Trump's Tariffs May Cost U.S. Restaurants $12 Billion. Exclude Food And Beverage Products From Tariffs, Urges Industry Body - Restaurant Brands Intl (NYSE:QSR), McDonald's (NYSE:MCD)

The U.S. restaurant industry is staring down the barrel of a potential $12 billion setback. This comes in the wake of President Donald Trump‘s proposed tariffs on food and beverages, as per the National Restaurant Association‘s warning.

What Happened: The National Restaurant Association has voiced its concerns to President Trump regarding the possible repercussions of his proposed tariffs, reported Bloomberg on Tuesday. The association, which represents restaurants nationwide, estimates that the tariffs could inflict a cost of over $12 billion on the industry and trigger a hike in consumer prices.

In a letter addressed to the President in February, the association cautioned that the industry, which operates on thin profit margins of 3% to 5%, would be compelled to increase prices if the tariffs come into effect. The group has appealed to the president to exclude food and beverage products from the tariffs to mitigate the effect on consumers and restaurant owners.

The association’s projections are based on a 25% tariff on food and beverage imports from Mexico and Canada. The group also emphasized that these products do not play a significant role in the trade deficits that Trump aims to address.

The association reported that food expenses make up approximately 33 cents of every sales dollar, meaning tariffs could cause the average small restaurant operator’s profits to drop by around 30%. The letter signed by the association CEO Michelle Korsmo stated, "For many food products, the appropriate climate and growing conditions do not exist in the U.S. year-round to produce the quantities needed for our businesses.”

Why It Matters: The proposed tariffs could further strain the restaurant industry, which has been grappling with challenges such as rising food costs. For instance, McDonald’s Corp. MCD reported underwhelming fourth and full-year 2024 results, despite its share price uptrend. The proposed tariffs could exacerbate these issues, potentially hampering the growth of not only McDonald’s but the entire restaurant industry.

However, according to S&P Global, the tariffs may have less impact on quick service restaurants (QSRs) than restaurants. The think tank says McDonald’s Corp. and Restaurant Brands International Inc. QSR are largely shielded from food costs at the restaurant level. Due to the large-scale focus on specific items, QSRs may face temporary price increases for certain menu items (e.g., frozen French fries from Canada-based McCain Foods). However, S&P Global believes this risk can be managed by proactively planning for tariffs and leveraging supplier relationships to transition to local sourcing.

“If broad-based tariffs strain the overall economy, we could see more traffic to QSRs because of value-oriented offerings,” states S&P Global.