Looming tariffs are threatening to drive up costs and disrupt supply chains for restaurants already navigating a volatile economic landscape.
The U.S. and European Union trade battle escalated Thursday after President Donald Trump threatened a 200 percent tariff on European alcohol in response to the E.U.’s new duties on American spirits. The E.U.’s move came just a day after Trump’s steel and aluminum tariffs took effect, underscoring how quickly trade disputes can spiral and send stocks tumbling as businesses brace for further uncertainty.
The latest tariff threat is just one piece of a rapidly shifting landscape of trade policies, delays, and retaliatory measures. Since February, Trump has imposed and adjusted tariffs on major trading partners, including Canada, Mexico, and China, while introducing a broader “reciprocal” tariff plan aimed at aligning U.S. duties with those of other nations.
A Look at Recent Trade Moves
- February 1: Trump signs an executive order imposing tariffs on imports—10 percent on Chinese goods and 25 percent on Mexican and Canadian products, set to start February 4.
- February 3-6: The administration briefly pauses tariffs on Mexico and Canada but moves forward with levies on Chinese imports, prompting swift retaliation.
- February 10: Trump hikes steel and aluminum tariffs, with the new rates set to take effect in March.
- March 4-6: The U.S. enforces 25 percent tariffs on imports from Canada and Mexico but grants temporary exemptions for certain goods, including goods for automakers as well as food and beverage products, like avocados and beef.
- March 10-12: China strikes back with tariffs on American agricultural products like pork, soybeans, and beef. The E.U. follows with duties on U.S. farm goods, spirits, textiles, and appliances, affecting $28 billion in trade.
What It Means for Restaurants
For the foodservice industry, the potential 25 percent tariff on North American food and beverage imports is a particularly serious concern. Many of these goods, particularly fresh produce, cannot be easily sourced domestically. According to the National Restaurant Association, the tariffs could cost U.S. restaurants $12.1 billion, with food costs already making up a third of every dollar in sales.
“Restaurants aren’t like other small businesses,” Michelle Korsmo, president and CEO of the Association, said in a letter to Trump late last month, where she asked him to exclude food and beverage products from the tariffs. “They run on tight pre-tax margins that average 3-5 percent, and they have, on average, 16 days cash on hand.”
A tariff on Canadian imports could lead to higher prices for baked goods, certain oils, and beef, while Mexico is a major source of avocados, tomatoes, and alcoholic beverages like tequila and beer. However, with ongoing negotiations and shifting policies, there’s still uncertainty over whether food and beverage products will face the full 25 percent tariff come April.
Phil Kafarakis, president and CEO of IFMA, The Food Away from Home Association, urges restaurant operators to focus on preparing for whatever tariffs do take effect rather than getting lost in the speculation surrounding them. While the final details remain unclear, businesses should be developing strategies to address potential cost hikes.
The big challenge is the inability to pass those costs fully onto customers without risking further traffic declines. Many consumers, particularly lower-income diners, have already pulled back due to menu price increases, which were necessary to offset a 36 percent rise in labor costs and a 35 percent increase in food costs over the past four years.
“I don’t think anyone’s naive enough to think that the costs from tariffs are not going to get passed on,” Kafarakis says. “Now, how much gets passed on? How often does it get passed on? That’s where you start to break the economics when it comes to running an operation before you put it into bankruptcy.”
One advantage restaurants have today is the stronger supply chain strategies developed during and after the pandemic. Many operators expanded their supplier networks, diversified distribution partners, and created more flexible menus to adapt to disruptions. Steering consumers toward alternative products could offer some relief if tariffs make certain staple ingredients cost-prohibitive.
But unlike COVID-19, which upended the industry due to consumer behavior shifts, this situation is being driven from the top down.
“Now, it’s about ingredients,” Kafarakis says. “It’s coming the other way. Of course, it’s going to get to the consumer and it’ll hit their pocketbook, but this time it’s way upstream.”
