A 25% tariff on food and beverage products imported from Mexico and Canada would cost U.S. restaurants more than $12 billion and would hammer profitability, according to the National Restaurant Association.
The trade group said in a letter to President Donald Trump that his tariff threat for our nearest neighbors would cut the average small restaurant operator’s profits by 30%.
“These numbers are staggering to an industry that deals in real time with fluctuations in commodity prices,” Michelle Korsmo, CEO of the National Restaurant Association, said in the letter. “Restaurants aren’t like other small businesses. They run on tight pre-tax margins that average 3% to 5% and they have, on average, 16 days cash on hand. Significant cost increases are not sustainable for most restaurants.”
She urged Trump to exempt food and beverage products from any plan to impose tariffs on Canada and Mexico if he feels the need that such import taxes are necessary.
Trump was elected in November with a clear agenda to use tariffs as a way to accomplish various policy goals and he started his second term with a promise to impose a 25% import tax on all goods imported from Canada and Mexico. That plan was to go into effect in February but it was delayed until March.
But on Monday, Trump said that the tariffs will start next week, according to media reports.
Tariffs are import taxes that are levied on companies doing the importing. Those importers traditionally pass on the costs of those taxes onto their customers.
A 25% tariff on Canada could drive up the cost of baked goods, certain types of oil and beef. Mexico, meanwhile, accounts for a substantial portion of its fruit and vegetable imports from Mexico, such as avocados and tomatoes. It also imports beer and other alcoholic beverages such as tequila.
(Visit here for more on the impact of tariffs on restaurants.)
The concern for restaurants is the impact that such import taxes could have on costs, and the limited ability for operators to raise prices to offset those increases.
Many operators have faced reduced traffic as consumers, particularly low-income consumers, have cut back out of frustration over rising menu prices. But restaurants raised those prices to offset historic increases in labor and food costs.
Over the past four years, Korsmo wrote, food costs have increased 35%. Labor costs are up 36%, she said.
“To remain an engine that grows our national economy, restaurants cannot continue to raise consumer menu prices to balance our higher costs,” Korsmo wrote.
She added that, while trade deficits should be more balanced, “food and beverage products do not significantly contribute to these deficits” and trade involving those products is “reciprocal and mutually advantageous.” U.S. agricultural products play a crucial role in driving export growth, she said.
Exempting food and beverage products, Korsmo said, would “minimize the impact on restaurant owners and consumers. This will help keep menu prices stable and ensure consumers can still enjoy the meals they rely on from our industry.”
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.