The Beverage Industry Warns of Drastic Impacts from Possible Tariffs

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As tariffs threaten trade in alcohol between the United States and much of the rest of the world, the beverage industry is warning of drastic negative impacts. “It’s going to hurt,” says Adam Silverstein, the chief operating officer of Garfield’s Beverage Warehouse, which has 11 large liquor stores in the Chicago area. “Prices are going to go up. There’s no if’s, and’s, or but’s about that.”

President Donald Trump has continually threatened, instituted, and sometimes backed off on tariffs against everyone from China to Canada and Mexico to the European Union in the first months of his second administration. Trump has proposed tariffs on steel and aluminum from the E.U., and the bloc responded with possible import taxes on goods including American whiskey. On March 13, Trump retaliated with a threat to impose a 200% tariff “on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS COMING OUT OF FRANCE AND OTHER EU REPRESENTED COUNTRIES,” as he wrote in a social media post.

The E.U. later said it would pause the whiskey and other import taxes in a bid to negotiate, but the outcome is as yet unclear. Trump’s tariffs are due to go into effect on April 2, although the administration has not released the final list of tariffs.

People in the beverage industry warn that tariffs on alcohol, especially one as high as 200%, could have devastating consequences for their business. Importers have already stopped shipping orders of wine from Europe amidst the uncertainty, lest a tariff – which is paid by the importer at the port of entry – goes into place while the shipment crosses the Atlantic on a boat. Since the tariff is paid upon delivery, importers shipping wine from Europe today don’t know how much they might have to pay in taxes when it arrives weeks later.

Kyle Davidson, the corporate beverage director at the Day Off Group of three restaurants in Chicago, says one importer he works with stopped two planned shipments at the last minute. “He was like, ‘It would put me out of business if they landed during that time,’” and he had to pay a 200% import tax, Davidson says.

The cessation of such shipments is troublesome not just for the importer but also for an establishment like Day Off’s Il Carciofo, an Italian restaurant with an all-Italian wine list. Davidson predicts that, as importers sell off what European bottles of wine they already have in warehouses in America, they will start to charge higher prices. A restaurant then has to decide, “Do you raise the price and carry the same good, or do you choose a different good and keep the price the same,” he says.

Such decisions can affect the bottom line for restaurants, which operate on exceedingly thin profit margins. Alcoholic beverage sales often make up a significant portion of their profits.

Consumer-facing retailers like Garfield’s face a similar debate on whether to raise prices. “We never want a consumer to buy something and not feel like they got their money’s worth,” says Silverstein.

Sonat Birnecker Hart, the president and founder of Chicago’s Koval Distillery, also worries about whether customers would accept increased costs. If the EU goes through with a 50% tariff on American whiskey, she says, “We’ve come to the conclusion that we would have to eat those costs.” She doesn’t want to pass the cost of the import tax onto Koval’s distributors in Europe and risk losing their business, and knows that Koval has to remain in a competitive price range for European consumers to buy it, especially at a time of economic uncertainty and cutting back.

Consumers “have no interest in spending a lot of money in general, let alone more for a product that they were getting for less only a few weeks ago,” she argues.

Koval is therefore planning to rein in its reach and focus on fewer markets in Europe for now – although the uncertainty around tariffs makes planning difficult. “When you’re in whiskey, you’re always playing futures,” says Birnecker Hart, since it takes years for whiskey to age. “It’s really futures for, ‘What am I going to sell four years from now, and where am I going to sell it?’”

The past five or more years have been trying for the beverage and so many other industries, as the COVID-19 pandemic disrupted supply chains, inflation increased the price of raw materials, and labor costs rose.

Koval and the American whiskey industry also dealt with tariffs, when the E.U. put in place 25% tariffs in response to import taxes imposed during the first Trump administration. Those were suspended under Joe Biden, but industry data found that American whiskey exports to the E.U. fell 20% in the year after their imposition. The COVID-19 pandemic followed, making it difficult to determine long-term effects of the tariffs – and also hindering growth of the American craft spirits industry into international markets, according to Birnecker Hart.

This time around, the Trump administration is targeting a wider range of countries with larger tariffs, meaning more alcoholic goods could potentially see import taxes: perhaps tequila and mezcal from Mexico, or whiskey and sake from Japan. Even seemingly unrelated tariffs can affect the beverage industry: an import tax on aluminum can increase the cost of cans for beer. With the constant shifting, no one knows what might be targeted.

A main argument for tariffs is that they can boost domestic production and sales by increasing the cost of imported versions, thus making a domestic product seem a better value in comparison. But Garfield’s Silverstein doubts that would be the case with American whiskey, because it takes years for it to be ready to sell. Producers can’t ramp up their production quickly enough to satisfy demand.

Day Off’s Davidson sees other issues in the argument that tariffs could help domestic wine production. He predicts that prices on domestic wines will go up as the demand for them increases. Furthermore, “You can’t match the volume-price ratio of European wines with domestic wines because American land is so expensive, everything in America is so expensive, and in Europe you have generational farming and landholding and winemaking practices that allow you to get a really nice $12 bottle of wine that’s really hard to recreate in America.” (Davidson does support American wine; the other two Day Off restaurants both have American bottles on their wine lists.)

Asked if he could see any positive effect from tariffs, Davidson was unequivocal: “Absolutely not. 100%.”