U.S. tariffs on its immediate neighbors don’t go into effect until Tuesday, but the battle appears to be already underway in its opening theatre: the liquor shelf.
Without recapping the entire saga of how we got here, barring a last minute reprieve, the U.S. is set this week to enact a 25% tariff on all Canadian and Mexican imports (as well as a separate 10% tariff on China), making good on a top campaign promise of President Donald Trump.
- That move has (predictably) sparked retaliatory actions from governments on the Northern and Southern border that are placing, for the moment, spirits makers at the center of a geo-economic chess game that for which no one involved can quite seem to completely grasp the ultimate purpose.
As of just before publishing on Monday morning, there appears to be at least some thaw, with U.S. and Mexican tariffs temporarily placed on hold following a phone call between Mexican President Claudia Sheinbaum and Trump.
Its pride wounded, Canada is responding by targeting American booze, with so-called “red” states in the crosshairs.
- In Ontario, the country’s most populated province, the Liquor Control Board has ordered all U.S.-produced alcohol products – roughly 3,600 items valued at almost $1 billion in annual sales – removed from stores by Tuesday.
- Many other provinces have also joined the effort: Nova Scotia, British Columbia, Newfoundland, Labrador, Manitoba, and Prince Edward Island and Quebec are pulling U.S. brands off the shelf, with B.C. premier pointedly referencing a halt on buying “American liquor from red states” in his comments.
- The Distilled Spirits Council of the U.S. (DISCUS) pushed back on those efforts, calling them “extremely disappointing and counterproductive.”
- If the tariffs continue, expect a further knock-on effect from disruption in other industries: restaurants and bars are already next up to drop American alcohol, and one province leader indicated his government will “limit” business with U.S. companies going forward as anti-American sentiment takes hold.
As with every action, though, there’s a reaction: Trump’s decrees have unified businesses and industry players on both sides of the border against the tariffs. In a joint statement, DISCUS, the Chamber of the Tequila Industry, and Spirits Canada on Tariffs said the proposed taxes will weaken an already slowing North American spirits market and “significantly harm all three countries and lead to a cycle of retaliatory tariffs that negatively impacts our shared industry.”
Meanwhile, in Mexico, tequila and mezcal producers, already grappling with inventory issues in the wake of lean growth, are bracing for impact as well – though, as of Monday morning, they appear to have won at least a one-month reprieve. But Americans’ thirst for Mexican agave-based spirits is likely to be tested the most:
- Tequila and mezcal are both drivers of the U.S. spirits market, representing 13% of the total U.S. beverage alcohol marketplace by volume and 22% by revenue; in the on-premise, it’s even more leveraged at 20% of the market by volume and 27% by revenue.
- An economic analysis indicated a 25% tariff on Mexican wine and spirits products (including agave-based spirits), could cost 14,000 American jobs and $2.5 billion in lost U.S. economic output.
- That puts your typical bar in a tough position: either overhaul the beverage program to limit its most popular spirits, or try your best to sell some $22 mezcal cocktails.