President Trump announced a sweeping set of tariffs on countries around the world on Wednesday, setting the stage for a global trade war and adding a new set of disruptions for a restaurant industry that is already combatting a shaky economic outlook.
The Administration announced a set of reciprocal tariffs on trading partners of at least 10%, with some key exceptions for countries such as Russia and Cuba that are already facing broad sanctions.
The new import taxes are designed to eliminate trade imbalances between the U.S. and other countries, and Trump argues that many other nations have tougher trade restrictions than does the U.S. The administration argues that trade deficits increased by over 40% over the past five years, ultimately hurting domestic manufacturing capacity. The tariffs vary by country, based on individual trade imbalances, and are as high as 50%.
But tariffs are import taxes on goods imported into the U.S., and are typically paid by companies importing those goods. Those companies typically pass those tariffs onto their customers, driving up the cost of those goods.
For restaurants, which import a range of goods such as wine from France or kitchen equipment from Vietnam, the result adds a layer of cost uncertainty at a time when much of the industry is working to regain consumer traffic.
“Applying new tariffs at this scale will create change and disruption that restaurant operators will have to navigate to keep their restaurants open,” Michelle Korsmo, CEO of the National Restaurant Association, said in a statement. “The biggest concerns for restaurant operators—from community restaurants to national brands—are that tariffs will hike food and packaging costs and add uncertainty to managing availability, while pushing up prices for consumers.”
The administration had already imposed some tariffs, including a 25% tariff on goods from Canada and Mexico and 10% on China. The association estimated those tariffs would cost the restaurant industry $12 billion. Wednesday’s announcement is far broader and affects a much larger range of trading partners.
The Texas Restaurant Association said that it is tracking tariff changes and their potential impact on that state’s restaurants. “While we support strategic use of tariffs, the ongoing uncertainty tax surrounding these policies place significant pressure on our industry,” the Texas association said in a statement. “Increased tariffs will drive up food costs and further strain both restaurants and consumers. This volatility threatens businesses, jobs and the dining experiences that Texans rely on and enjoy.”
The Wednesday tariff announcement roiled stock markets around the world overnight. The Dow Jones Industry Average plunged more than 1,000 points in early-morning trading on Thursday and all major indexes were down 4% to 5%. The S&P 500 Restaurant Index was down 2% in morning trading. Large, global fast-food names, including McDonald's, Domino's, Restaurant Brands International and Yum Brands, were the only restaurant stocks up Thursday, with companies like Cracker Barrel, Noodles & Company and big casual-dining companies like Brinker International and Bloomin' Brands all down more than 8%.
There are growing concerns, meanwhile, that the tariffs—and even the threat of tariffs—could plunge the economy into a recession. Consumer confidence plunged last month as it is. The Atlanta office of the U.S. Federal Reserve, meanwhile, is estimating that first quarter gross domestic product declined 3.7%. Economists are increasingly predicting a recession: Both J.P. Morgan Research and Goldman Sachs have increased their odds for a recession to 40% and 35%, respectively.
The impact of tariffs on the economy is already potentially creating headaches for some restaurants. CEC Entertainment, the parent company of Chuck E. Cheese, has struggled to find investors for a $660 million bond issue, in part because investors are spooked about the impact of tariffs on the economy and on consumer companies.
Further economic uncertainty also comes as much of the industry grapples with a consumer that is more reticent to dine out. Several restaurant chains have expressed concern about the state of the consumer, particularly those with lower incomes. That has ignited something of a price war as fast-food and other chains push value offers to get customers in the door.
Restaurants spend about 30% of their revenues on food and packaging, so the imposition of tariffs could drive up those costs. But there are concerns that restaurants don’t have the pricing power to raise prices or, if they do, the result could drive customers away.
“Restaurant operators know consumers are very sensitive to costs and have kept menu price increases to 30%, while their food costs have gone up 40% in the last five years,” Korsmo said. “Restaurant operators rely on a stable supply of fresh ingredients year-round to provide the menu items their customers want and expect. Many restaurant operators source as many domestic ingredients as they can, but it’s simply not possible for U.S. farmers and ranchers to produce the volumes needed to support consumer demand.”
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