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How Trump’s trade war with China could sting restaurants

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Restaurants buy few of the Chinese goods that are now subject to a 25% import tariff, but that hasn’t dashed concerns about possible collateral damage from President Trump’s trade war with Asia’s superpower.

Pundits are nearly unanimous in predicting a significant rise in the price of the $200 billion in food and other imports that are subject to the tariff. And that, say restaurant operators watching the situation, could put a squeeze on the industry in two ways.

A rise in the price of items such as imported seafood or pork could boost the cost of products sourced domestically, they note. Demand could shift to the domestic foodstuffs, as Trump intended with his tariffs, and that could drive up the prices of supplies that have nothing to do with China. 

Even if demand for those alternatives should remain constant, some processors and manufacturers might try to ride the inflationary wave. “It gives them cover to raise prices,” says Barry Nelson, VP of operations for the Pancheros fast-casual Mexican chain, adding, “We’re not seeing that yet.”

Even if restaurants don’t feel an impact from the tariffs on margins, there’s a possibility they could see a negative effect on sales, or at least that’s the fear. With consumers paying more for everything from groceries to tools, disposable income could take a hit, leaving fewer dollars for dining out. 

“We worry more about that effect on the family budget,” says Nelson. 

“We haven’t seen it yet, but we could down the line,” says Michael Abt, CEO of the Huddle House family-dining chain.

The 345-unit operation doesn’t buy many supplies from China, “and what we do purchase tend to be low-incidence items like small wares,” says Abt. So right now, he says, tariffs aren’t much of a worry.

A far bigger worry, he says, is the impact of African swine flu, an epidemic affecting pig farmers outside of the United States. “The pork supply in China is down 10% right now. That’s going to have some ripple effects on bacon supply and costs worldwide,” Abt says.

“That’s something to be worried about,” agrees Nelson. “That’s something that can be widespread. It’s a matter of seeing how deep it can go.”

Whether the pressure on food costs comes from the swine flu or the tariffs, “good relations with suppliers is the antidote,” he says.  He notes that Pancheros was able to weather a spike in avocado costs because it had worked with suppliers to ameliorate the effects.

In the current situation, “we have some Plan B’s,” he says. “We have a great relationship with our supply chain partners. We’ve positioned ourselves to make adjustments on the fly and can weather short-term headaches.”

 

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