Trump’s trade war brews chaos for global drink makers

Drinks companies around the world are wrestling with the complexities and anomalies of President Trump’s tariff barriers that come into effect this week. The post Trump’s trade war brews chaos for global drink makers appeared first on The Drinks Business.

Apr 7, 2025 - 10:57

Trump’s trade war brews chaos for global drink makers

Drinks companies around the world are wrestling with the complexities and anomalies of President Trump’s tariff barriers that come into effect this week. President Trump addressing public from a podium following implementation of import tariffs on wine and spirits across the globe.

The conundrums they face and how to cope with them are compounded by not knowing how governments, especially in Brussels, will respond or how the American consumer will react to higher prices, even if bigger producers seek to cushion the impact on shelf prices by trimming margins. Worse, nobody knows for how long Trump’s effective war on individual countries and sectors will last. Politicians and industry lobbyists are all beating a path to the White House, seeking trade deals and exemptions. Are the President’s imposts designed to force trade concessions, or are they for the longer term? But what is becoming evident is that while all tariffs are painful, no sector is homogenous, and all cases are individual. For some, it depends on the perishability of the product. Wine estates in Argentina and Chile could see their market collapse overnight as US shelf prices soar in the wake of an extra 10% on their bottles.

Wine on the edge

Southern Hemisphere growers need cash flow to fund their businesses, but with the dollar (in which they trade) falling, they will get lower returns even if they can find replacement markets for this year’s harvest. Australia’s hard-pressed vignerons face even greater turmoil, but the biggest producer, Treasury Wine Estates, forecasts only marginal impact on its profitability because 85% of its US sales are based on its American vineyards.

Distillers distilled

Distillers have greater flexibility than wine companies. They have the option to age existing spirit for longer and hope for premium margins when (or if) levels of business move nearer to what has previously been thought normal. A prime example is Cognac. The industry has been hit by a triple whammy. First, American consumers switched their preferences to other spirits as the pandemic ended, then China, the second largest market, targeted the brandy with its own retaliatory tariffs, and now Trump is hitting it with a 20% charge, which could go up to 200% if Brussels penalises bourbon imports. At the weekend there were widespread reports of the big houses such as Hennessy, Martell and Courvoisier heavily reducing grower contracts for this year and growers themselves giving up and grubbing up vines. But with global interest rates poised to fall more quickly this year than previously forecast as governments seek to stimulate economic growth, distillers may find it marginally less expensive and painful to lay down some stocks for longer maturation.

Fizz flatlining

Much the same is true in Champagne. It is said that to beat his tariffs, up to 3 million extra bottles have been shipped to the US since Trump won the November election. An extra 20% per bottle will deter many mid-level purchasers; a 200% impost would be catastrophic for some producers, even some famous names. However, at the ultra-premium end of the market, supplies of deluxe marques have been on allocation to agents for several years. At the $300+ per bottle level, an additional charge will deter fewer of the prestige buyers to whom ostentation is important. And if US demand is trimmed, those houses could switch more bottles to other markets and, in the process, further widen their consumer base.

Premium products and aluminium

Consider Irish whiskey. The vast bulk is distilled in the Irish Republic and is thus facing a 20% tariff increase. But Becle’s Bushmills brand is distilled in the UK, in Northern Ireland and thus faces only a 10% impost. But from where does it obtain its grain? The EU or Britain? Diageo’s Bailey’s is produced from milk created in the Republic but with the spirit part distilled in Ulster. Which tariff level will apply? A further unresolved anomaly is Trump’s 25% tax on all aluminium imports. The small print of the new US tariff system shows that cans of beer will be subject not to the blanket 10% rate being applied to imported foodstuffs but to the higher rate of 25% on aluminium.

Mixed messages

Nobody is sure until the system operates at US docksides whether the cans’ contents will be taxed at the lower rate or if the beer itself will be at 25%. At 25%, European brewers such as Carlsberg and Heineken are warning that 100,000 jobs could be lost on the Continent – 5% of all brewing jobs in Europe. Emma McClarkin, the chief executive of the British Beer & Pub Association, said: “A 25% tariff on beer imported into the US is a direct hit to the brewers of the UK, who contribute so much to this country’s economy and heritage. “With the enormous cost of doing business, many British brewers won’t be able to sustain a hit such as this from one of our biggest trading partners,” she said. The turmoil is just beginning.