will all rush to find alternative markets for their products, driving prices lower. But American consumers will also suffer because they will have to pay more or switch to a less authentic product.”

The price of a 24-month-aged hunk of Italian parmesan retails for $21.99 per pound at Whole Foods. If the retailer were to ask the consumer to eat the full cost of the tariff, that would presumably push the price to nearly $28 per pound.

That kind of dramatic price inflation is what worries Nicola Bertinelli, president of the largest consortium of a few hundred Parmigiano Reggiano producers. The Italian cheese must be made from milk produced by around 250,000 free range cows raised in a flat valley between Italy’s Apennine mountains and the Po River, and fed only on local grazing lands. The cheese is produced under a complex set of rules perfected over generations that end with an expert tapping the surface of each wheel of cheese with a small bronze hammer. If the tone isn’t just right, the wheel is destroyed.

This centuries-old tradition is part of the reason why the cheese has been granted a Protected Designation of Origin label from food regulators in Europe. Parmesan is one of Italy’s oldest culinary exports, earning the nickname “the king of cheeses.” Popes and princes gifted the hard savoury cheese to the Renaissance-era courts of Europe.

The U.S. National Milk Producers Federation, meanwhile, scoffs at the use of “geographic indication” laws like the ones that govern the production of Parmigiano Reggiano cheese, arguing they are tools to prevent U.S.-made cheese from being sold in Europe. The argument is behind the White House’s decision to apply the new tariff regime.

Italian Minister of Agriculture Teresa Bellanova said Italy would do everything it could to prevent U.S. cheeses bearing Italian names to be sold in Europe: “If the project is to sell fake parmesan in Europe, we have to make it clear it will never happen,” the minister said.

Bertinelli, who declined to get into the politics of the current situation, said he worries more about Italian cheese losing market share in the U.S., and about consumers who may try an inexpensive cheese labeled “parmesan” only to conclude they don’t like it, without realizing it is not the original product.

“We have done research that shows that two-third of U.S. consumers will conclude cheese from Wisconsin actually comes from Italy if the word ‘parmesan’ is on the label along with the image of an Italian flag, or the Colosseum,” Bertinelli said in an interview. 

“Of course I am worried about the economics,” he went on, with typical Italian flair. “But I am also worried about the person who misses out on the chance to know one of the world’s greatest foods because some tariffs made the original too expensive.”

More must-read stories from Fortune:

Trump’s tax bill has cost homeowners a trillion dollars
—Inside JP Morgan, moving on from WeWork is proving to be a messy proposition
What is Oyo? Behind Softbank’s latest high-growth, high-valuation bet
—Why the next recession may feel very different than 2008
—Trump’s tariffs were supposed to ding China, but the U.S. economy is getting hit 2.5x harder
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.