Meat, certain vegetables, roasted coffee, certain pasta, and alcohol (including beer, wine, and gin) are but a few of the American food products set to be affected by the country’s trade war with China. In fact, a 25 percent tariff will be imposed on nearly 2,500 US products as part of China’s recent retaliatory measures in the ever-escalating geopolitical spat. So the concerned foodie among us will naturally ask: Is the trade war coming to my favorite Beijing bar or restaurant? How will this impact my wallet? Or, more importantly, how will this impact my stomach?
An investigation of sanctioned products and conversations with local business owners reveals that the impacts will likely be limited, but are as of yet, uncertain. For businesses that do not rely on already highly taxed American products, broader economic downturns or shifting health and safety standards pose a more immediate threat to food and beverage industry operations. For instance, Marcus Medina, Q Mex Bar & Grill and Q Mex Taqueria executive chef and co-founder, says: “I can honestly say we have not felt any impact whatsoever … In fact, this has been our best year ever. If there’s a slowdown it will be the higher tier establishments that will feel it first.”
Medina is equally sanguine about regulatory changes, saying that adherence to high standards and good relationships with respective officials keep consumers happy and practices compliant. From his perspective, the regulatory climate for small business has grown stricter but also more stable, mandating more resources for bureaucratic processes but also providing more transparency.
However, Kenn Bermel from The Local had a less cut-and-dry take: “It depends on which regulations. If we’re talking taxes or other economy-related issues, it takes a while before we really notice anything. If it’s something like fire safety, then the effect is immediate.”
However, some proprietors are nonetheless concerned by the implications that tariffs pose for consumer spending habits. Jeff Powell, R&D center manager for Tube Station and local F&B restaurant developer says: “The trade war has not affected us, yet. But it certainly is about to. Major tariffs on beef, pork, and dairy are about to go into effect which will have a major impact on F&B as a whole. At Tube Station, we use quite a bit of American mozzarella and parmesan and I can’t see how any U.S. company could bear the whole price increase without passing some along to the end user.”
“We go through a massive volume of mozzarella each month and even a USD 1-2 per kilogram price hike will affect our bottom line a great deal,” Powell adds. He goes on to say that businesses with this degree of reliance on American products will need to find alternative sources for US products, creating challenges for product consistency, menu creation, and consumer price stability.
Accessing up-to-date and accurate information is another challenge for bars and restaurants navigating changing trade war standards. While restaurant owners can stay informed via publicly accessible information such as that of the US Drug Administration and the news, it appears that cultivating good connections with Chinese counterparts who are in the know is the most efficient and effective method to mitigate risk.
In terms of alcohol consumption, the impact on tax rates will be drastic. Speaking to the Beijinger, lifestyle blogger and wine expert Jim Boyce stated that, should tariffs go into effect on Jun 1, the biggest impact may be on imported alcohol. At present, countries with free trade agreements with China have to pay a 16 percent value-added tax and a 10 percent consumption tax. Countries without Free Trade Agreements pay around 41 percent, but upon implementation of new tariffs, incoming American wines will be hit with a massive 90 percent tariffs and taxes. In order to offset this price hike, companies will either have to accept a profit decrease or pass that cost along to distributors or consumers.
These hikes would more drastically impact less expensive, mass-produced wines, as they face more competition and price sensitivity. For high-end brands, it is less likely that even a drastic price increase will result in a decrease in demand, as these customers are already willing to pay a premium for the cost of a luxury brand.
Despite the potentially drastic rate increase on American wines, the overall impact is likely to be limited given how little wine reaches the Chinese market. Mr. Boyce estimates that only one in every 250 bottles produced in an American vineyard will be sold in China. Given this reality, any increases in price are much more likely to negatively impact Beijing-based consumers, not American vineyards.
Photo: Forbes India, courtesy of Q Mex