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    President Trump's Trade Wars Hit Home for Restaurants

  • Recently mandated tariffs could affect foodservice in the near future and beyond.

    Chris Miller/CSM Photos
    By their nature, trade conflicts create winners and losers, as officials look to protect certain producers.

    In a late July earnings call, McDonald’s CEO Steve Easterbrook pointed to an intensifying international trade war as the cause of declining traffic into Chinese stores.

    It’s one of the first signs that President Donald Trump’s hardline stance on international trade may be trickling down into the restaurant industry. The president has sought to bolster American manufacturing by imposing steep tariffs on imports from countries like China, but retaliatory tariffs have already hit some U.S. manufacturers and farmers who market their products across the globe. In China, which the president has targeted in particular, the trade war has bred uncertainty among consumers, Easterbrook told investors and stock analysts.

    “Clearly, it’s hit the markets, which, in turn, hits consumer confidence,” he said on the call. “We’re keeping close to that and adjusting our plans so we can be competitive there.”

    Economists have warned that a continued showdown between the globe’s two biggest economies could lead to widespread job losses. But for restaurants, it could affect the prices of meats, produce, and grains, says Alex Susskind, an associate professor in Cornell University’s School of Hotel Administration who studies trends in the food industry.

    “If the supply becomes more expensive, that’s a problem for restaurants,” he says. “If you think about the restaurant industry, we’re a year-round business. There aren’t farming communities that support everything we do year-round. So we rely on external producers to supply the industry.”

    Susskind argues that free trade is better for business, and he believes the president’s current aggression toward trading partners is foolish. But restaurants aren’t putting the issue at the forefront— at least not yet. “If they see it on their invoices, it’s going to make a difference to them,” he says. “That’s when you’ll start to see restaurants revolt. At the moment, there’s no impact; it’s just rhetoric.”

    While the direct impact on prices is still uncertain, one thing remains exceedingly clear: Restaurant operators have little, if any, control over the matter.

    “If there continues to be this contentious atmosphere around trade and potential retaliation from foreign partners, we’re just trying to figure out how it’s going to affect us and try to predict as much as we can,” says Pita Pit president and CEO Peter Riggs.

    Riggs says his company is approaching the trade conflict like it would a food safety recall: spending its efforts looking for secondary sources. Pita Pit may be spared somewhat because much of its ingredients are sourced domestically, rather than from suppliers that rely on international markets, Riggs says.

    “It’s pretty heavily domestic,” he says. “And a lot of our franchisees, too, have the option of getting good, fresh produce locally as well. A lot of them source local suppliers.”

    The trade war is stoking uncertainty among U.S. fishermen, says Alexa Tonkovich, executive director of the Alaska Seafood Marketing Institute, a partnership between Alaska and its seafood industry.

    China implemented a 25 percent tariff on U.S. seafood in July. Days later, President Trump slapped a 10 percent tariff on Chinese seafood imported to the U.S. China and Alaska have a longstanding trading relationship; more than half of Alaska’s seafood is bought by China. Much of the state’s seafood bounty is initially processed and frozen stateside, sent to China for further processing, and then sent back to the U.S. for consumption—meaning it, too, is now subject to tariffs.

    “It really just creates a climate of uncertainty, which isn’t great for business. It’s not great for fisherman,” Tonkovich says. “People would prefer to have a little more certainty as they’re going into salmon season or making sales deals. Where it goes next, I think is hard to say.”

    By their nature, trade conflicts create winners and losers, as officials look to protect certain producers. Still, Tonkovich says it’s too early to tell how trade aggression will ultimately affect U.S. seafood supplies.

    “Supply and demand is so global,” she says. “There’s always unintended consequences.” If the 25 percent tariff remains intact long term, she says, many producers will have to look to markets beyond China.

    “A few high-end products like king crab may be able to absorb that, but a lot of products won’t,” she says. “If that is the case, it is likely some companies would send products they were promoting in China into another market like Japan, the U.S., or Europe. It can sometimes create an oversupply market by market.”

    Companies may begin to reorganize their supply chains, avoiding certain tariffed markets, but as Tonkovich points out, that’s not the kind of thing that can be easily changed overnight.

    Aaron Allen, owner of global restaurant consultancy Aaron Allen & Associates, says restaurants might actually benefit from ongoing trade aggression. If American-made meats, fish, and produce are less competitive globally, it may cause a domestic surplus, he says.

    “If anything, it means U.S. manufacturers will have more products in the U.S. market,” he says. “So prices should come back down for restaurants and customers.” Commodity markets are complex, though. Producers plan years in advance, and that’s particularly true for stock like cattle.

    Allen likens supply chains to towing a car behind another car with a chain: The on-and-off tension and slack in the chain cause the two vehicles to yank as the driver slows and accelerates.

    “What it does is set off a chain reaction over that full chain,” he says. “If you’re planning years out, you’re not going to overproduce some of these commodities if you don’t think you have the market to sell it. But in the short-term, it means more on the supply side to lower cost.”