Emilee Wentland
Oxford English Dictionary might as well announce “tariffs” as its 2025 word of the year half a year early. It’s all anyone can talk about, and rightfully so, as increased levies will impact pretty much every aspect of consumers’ lives.
Tariffs are taxes on goods that cross national borders, typically on imports. This increases the cost of imported goods and could, at least in theory, incentivize consumers to shop locally.
About a month after President Donald Trump’s global tariffs went into effect, the Trump administration was on the receiving end of a number of legal challenges that question if he even has the power to issue these tariffs at all.
Whether or not he has the power to do so, he did. Price increases are likely to come on many goods, from shoes to wine to cars. As a result, franchisors and franchisees are expected to feel the effects on their bottom lines.
On April 9, Trump postponed his 10 percent reciprocal tariff plan for 90 days, except on China. Massachusetts Senator Ed Markey, a Democrat on the Committee on Small Business and Entrepreneurship, told Newsweek the pause wouldn’t do much to help small business owners, like franchisees.
“Small businesses are the lifeblood of the American economy, but because they operate on razor-thin margins, they are uniquely vulnerable to rising costs caused by the Trump tariffs,” Markey wrote in April. “These businesses simply do not have the financial cushion to absorb price shocks or the resources to navigate sudden changes to an already complex supply chain.”
According to franchise law firm Lathrop GPM, tariffs can indirectly affect franchise and licensing agreements.
“A company licensing its technology or brand to an overseas manufacturer might suddenly find that the products made under that license face new import tariffs coming back into the U.S., undermining the economics of the deal,” the firm noted in a legal update April 4.
When restaurant operators are buying ingredients for their stores, they can expect higher bills. Food prices are expected to rise by 2.8 percent, according to Yale University’s Budget Lab, with produce expected to go up by 4 percent.
The April 2025 Food Price Outlook, compiled by the USDA’s Economic Research Service, forecasts grocery prices will rise by 3.2 percent this year and restaurant meal prices will increase by 3.8 percent. Already from February to March, food-at-home costs increased by 0.5 percent.
That anticipated 3.2 percent rise on grocery bills is above the 20-year average of 2.6 percent, the USDA reported.
Food isn’t the only thing impacted by tariffs. Clothing prices are expected to go up by 17 percent, Yale reported. Cars could cost about 8.4 percent more, the equivalent of $4,000 on average. (In March, when Trump announced a 25 percent tariff on cars, he said he “couldn’t care less” if prices increased because it would encourage Americans to buy American-made cars. About half of the vehicles bought in the U.S. are imported.)
“The Trump administration’s dramatic tariff moves have upended decades of U.S. trade policy, sparking a rapid reassessment of the economic outlook in the U.S. and beyond and a surge in tariff-induced recession fears,” wrote Allison Nathan, publication editor for Goldman Sachs’ “Top of Mind,” in its April issue. The investment bank forecasts a 45 percent chance of a recession within the next year.
J.P. Morgan is less optimistic. On April 15, it raised its probability of a recession from 40 percent to 60 percent.
“Even with the latest step-back from the draconian Liberation Day measures, the 145 percent tariff on China alongside the universal 10 percent tax on other countries actually lifts the U.S. average tariff rate to around 30 percent,” noted J.P. Morgan’s report. The price hikes amount to about $1 trillion, “making it the largest tax increase on U.S. households and businesses since World War II.”
Now what?
The head of the International Franchise Association, Matt Haller, said the way these price hikes will affect franchisors and franchisees depends on the industry they’re in.
“How that’s going to impact a restaurant versus a personal services retailer versus a home services franchise is going to be significantly different,” Haller said. “If you do source products from overseas, I think there’s probably never been a time where diversification in your supply chain is more important than now.”
As costs increase for the franchisor, those expenses will trickle down to the franchisee and the consumer. “Depending on the industry that they’re in, there’s likely only so much you can push off to the customer,” Haller said.
Operators may require bigger loans to open a franchise to accommodate higher construction, supply and other material costs, Haller said.
To prepare for the unpredictable, franchisees must maintain communication with their franchisors. Where are you struggling? What’s the newest guidance? Transparency, Haller said, is key.
“We saw the same thing during COVID, where franchisors that had great franchise relationships stepped up to support their franchisees, recognizing they were going to be faced with the on-the-ground challenges of these things,” he said. “The franchisors made accommodations. This is a time when good franchising really rises to the top of everything.”
Odd Burger, a Canadian fast-food franchise, paused its plans to expand in the United States because of “escalating political tensions between Canada and the U.S.,” it said March 24, just two weeks after it said it wanted to navigate the tariffs.
Canadian law firm Sotos recommends franchisors evaluate their initial investment costs, ongoing expenses, supply chain restrictions and financial performance representations. This may require revising franchise disclosure documents and agreements to allow for supply chain diversification and other changes.
“U.S. tariffs present significant challenges for the franchise industry, with potential legal and financial implications for franchisors and franchisees alike,” Sotos wrote in its March guidance.
The costs of running a business are already high. Real estate, supplies, food, labor; you name it, it’s expensive. If a recession does come, I think we’ll see operators close their doors, regardless of how they prepared for cost increases.
Emilee Wentland is managing editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to [email protected].