This year, we have witnessed quite a lot as it relates to international trade. Months ago, the current administration imposed a 25% tariff on some $50 billion dollars worth of imports coming into the United States from China. This encompassed almost 1,000 different categories of items imported into our country. There are even another 300 product categories under review that may be added to this list at some point down the road. This is in addition to the 25% tariff already imposed on steel & aluminum imports from Canada, Mexico, and the European Union.
This list mostly consists of imported items such as: aircraft engines/parts, agricultural equipment/parts, electrical motors/components, batteries, lighting, generators, pumps, compressors, hydraulic equipment, manufacturing machinery/parts, earth moving equipment, electrical components, medical equipment, motor vehicles (cars, motorcycles, airplanes, marine vessels, and spacecraft), and food production machinery.
While it is too early to tell about the overall impact, we are starting to see some of the ripple effects of these levied tariffs in our industry. For example, recent pricing on aluminum-based operating supplies came in 24% higher than the previous years. Where some manufacturers and/or distributors would normally hold pricing quotes for two to three months out, these same organizations are not agreeing to hold pricing commitments any longer than a month. Suppliers I have spoken to recently are telling us to expect more of this.
The potential impact of these tariffs may be realized in food/beverage production, O/S/E (operating/supply/equipment), and construction costs to name a few.
In retaliation to the U.S.-imposed tariffs, China imposed its own tariffs on items the United States exports into China. These include about 130 different items ranging from pork products to produce. The silver lining to this is that we may see short term declines in the commodity markets (i.e., our food cost) due to decreased exports. California alone sells $530 million in pistachios, $518 million in almonds, $161 million in wine, $133 million in oranges, and $87 million in grapes to China.
To dissect all of the industries potentially impacting the hospitality industry is well beyond the scope of this article. As your operations look at purchases in the new fiscal year, be prepared for potential sharp hikes (and in some cases significant drops) in prices paid over previous years. I would recommend utilizing the expertise of your suppliers. Most are very in tune with the ripple effect in the hospitality industry.
Until next time…