President Donald Trump announced a potential 25 percent blanket tariff against Mexico and Canada, which set off major alarms for an alcohol industry already facing numerous headwinds.
It can be challenging for consumers to understand the impact of tariffs on their own bank accounts when the products with rising prices are components used to make something else, such as a computer or a car. However, when tariffs are levied upon products they buy themselves, whether an avocado at the supermarket, tank of gas, or say, bottle of whiskey at the liquor store, the effects are more noticeable.
As it turns out, the tariffs against Mexico and Canada have been delayed by a month with pending government deals. Whether or not they’ll be put into place remains to be seen. But the impact is already felt by the alcohol industry.
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How Tariffs Impact U.S. Producers and Consumers
American consumers are quite thirsty for products from both Mexico and Canada. The Distilled Spirits Council of the United States (DISCUS) reports that over $6.5 billion of tequila and mezcal, along with nearly $2.3 billion of Canadian whisky, were sold in the U.S. in 2023. The negative impact against producers from those countries would be severe.
“The big Canadian distillers have a lot to lose, as 70 percent of their sales are in the U.S.,” said Davin de Kergommeaux, author of Canadian Whisky The Essential Portable Expert and The Definitive Guide to Canadian Distilleries.
From the America-first perspective, that’s the intended effect and a positive outcome for the domestic producers who get to fill those gaps, right? Not quite. There’s a domino effect.
Before the tariffs had a chance to formalize, retaliation was underway. The Liquor Control Board of Ontario proactively removed American alcohol brands from shelves, noting that, in prior years, it sold about $1 billion of American wine, beer, and liquor. Nine of 10 Canadian provinces decided to follow suit before retracting their stance after the month-long truce was announced.
DISCUS reports that Canada and Mexico were the second and third largest export markets for U.S. spirits in 2023. Therefore, retaliation—like Canada’s aforementioned proposal—would strike American companies hard.
Stock prices and valuations of large companies are immediately impacted. Consider mega-conglomerate Diageo: 45 percent of its U.S. sales are from Mexican or Canadian brands, such as Don Julio and Crown Royal, respectively. Small producers, with smaller margins for error, face even greater risks.
“This is yet another blow to our small business manufacturers who are already operating in a deeply challenging marketplace,” said Margie A.S Lehrman, CEO of the American Craft Spirits Association (ASCA), in a statement. While the export of craft spirits remains relatively minor, the ACSA noted that Canada is the largest export market for these distilleries. “Placing tariffs on imported goods will strip U.S. manufacturers of shelf space, increase production costs, and hinder the development of relationships abroad,” Lehrman said.
It’s not just conjecture. The spirits industry has felt similar effects before. During the first Trump presidency, a trade war ensued between the U.S. and both the U.K. and E.U. The Kentucky Distillers’ Association reported a loss of $600 million in sales between 2018 and 2021 as a result. DISCUS, meanwhile, projects the potential loss of 31,000 U.S. jobs across the distilling industry, as well as sectors such as farming and hospitality if a 25 percent tariff on Mexico and Canada becomes permanent.
In addition, according to de Kergommeaux, many Canadian consumers are turning away from American products: “There are stories everywhere about what Canadian whiskies to substitute for American ones,” he said. “I think all Canadian distillers who have reacted have stressed that Canada has a lot of great whiskies and gins waiting to be discovered by consumers.”
De Kergommeaux also notes that there’s been an uptick in Canadian nationalism, leading consumers to purchase more Canadian-made goods in general: “The tariffs are generating a lot of ill-will towards America and that will last.”
It’s also important to remember that the spirits industry is an enormous, interconnected web; it’s not siloed by country.
“Nine of the bestselling Canadian whiskies in the U.S. are owned by American companies, so this is really a tariff on American industry and likely hurts Americans more than Canadians,” de Kergommeaux said. “The Canadian and American spirits markets are deeply integrated. We buy American grain, you buy Canadian grain, we buy some Canadian grain through American sources.”
However this plays out, the outcome will have both immediate and long-term consequences for the American spirits industry, producers in Canada and Mexico, larger companies who might own or import their products, and, of course, imbibers themselves.
Related: Whiskey Brands Have Forgotten Their Best Customers. Now, They’re Paying the Price