How a Trade War Could Affect Restaurants

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on Jun 5, 2018 7:00:00 AM
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From the current state of affairs and the president’s recent statements, one could easily conclude that a trade war is inevitable. On the other hand, if this administration could be defined by one word it would have to be “unpredictable.”

President Trump could be using his power and assertive stance in order to eventually, one day, create a fairer trading relationship with the U.S. and the rest of the world. Or, he could be ready to pull out the cannons and longbows. The next tweet may tell us.

So, on the chance that a trade war is in the making (maybe, kind-of-sort-of) let’s take a look at the impact it could have on your restaurant.

Fish

Did you know that approximately 90 percent of the shrimp and catfish that Americans eat is imported? In 2017, the U.S. imported 2.85 billion pounds of seafood that was worth almost $22 billion. Salmon accounted for over 353,000 tons with an estimated worth of over $3 billion.

If you haven’t looked at sustainable seafood, now may be the time. The Monterey Bay Aquarium’s Seafood Watch lists “best choices” and “good alternatives” as well as fish to “avoid.” Many of these are found in the U.S.

Bourbon & Cheese

You might wonder what bourbon and cheese have in common. These are two of the products that may be affected by Europe’s retaliation brought on by the steel and aluminum tariffs. Currently, the E.U. is considering taxing these signature American imports: Kentucky bourbon and Wisconsin Cheese.

It’s a market that the U.S. consumers can’t hold up on their own—leading to closures, limited product availability, and higher prices.

Expansion

Fast-food empires such as McDonalds and KFC have made major moves into China. KFC is considered one of the most popular fast-food chains in the region. It opened America’s first fast-food restaurant in the Land of the Red Dragon in 1987. Currently, it has more than 5,000 restaurants in 1,100 cities. Fighting for second place, McDonald’s announced it would be doubling its presence by opening 2,000 new restaurants.

Why China? Lots and lots of people and fewer competition. The perfect equation for business success.

What happens if a trade war erupts between the U.S. and China? It’s difficult to project, but what we do know is that the people of China have a strong national sentiment. In 2016, anti-U.S. protests diminished sales in both KFC and McDonalds.

Price Reductions at a Terrible Cost

The good news for restaurants is that many U.S. products would be selling less overseas and more at home. This could easily increase supplies and lower prices for proteins including pork and chicken. Good for restaurants—bad for farmers.

In fact, very, very bad for farmers. In 2017, U.S. farmers shipped about $20 billion worth of food to the Chinese. Recently, however, Beijing responded to President Trump’s tariffs by applying a 25 percent tax on American pork and fruit. When President Trump responded with an additional threat, the Chinese responded with additional tariffs of 25 percent on soybeans, corn products and other goods including beef, orange juice and tobacco.

It’s estimated that 10 percent of Iowa’s farms—America’s largest pork producer—will file for bankruptcy in the coming year.

On the other hand, beef producers who raise cattle in Mexico may be forced to move. A cost that would, of course, be handed off to the consumer.

Re-thinking Menu Items

Besides tariffs and taxes, the current administration is also considering ending the 24-year agreement we had with our neighboring countries known as NAFTA. Last year, Mexico imported over $10 billion worth of fruits and vegetables to the U.S. Two top products that come from Mexico include avocados—an import that the U.S. pays about $1 billion a year for—and seasonal fruits.

Additional supply chain disruptions could include tomatoes from Mexico as well as French fries and mushrooms from Canada.

Should the agreement end, and the tariffs come to pass, restaurants may have no choice but to pass on the increasing prices to their patrons or alter their menu.

Like boarder walls, infrastructure and universal health care, changes in trade may be long in coming—which could be a good thing, at least for those in the food and beverage industries.

 Download Now: Implementing a Sustainable Seafood Program!

Topics: Cost Reduction

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