Even before the tariff discussions, the food industry had already been dealing with a volatile supply chain, impacted by natural disasters, droughts, floods, and agricultural diseases affecting key commodities like coffee, wine grapes, and cocoa.
“Now you’ve got this added incremental burden,” Kafarakis says. “Call it a tax. Call it a tariff. Call it whatever you want. It’s coming from a third party, because the legislative environment is such and they feel that it’s important to use that tool to do some things that are needed to be done from a political standpoint. And you have to consider that this could be maybe 30 days or it could be three months. Right now, we’re in the very early stages of this thing, whereas before, at least you knew there was a shutdown. Things got bad. It was like, ‘Buckle in, buddy, you’re in for months of this stuff.’”
As restaurants wait for more clarity on long-term U.S. trade policy, Kristen Brooks, president of Restaurant Partners Procurement, a subsidiary of Buyers Edge Platform, advises operators to assess the origins of their key ingredients.
“If your top items aren’t imported, there’s not an issue,” she says. “If they’re not coming from Mexico, they’re not coming from Canada, and they’re not coming from China, then you can start to ease the concern and say, ‘Okay, well, how could these other tariffs impact supply in the US?’ Are you going to see prices rise or drop in something, because other people have to switch into those products? Even though sometimes you’re not tied to a specific tariff, you also have to watch what it’s going to do to the market.”
She also stresses the importance of strong supplier relationships, something large chains prioritized coming out of the pandemic.
“If you’re a big chain, you’ve learned how to hold on to your strategic suppliers and your distributor partners really tightly,” Brooks says. “Distributors and suppliers talk about ‘the customer of choice’ a lot. They really want to take profitable business. I think they and the big chains have learned how to hang on tightly to each other and those partnerships are still really strong.”
However, mid-sized and smaller chains are more vulnerable. They often lack the purchasing power to secure strategic supplier relationships, and diversification isn’t always a viable solution, as many suppliers have raised their minimum order requirements in recent years.
“It’s still a tough supply chain situation,” Brooks says. “We’ve seen some new suppliers come online, but we’ve also seen a lot of consolidation of suppliers and distributors, which gives you less options.”
Adding to the challenge is the unpredictability of the situation. Policies shift rapidly—one week Brooks and her team were preparing clients for the 25 percent tariff on Mexican imports, only for it to be delayed at the last minute.
“We’ve done the math 17 different ways for a specific concept that we manage, and then by the time I finish the math, it’s already off the table, because you’re like, ‘Oh, never mind. It’s not even going to happen,’” she says. “So, there’s a negotiation that’s happening, there are all of these puts and takes that are happening, and you’ve got to just let things shake out.”
The back-and-forth adds uncertainty, but it can also mitigate some of the potential impact. In the case of produce from Mexico, for example, delays could mean fewer disruptions, as growing seasons shift and supply chains adapt.
Still, the broader economic implications are hard to ignore. Concerns over tariffs, global trade disputes, and recession fears influence consumer sentiment, which directly affects restaurant spending.
“Consumer confidence is a big part of the story,” Brooks says. “I think we’ve got to figure out, how are consumers going to behave through this time? If people start hearing the word recession, how do they behave? Where are they going to shop with their dollars? How are they going to pull back?”
“It’s a tough time right now, just because it’s creating uncertainty, which the consumer doesn’t like,” she adds. “But when I think about foodservice and I think about what restaurants are built on, it’s a group of survivors. It’s hard-working people that find a way.”
That said, Brooks anticipates some level of attrition in the industry.
“You may see more bankruptcies and things like that, and I do think there will be some winners and losers,” she says. “It’s a fluid situation. I think everybody has to stay as calm as they can. I tell people to focus on the controllables and not overreact to certain things, because if you’re taking your eye off the ball by chasing the tariffs versus just taking care of your guests, you’re going to lose those guests no matter what.”
