Trade War Begins as U.S. Imposes Tariffs on Canada, Mexico

Your bottle of Canadian whisky or Mexican Tequila is about to get more expensive. After a 30-day delay, U.S. President Donald Trump has imposed 25% tariffs on almost all imports from Canada and Mexico in what Canadian Prime Minister Justin Trudeau called “a really dumb move.” Stock markets in the U.S. and Canada plunged sharply in Tuesday’s trading following the imposition of tariffs.

The tariffs are intended to punish the two countries for failing to stop the flow of illegal migrants and drugs into the United States, but will likely push prices higher for American consumers. Tariffs are not paid by the exporting country, but by domestic companies that import goods from abroad. Those importers are likely to pass along the cost of the tariffs to end users. Trump also doubled the 10% tariff on imports from China to 20%.

As an example, Diageo produces Crown Royal whisky in Canada and exports it to the U.S. through the company’s North American unit. At an assumed wholesale price of $15 per bottle when it crosses the border, the 25% tariff would add $3.75 to the cost of that bottle when it reaches the regional distributor, who would then pass along the cost of the tariff to retailers – and so on down the chain.

The U.S. tariffs are already drawing responses from Canada, which has imposed its own 25% tariffs on American whiskey and a total of $30 billion in targeted exports. Another $125 billion in goods has been targeted for tariffs in three weeks unless the dispute is resolved. In addition, the Liquor Control Board of Ontario is pulling American products from its retail shelves and wholesale catalog, effectively creating a province-wide boycott of American whiskies. The LCBO buys more than a billion dollars of American-made products each year, and is the world’s largest buyer of spirits. Quebec joined the boycott Tuesday, and at least four other provinces are expected to follow suit, including British Columbia, Manitoba, and Nova Scotia.

That could be devastating for the Bourbon industry in Kentucky and the rest of the U.S. In a statement, Kentucky Distillers Association president Eric Gregory said “Bourbon jobs are American jobs, and we grow Bourbon jobs by opening markets across the globe. Retaliatory measures against Bourbon harm these markets and jeopardize growth for years to come, including the unjust and disproportionate removal of American spirits from retail shelves and prohibition on new purchases of alcohol from American companies.”

Distilled Spirits Council CEO Chris Swonger has been leading an industry-wide coalition of groups hoping to keep distilled spirits out of the tariff battle with little success so far.

“They (the Trump Administration) appreciate and recognize that distilled spirits products are distinctive products, but the President is trying to tackle some broader issues and I think we’ve got to recognize that, number one, but work really hard collectively as an industry to untangle the distilled spirits industry from tit-for-tat tariffs because there are no winners,” he said in an interview.

Mexican President Claudia Sheinbaum is expected to announce a package of countermeasures this Sunday, according to Bloomberg News. Swonger noted that Mexico exports far more Tequila and Mezcal to the U.S. than American spirits producers export their products to Mexico, and says Mexico has more to lose in a trade war with the U.S.

This story will be updated with additional information.