The ongoing trade imbroglio occasioned by President Donald Trump’s aggressively tariff-forward policy stance is roiling global markets across industries. The alcohol sector is being particularly hard hit, as many industry watchers warned could happen in the event of Trump-initiated trade wars with the European Union, Mexico, and Canada.
While the latest developments—including the president’s threat earlier this week to impose a 200 percent tariff on European alcohol—are par for the course when it comes to the economic fallout of tariffs, Canada’s retaliation to Trump’s tariffs could cause long-term damage to American alcohol markets. Unique features of the Canadian system of alcohol regulation could dry up American alcohol sales within our northern neighbor’s borders for decades.
In response to Trump’s 25 percent tariff on Canadian goods, the Canadian government decided to pull all U.S. alcohol from the shelves of its provincial-run alcohol stores. Both the U.S. and Canada regulate alcohol at the sub-national level, but with a key difference: While most American liquor stores are privately owned (except in the remaining 17 retail control states), all but two Canadian provinces rely on government-run liquor stores.
Government-controlled alcohol stores are notoriously bad for freedom, but they prove surprisingly handy in an international trade dispute in which a country wants to inflict maximal pain on its neighbors. Having a system of government-owned stores allows entire swaths of Canada to effectively lock American alcohol out of the marketplace entirely. Rather than just making American whiskey 25 percent more expensive in Canada, it may no longer exist inside the country’s marketplace.
Jack Daniels’ CEO Lawson Whiting called Canada’s move “worse than a tariff because it’s literally taking your sales away completely, removing our products on the shelves.” Canada is currently the U.S. alcohol industry’s number two export market, with the province of Ontario alone accounting for around $1 billion in American alcohol sales each year.
The impacts have already been immediate, with distilleries like Michter’s in Louisville announcing $115,000 in canceled bourbon orders, while liquor giant Diageo is estimating losses of up to $200 million. Craft distilleries near the border—like those in Buffalo and Washington state—could suffer the most, given both their small size and their interconnectedness with the Canadian market.
Up until recently, Canadian whiskey was losing market share to American bourbon within Canada’s borders—a trend that one can now expect to reverse, as Canadian consumers rally around the flag in a bout of “buy local” boozy patriotism. (One Canadian brewery even debuted its “Presidential Pack,” which contains 1,461 beers, enough for the buyer to have one for each remaining day of the Trump administration).
For its part, Canada struggles under its own thicket of overly burdensome and competition-hampering domestic alcohol regulations. Predictions of a “booze revolution” are spreading across the country as calls increase for the Canadian government to liberalize the country’s alcohol markets, as evidenced by the recent decision to remove internal alcohol trade barriers between provinces.
While many Canadian craft alcohol producers bemoan the difficulty they face in getting their products carried in the provincial-run stores, that too may be poised to change with the advent of a renewed deregulatory ethos inside the country. As one Canadian micro-distiller put it: “We happen to have a lot of shelf space right now. They’ve just removed all of these American spirits.”
The alcohol trade wars are hurting America in the normal ways one would expect tariffs to, but they’re also having the unintended consequence of focusing the minds of Canadian government officials to deregulate their own bad booze laws—which, while good news for Canada, will just hurt American producers even more.
Trump promised to “Make America Great Again,” but the main effect of his tariff policies could actually be to Make Canada Free Again.
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