The battle brewing in the wine industry

U.S. trade tariffs are creating uncertainty in the wine industry, with measures being imposed, suspended, or announced without clear guidelines. The 25% tariffs imposed in 2019 on wines from France, Spain, and Germany already had a significant impact, with importers paying an additional $239 million in taxes. Now, new 25% tariffs on products from Canada and Mexico, along with a 10% tariff on Chinese goods, have further unsettled the market, prompting immediate responses from affected countries.

China responded by imposing a 15% tariff on coal and liquefied natural gas, along with a 10% tariff on agricultural machinery and large-engine vehicles. Additionally, China announced an antitrust investigation into Google. Meanwhile, Trump has warned of new tariffs on the European Union, though no specific details have been provided. This lack of clarity is affecting investment decisions in the wine, beer, and spirits industries, which represent hundreds of billions of dollars in economic activity. A study by John Dunham and Associates, commissioned by the Wine and Spirits Wholesalers of America, estimates that tariffs on Mexican wine and spirits alone could cost the U.S. $774 million in lost wages, $1.3 billion in lost tax revenue, and $2.5 billion in negative economic impact.

The biggest challenge for the industry is uncertainty. David Parker, CEO of Benchmark Wine Group in Napa, notes that businesses can plan for additional costs, but not knowing what will happen from one day to the next makes operations difficult. In 2019, the sudden imposition of tariffs disrupted shipments in transit, creating unexpected costs for importers.

A tariff is essentially a tax on imports, which consumers ultimately absorb through higher prices. Trump justified the new tariffs as a measure to curb drug trafficking and illegal immigration, while Treasury Secretary Scott Bessent stated that they also aim to address unfair trade practices, generate revenue, and serve as a negotiation tool. However, economists warn that tariffs drive up costs, reduce economic output, and eliminate jobs. The Tax Foundation estimates that current tariffs will shrink U.S. GDP by 0.2%, eliminate 142,000 jobs, and cost each American household an additional $830 this year.

For consumers, a 25% tariff increases the price of a $10 bottle of wine to $12.50 before distribution and retail markups. This affects access to European wines, imported beers, and popular cocktails like the margarita, the best-selling mixed drink in the U.S., according to Nielsen CGA.

Industry organizations, including the Distilled Spirits Council of the U.S. and the Tequila Industry Chamber, have warned about the damage tariffs will cause to North America's alcoholic beverage sector, which has benefited from mostly tariff-free trade since the 1990s. The Wine Institute has also expressed concern, as Canada is the top export market for U.S. wine, with retail sales exceeding $1.1 billion annually. The ongoing uncertainty is impacting producers, distributors, and consumers, forcing businesses to seek alternatives to maintain profit margins.

Canada and Mexico responded immediately. Canadian Prime Minister Justin Trudeau imposed 25% tariffs on $106 billion worth of U.S. imports, including wine, beer, and bourbon. He also urged Canadians to support domestic products and reconsider travel to the U.S. Provinces such as British Columbia and Ontario ordered state-run liquor stores to remove American spirits, affecting a market worth nearly $1 billion in annual sales. However, after negotiations with Trump, Canada suspended the tariffs for 30 days in exchange for cooperation on border security and fentanyl trafficking enforcement.

Mexico also secured a temporary halt to the trade dispute after President Claudia Sheinbaum negotiated with Trump to deploy 10,000 U.S. National Guard troops to the southern border for drug enforcement. In return, tariffs were suspended for a month while both countries work on a trade agreement with mediation from high-level officials.

In Europe, leaders such as German Chancellor Olaf Scholz have stated that the EU can withstand a trade war but would prefer cooperation. EU police chief Kaja Kallas warned that trade disputes ultimately harm all parties involved.

The impact is already being felt in the U.S. wine and spirits industry. An executive at a major wine import and export company, speaking anonymously, confirmed that several California wineries may stop exporting to Canada due to lack of competitiveness. This would not only reduce revenue but also limit investments in technology and workforce expansion. Restaurants and retailers are also affected, as they seek alternative products to maintain profit margins.

Rising costs for bottles, labels, and other materials from China are further complicating the situation. Robert Tobiassen, president of the National Association of Beverage Importers, emphasized that globalization means few products are made entirely in one country, so cost increases inevitably reach consumers. Additionally, tariff volatility makes it difficult for importers to forecast expenses or plan shipments with confidence.

Erica Nonni, director of Nonni Strategic Marketing, noted that uncertainty has slowed investment in the U.S. market. Over the past six months, clients from Europe, South America, and Oceania have scaled back operations in the U.S., fearing that a change in administration could further disrupt international trade. Importers with tight profit margins are being particularly cautious.

The instability in U.S. trade policy is affecting the wine industry at every level. From producers to distributors and consumers, tariffs are reshaping the market and forcing businesses to make decisions without clear long-term assurances.