By Joyce Mazero, Josh Goldberg, and Alissa Chase, Polsinelli

The current tariff increases and volatility are creating challenges.

In April 2025, President Trump implemented new “reciprocal” tariffs, introducing a 10 percent additional tariff on goods from most countries, and significantly higher rates for goods from countries with which the US has the largest trade deficits, as set out in Annex I.

As of April 9, 2025, there is a 90-day pause on the increase in reciprocal tariffs for all countries with reciprocal tariff rates above 10 percent, except for China. During that 90-day period, the original 10 percent reciprocal tariff rate will remain in effect. China is now subject to an increased 125 percent reciprocal tariffs, in addition to the 20 percent IEEPA tariffs already imposed in February/March of this year — bringing the total tariffs imposed on goods from China to 145 percent. China retaliated by imposing a 125 percent tariff on US goods entering China.

Earlier executive orders from February/March imposing 25 percent IEEPA tariffs on non-originating imports from Canada and Mexico (i.e., goods that do not qualify for United States Mexico Canada Agreement (“USMCA”) duty preference) are still in effect. However, energy or energy resources and potash imported from Canada and not qualifying as originating under the USMCA are presently subject to the lower additional tariff of 10 percent. Applicable rules of origin which may exempt a certain good under USMCA vary on a case-by-case basis and may be eligible to be exempt from the IEPPA tariffs.

Franchising Impacts

Many franchise-driven industries are impacted.

Restaurant Franchises
Restaurant franchises are among the hardest hit due to their dependence on imported ingredients, equipment, and packaging. The reciprocal tariffs on imported goods from China drives up costs for kitchen equipment like fryers or grills and technology related costs. While food imports, such as avocados from Mexico are excluded from the IEEPA tariffs (as homegrown resources) other Mexican and Canadian foods and goods may still be subject to the 25 percent tariff.

Service-Based Franchises
Service-based franchises are less directly exposed but still feel the pinch for goods and equipment imported, such as chemicals or equipment (e.g., vacuums from China), which now may cost more under the reciprocal tariffs. Franchises that rely heavily on technology — such as computers, laptops, chips, or other electronics and technology from China — should closely monitor any possible tariff exemptions.

Gym Franchises
Gym franchises are grappling with significant equipment cost increases. The fitness industry imports much of its equipment from China. Membership fees might rise to compensate, but with consumer spending cautious, some gyms may delay upgrades or lean harder on domestic suppliers — though U.S. manufacturing capacity for fitness equipment remains limited.

Other Industries
The automobile dealership industry depends heavily on parts and manufacturing from China, Mexico, and Canada and these tariffs could have a significant impact on U.S. dealers. Retail franchises will be hit hard by the tariffs on China, with many products — tools, snacks, electronics — sourced there. The 10 percent reciprocal tariffs on imported goods from other countries (e.g., the EU) also adds pressure. Tariffs on tools and materials (e.g., lumber from Canada, steel from China) will increase project costs for all types of franchises. Service-heavy models likely will fare better, but franchises selling imported goods face supply chain squeezes.

Broader Trends and Adaptations

Planning is difficult in this environment. Franchisors and suppliers saw first-hand how other “go to” countries — such as Vietnam and India — can also be subject to a vast increase in tariffs, even with the planned increase in reciprocal tariffs above 10 percent temporarily paused. Given the volatile nature of international trade, it is best to monitor each development and consider the following ways to mitigate risk:

Proactive Measures

  1. Diversify Supply Chains: Franchisors should consider shifting sourcing away from China to Mexico or Canada, whose originating goods that qualify for USMCA duty preference are exempt from the IEEPA tariffs or partner with U.S.-based manufacturers or distributors that source and produce goods domestically to avoid paying import duties and tariffs altogether.
  2. Reviewing Supply Contracts: Franchisors and franchisees should review their supply contracts to determine who bears tariffs costs and (re)negotiate terms where possible.
  3. Negotiate Dynamic Pricing Contracts: Parties should consider negotiating dynamic pricing provisions — or include language that the parties will work in good faith to approve alternative suppliers if tariffs materially change the bargained-for contract.
  4. Key Contract Provisions: Force majeure clauses are typically for unforeseeable events and courts have been reluctant to read in tariffs as a trigger for force majeure unless tariffs are explicitly contemplated.
  5. Origin of Goods: Require suppliers to certify the country of origin for goods, ensuring compliance with tariff rules and avoiding penalties for misclassification. This is critical under U.S. customs law, where misstated origins can lead to fines.
  6. Delivery and Risk of Loss: Clarify when title and risk transfer (e.g., FOB shipping point or destination), especially if tariffs delay customs clearance. This prevents ambiguity over who pays if goods are held up by new duties.
  7. Insurance Protection: Franchisors and franchisees manage risk by looking into insurance products such as trade disruption insurance, contract frustration insurance, and expropriation insurance.
  8. Import Strategy Adjustments: Importing parts (of a product) separately that can be declared at a lower value and then assembling the parts in the United States may reduce overall tariff costs. A company may also want to import equipment without the software pre-installed on the equipment to bring down the value of goods to minimize duty implications and then install the software after importation.
  9. Adjust Pricing Strategically: Franchisees can pass on some cost increases to customers via targeted price hikes — g., raise menu prices by 5 percent on high-demand items— rather than across the board. Pair this with value messaging (e.g., loyalty discounts) to soften pushback.

Joyce Mazero is the global franchise & supply network co-chair, Josh Goldberg is an associate, and Alissa Chase is an associate for Polsinelli. For more information about IFA supplier member Polsinelli, please visit franchise.org/suppliers/polsinelli/.

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