How Import Tariffs Impact Our Food Costs

The United States government has always used tariffs in trade deals with countries around the globe. Since the beginning of the 21st century, the average tariff rate for imported goods was only 1.61% across all industries. This puts them around their lowest levels ever and among the lowest rates around the world.

The Trump administration decided in 2019 to increase the import tariffs on steel and aluminum imports to 25% and 10%, respectively. The many countries that supply the U.S. with these goods retaliated by increasing import tariffs on U.S.-made goods, including many food products.

Everyone in the food industry will feel the effects of the tariffs from farmers to grocery stores. Restaurants and artisan food makers also have a right to be concerned. The wholesale cost of food directly affects their bottom line and can make or break a business.

But what exactly are import tariffs, what food items do they cover, and how do they impact food costs? Find out below.

What Are Import Tariffs?

A tariff is a tax placed on goods moving between countries. Governments impose tariffs on a multitude of items. They put tariffs on building materials like aluminum or steel, technology products like computers or cell phones, and on foodstuffs like cheese, alcohol, and produce.

Governments use tariffs to control the price of imports and exports coming into and leaving the country. This can help raise revenues as well as protect domestic industries from foreign competition.

Import tariffs then refer to the taxes placed on specific goods coming into the country from another country.

The Effects of Tariffs on Imports and Food Costs 

The new import tariffs imposed on U.S. goods by the European Union, Mexico, Canada, and China massively impact U.S. farmers. So any food business that must purchase produce, meat, or dairy will also feel the effects.

But wait, I thought that tariffs helped to protect domestic industries? In theory, that is true. The U.S. imports goods for one of two purposes: either because you cannot grow/build/buy the product domestically or importing the product costs less than purchasing it domestically.

An import tariff then makes that particular product more expensive, which allows for better competition in the domestic market. So it follows that farmers should expect an increase in domestic sales thanks to the tariffs. 

The problem lies in the fact that 40% of the food (including meat, produce, and dairy) produced in the U.S. gets sold on the international market. The tariffs placed on U.S. goods discourage foreign buyers so the farmers must find more domestic customers instead. If they cannot enough new customers, they will need to increase their prices for domestic customers to make up the lost revenue.

The Biggest Consequences of Food Tariffs for U.S. Restaurants

The food industry in the U.S. will begin feeling these effects sooner rather than later. Here are the 4 biggest consequences of food tariffs for restaurants.

1. Increased Inventory Costs

The profit loss for farmers will trickle down to affect food suppliers and, in turn, restaurants. They will be the ones to foot the bill for the lack of foreign buyers.

Restaurants will then have two options. The can continue purchasing the same goods for higher prices and risk lowering their profit margins. Or they can raise prices on their dishes and risk losing out on customers.

2. Greater Impact on Independent Restaurants Than Chains

The import tariffs will have a great impact on independent restaurants than on chains like Taco Bell or McDonald’s. Chain restaurants can bulk order products to a scale that independent restaurants cannot.

Restaurant chains will more easily absorb the increased food costs without needing to change their prices, especially if they rely on sales from locations around the U.S. or the world.

Independent restaurants, on the other hand, cannot rely on other locations. This means they’ll need to raise their prices or change their menus to offset the increased prices.

3. Buy Local, Shop Local, Serve Local

Restaurants that purchase their food products from local sources will suffer fewer consequences. These farm-to-table restaurants promote seasonal eating and support local farmers.

The smaller-scale farms will not export products like large industrial ones. So they will not feel the tariffs’ effects in the same way.

4. Stick to Seasonal Menus

One way restaurants may seek to avoid the impact of the tariffs is to adapt their menus based on the season. If you cannot purchase a product in the U.S. (or your local area) because it’s not in season, it may cost more if you find it elsewhere.

Sticking to a seasonal menu and changing based on what’s available will help keep down costs. However, this will be a big change for restaurants accustomed to serving the same dishes no matter the season.

Smart restaurant and other food-business owners will turn to outside, expert help to ensure everything operates as efficiently as possible. Especially since they must deal with the added costs imposed by the new import tariffs as well.

Read more here to learn about how to bring the sales and service of your perishable foods business into 2020 so you continue to succeed.

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Now you should better understand what are import tariffs and how they affect industries in the United States. The new tariffs will not mean the end of the restaurant industry, but they will certainly shake things up. Farmers dealing with massive losses from the heavy summer storms along with the tariffs will need to adapt as well.

Are you an entrepreneur looking to break into the food industry or another big industry in the States? You need to check out the rest of our blog.

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