Restaurants are just getting through one of the most difficult operating environments in the industry’s history. But they may need to prepare for another round.
Less than a week into it, the second Trump administration is following through on promises made during his campaign that could have far-reaching effects for the restaurant industry.
Promised tariffs on imported goods from Canada and Mexico could drive prices higher. But so, too, could immigration restrictions that might make it tougher to find workers. And a potential trade war with China might make life difficult for the numerous restaurant brands looking to expand there.
Much of this remains uncertain, of course. The threats on tariffs, in particular, could be a negotiating tactic rather than a serious policy proposal.
“The main issue is nobody knows what Trump is going to do because he’s so unpredictable,” said Joel Silverstein, a consultant who has worked with restaurant companies on overseas development.
Yet Trump has already issued a number of orders on immigration, in particular. And he has already established a track record of at least some tariffs during his first stint as president.
“Both of these things combined, tariffs and immigration, could result in high inflation,” said Sunderesh Heragu, dean with the College of Engineering, Architecture and Technology at Oklahoma State University.
Tariffs
Trump spent much of the presidential campaign promising tariffs, particularly on Canada, Mexico and China.
He reiterated his vow to issue 25% tariffs on Mexico and Canada to reporters earlier this week, according to the Associated Press. That said, he said the tariffs would start Feb. 1, rather than immediately, as he had said shortly after the election.
He has also said he would institute tariffs as high as 60%, though this week he told reporters that he must still talk with Chinese President Xi Jinping.
Tariffs would drive up cost of certain goods, particularly fruits and vegetables as well as alcohol such as beer and tequila along with baked goods, cereals and oil. Mexico in 2022 accounted for 51% of fresh fruit imports and 69% of fresh vegetable imports. Canada accounted for 20% of vegetable imports, according to the U.S. Department of Agriculture.
Tariffs are basically taxes on imports and the companies that import such goods end up paying for them. And those companies traditionally pass those costs onto their customers. That means the cost for these items will increase, driving up costs for restaurants, grocers and other businesses.
It is almost universally accepted that these will drive up prices. “There will be a huge increase in prices at the grocery store,” Heragu said.
But he also warned of “unintended consequences,” as tariffs potentially ignite a trade war that could have other impacts, including higher gas prices.
The result of a trade war would hurt the economies of each of the countries, according to the Peterson Institute for International Economics. Mexico in particular would be devastated by a tariff, as exports account for 40% of its economy and about 80% of those exports go to the U.S.
That could drive up emigration, encouraging Mexicans to flee to the U.S. illegally, the study said. That would hurt another of Trump’s policies.
The threats on tariffs in China seem more uncertain. But a trade war with China could not only drive up the cost of some goods, it could have a big impact on the Chinese economy, which hurts restaurant chains like McDonald’s, KFC and Starbucks, among others, eager to expand there.
Silverstein, however, suggested that a widespread price war among restaurants in China is a bigger problem at the moment. “Only about 20% to 25% of all foodservice businesses made a profit,” he said. “It’s a very, very brutal market. U.S. brands need to worry more about the macro environment in China than a trade war.”
Still, Heragu said, tariffs instituted on China during Trump’s first term ultimately cost the U.S. more than $20 billion over two years, in terms of lost sales from China and other countries. And it did nothing to improve the trade deficit. “The opposite thing happened, the trade deficit was higher,” he said. “U.S. jobs were lost.”
Immigration
Trump has already issued a flurry of executive actions designed to curb immigration. He signed one order to suspend “the physical entry of aliens engaged in an invasion of the U.S. through the southern border," directing agencies to take action to remove illegal aliens.
He’s suspended programs that resettle refugees and he declared a national emergency at the border, paving the way for the Pentagon to send troops there. And he’s rolling back existing legal protections to people born in the U.S. of illegal immigrants. He’s also ordered a review of temporary protected status.
Immigration is a major contributor to the U.S. labor force. Nineteen percent of U.S. workers were born in another country, according to federal data. Restaurants, which have an incessant need for low-cost labor, are among those most dependent on immigrants. The National Restaurant Association has called for immigration reform, including a pathway to citizenship for workers living here illegally.
Cutting that supply off could reduce the availability of labor, ultimately driving up wage rates as restaurants and other businesses look for workers. But it could also increase other costs. Food costs could be driven up further as farmers struggle to find enough workers and buildout costs could increase as construction companies look for employees.
“There’s going to be labor shortages,” Heragu said. “Restaurants will have to pay more to attract these kinds of workers. Agricultural producers will have to pay more to get pickers.”
“Obviously, the restaurant industry cannot absorb all this. They will just have to pass it onto the consumer.”
The problem? The restaurant industry raised prices dramatically from 2022 through the first half of 2024 to offset soaring costs for food and labor. Those price increases are still fresh in the minds of the consumer, who has visited restaurants less often as a result. The industry is heavily pushing value right now to get customers in the door.
The administration is banking on economic growth offsetting many of these challenges. But, “There’s a good chance that we could see both rising prices and weaker employment in 2025,” according to an economic outlook on rural areas by CoBank.