President Trump over the weekend followed through on threats to issue tariffs to Canada, Mexico and China, setting the stage for a global trade war and likely leading to increased costs for restaurants on dozens of commodities from alcohol to vegetables.
But the impacts from the tariffs, 25% on Canadian and Mexican imports and 10% on Chinese imports, could be more far-reaching, potentially creating economic challenges while delaying efforts by the U.S. Federal Reserve to lower interest rates.
The White House imposed the tariffs to use America’s economic might as “leverage to ensure Americans’ safety,” noting that trade accounts for just 24% of the U.S. gross domestic product, compared with 67% of Canada’s economy, 73% of Mexico’s and 37% of China’s.
Trump issued the tariffs under the International Emergency Economic Powers Act (IEEPA), which authorizes the White House to regulate international trade during times of emergency. He made the proclamation on Saturday, and the tariffs are set to take effect Tuesday. (UPDATE: Trump said Monday the tariffs on Mexico would be delayed for a month following a pledge by the Mexican president to send troops to the border to prevent illegal immigration, according to media reports. Trump has since done the same with Canada.)
That emergency, the Administration said, involves illegal immigration as well as the flow of illegal fentanyl into the U.S. Fentanyl overdoses kill 75,000 Americans annually. Mexico and China are the primary source of the drug, according to the U.S. Drug Enforcement Administration.
Yet economists and trade groups are concerned that the tariffs will drive up the costs for commodities and other imported goods, which will raise consumer prices.
Tariffs are designed to increase prices on imported goods and their original goal was to erase competitive imbalances between domestically produced products and those made outside the country for lower costs. The tariffs are levied on the companies that import the goods, and those costs are passed onto the consumer.
The Tax Foundation, a think tank, estimates that tariffs will cost the average household more than $830 this year. The foundation also estimates that it will shrink the economy by 0.4%.
“We support the Trump Administration’s goal of strengthening trade relationships and creating fair and favorable terms for America,” David French, EVP for government relations with the National Retail Federation, said in a statement.
“But imposing steep tariffs on three of our closest trading partners is a serious step. We strongly encourage our partners to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
Tariffs are likely to have a substantial impact on grocers, by driving up the cost of fruits, vegetables, fish and baked goods that are then immediately passed onto consumers.
Convenience stores will also share many of these cost increases, plus one more: gas. While the Administration levied a smaller, 10% tariff on Canadian oil, more than half of the country’s oil imports come from our northern neighbor. Most of that oil is processed in the Midwest, meaning gas prices in places like Chicago and Minneapolis will likely increase.
Restaurants, too, can expect higher costs for a variety of commodities, driving up costs at a time when the industry had shifted into a more normalized rate of menu price hikes. While food costs have less of an impact on restaurants than they do grocers, the cost pressures—which could come quickly—come as operators have a limited amount of pricing power. Menu price inflation coming out of the pandemic has led to steep traffic challenges throughout the industry.
“In this rapidly changing landscape, small business restaurant operators are assessing how they will be impacted, so they can manage pricing pressures, secure key ingredients, and make potential menu adjustments, all while continuing to serve their communities,” Michelle Korsmo, CEO of the National Restaurant Association, said in a statement. “As the Trump Administration, reevaluates trade policies, we are closely monitoring the impacts tariffs will have on food and beverage pricing, domestic sourcing options and menu adaptation. We will continue to work with the Administration to ensure that restaurant operators’ concerns are heard.”
The biggest impact will likely be felt by bakeries and bars and anything that serves an extensive selection of fruits and vegetables, notably avocados. According to the National Restaurant Association, the biggest food and beverage imports from Canada include baked goods, rapeseed, mustard or colza oil, beef and chocolate. Beer, other alcoholic beverages, fruits, vegetables and tomatoes are the top imports from Mexico.
The U.S. gets fewer food and beverage commodities from China, though it gets some fish, oils, preserved fruits and vegetable extracts.
But the bigger impact on the tariffs from China could be on equipment imports. The U.S. imported $120 billion worth of electronics from China in 2023 and $81 billion worth of machinery, according to the Peterson Institute for International Economics. That could drive up the cost of restaurant equipment that has to be imported.
The Peterson Institute said that the tariffs on Canada and Mexico alone could have a $200 billion impact if they’re carried through the duration of the second Trump Administration.
There is also the potential economic damage that could come from an all-out, global trade war. Canada imposed tariffs on a wide selection of U.S. goods, including poultry and citrus, much of which is produced in Trump-supporting red states. Canada also noted that it is responsible for less than 1% of the fentanyl that is smuggled into the U.S.
The U.S. Chamber of Commerce issued a blunt statement over the weekend, saying that “tariffs are not the answer.”
“The President is right to focus on major problems like our broken border and the scourge of fentanyl, but the imposition of tariffs under the IEEPA is unprecedented, won’t solve these problems, and will only raise prices for American families and upend supply chains,” John Murphy, head of international for the chamber, said in a statement.
Then there are interest rates. The Fed has been lowering rates of late as inflation has slowed closer to the 2% annual rate it typically targets, based on the consumer price index. Yet that measure has creeping up of late, and tariffs-fueled price hikes could force the Fed to delay such a move.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.