If you found yourself searching terms like “what is a tariff” or “who pays for tariffs” online in recent weeks, rest assured, you’re not alone. Google Trends data indicate unprecedented surges surrounding the last presidential election. After all, President Donald Trump, who describes tariffs as “the most beautiful word in the dictionary,” has promised to transform America into “a tariff nation” with universal tariffs of 10% to 20% on most foreign products. Most recently he’s threatened a 25% tariff on all imports from Canada and Mexico in retaliation for the flow of illegal immigrants and drugs into the US.
Tariffs are a subject that’s ripe for confusion, but here’s what you need to know.
What are tariffs?
By definition, a tariff is a tax applied to imported goods as they enter a country. Tariffs are intended to reduce competition for US businesses by making imported goods more expensive and encouraging consumers to choose American alternatives. Trump’s fondness for tariffs also stems in their use as bargaining chips to strong-arm foreign governments to comply with American policy demands.
You might associate tariffs with industries like steel and automobiles, or luxury goods like handbags and designer clothing. But the American wine and spirits industry suffers an outsized burden in the crossfire of tariff wars too.
Tariffs on imported alcoholic beverages might seem relatively benign. After all, consumers paying more for French Sancerre, Canadian whisky, or Mexican beer might seem justifiable if the increased cost translates into greater support for domestic alcohol. But the American appetite for foreign wines amounted to nearly $7.5 billion of imports in 2021. In 2023 Americans imported over $10 billion of spirits, of which Mexican tequila alone totaled over $4.5 billion. Last year imported beer sales overtook domestic premium beer sales for the first time.
Tariffs on alcoholic beverages are enormously consequential not only because they increase costs for consumers, but they have a profound ripple effect on the American economy. Tariffs take a heavy toll on an expansive web of small, typically family-owned businesses—producers, importers and distributors, retailers and restaurants too. Most of these industries are still reeling from the first Trump presidency when trade disputes about aluminum, steel, and airplanes with the European Union resulted in retaliatory 25% tariffs lodged by both sides against sectors of the wine and spirits industry.
Why do tariffs on wines, spirits and beer have such an oversized impact on everyday Americans?
Much of it goes back to Prohibition. After Prohibition’s repeal in 1933, the American regulatory framework known as the three-tier system of alcohol sales and distribution was set up to control the alcohol industry. Essentially, producers of alcoholic beverages must sell their goods first to a distributor. In the case of a foreign producer, they must sell first to an American importer, who then sells to a distributor. The distributor then sells to retailers and restaurants.
Each time products change ownership, costs and revenues multiply, so much that the US Wine Trade Alliance (USWTA) estimates that for every dollar that’s spent in Europe on wine, $4.52 is generated here for American businesses. Unlike most imported goods, in which revenues flow almost exclusively to their country of origin, “the vast majority of revenue generated from imported wines actually stays with American businesses, most of which are small, family-owned enterprises,” explains Ben Aneff, the managing partner of Tribeca Wine Merchants, a New York City wine shop and president of the USWTA.
Who pays for tariffs?
On the campaign trail, the president assured Americans that tariffs will be paid by foreign companies, not Americans. “To say that foreign companies pay these tariffs is simply not true,” says Harmon Skurnik, president of Skurnik Wines & Spirits, a family-owned American importer and distributor. “Tariffs are invoiced to American importers when goods arrive to the United States.”
To offset the increased cost of a tariff, sometimes the importer can negotiate with its foreign supplier to reduce the price of the good. Alternatively, the importer may absorb part of the cost by reducing its own profit margin. Or it can pass the added expense onto its customers by raising prices. But whether producer or importer, restaurant or retailer, the bulk of the wine and spirits industry already operates on perilously low margins, says Skurnik, and many are “barely holding on for dear life right now.”
How do tariffs affect American businesses?
Tariffs also place a heavy strain on the already fragile American restaurant industry. Restaurants famously operate on razor-thin margins, often relying on higher profit margins from beverages to stay afloat. Imported wine and spirits, especially, are critical profit centers. “What most people don’t understand is that those profits aren’t a luxury, they’re essential for survival,” Aneff says.
Do tariffs at least benefit American wine and spirit producers?
Not necessarily, explains Hardy Wallace, the Napa winemaker and owner of Extra Dimensional Wine Co. Yeah! “It’s more likely that tariffs will increase costs for both foreign and domestic wine,” he says. American wine and spirit producers rely on the same distributors as foreign producers, “so if distributors are feeling the squeeze on imports, they have to make that cost up with domestic [products].”
Moreover, domestic producers of alcoholic beverages rely heavily on imported goods to make their products. Universal tariffs will undoubtedly increase production costs for domestic wineries, Wallace explains. “We’re already experiencing historical highs on prices for anything from tractors and presses to barrels, glass bottles or closures—anything we use in winemaking costs 40% more than a few years ago,” Wallace says. Because there’s so much pressure from consumers to keep prices low, Wallace has only increased prices on his wines by 10%.
Why do tariffs matter right now?
An escalation of retaliatory tariff wars is especially dire right now for American distillers and farmers supporting the spirits industry. American whiskey producers were already bracing for a potential 50% tariff on American whiskey by the EU set for March 2025. Now, they fear retaliatory tariffs from Mexico and Canada, their two largest trading partners, are looming. In 2018, when the Trump administration imposed tariffs on European steel and aluminum, the EU retaliated by hitting American whiskey with a 25% tariff, causing whiskey exports to plummet by 20%. As demand plummeted, the tariff effectively shut out most small American whiskey producers from European markets altogether.
Many in the wine and spirits industry fear that a new wave of tariffs will hit the American economy even harder this time around. Inflation is a greater consideration today, and for the first time in decades, wine and spirits consumption are declining worldwide. Many fear that increased costs due to tariffs will prompt consumers to simply drink less. If the previous Trump administration was any indication, tariffs on imported wine don’t tend to increase sales of domestic wines, says Skurnik.
We make plenty of wine in the US. Why do we need to import it from elsewhere?
Wine isn’t fungible, or interchangeable, in the same way that steel, or commodities like wheat or milk might be, Skurnik explains. Spectacular Chardonnay is made in California, Oregon, or New York today, but Chardonnay from Chablis or Champagne in France are totally unique products. A kabinett Riesling from the Mosel in Germany, a Syrah from Walla Walla in Washington, and a sherry from Jerez in Spain are each singular products that can only be produced in a specific place. “If you’re a wine lover, it’s these unique experiences from all over the world that you crave,” he says.
The same, of course, could be said for Mexican tequila and mezcal, French Chartreuse or brandy.
Is there a silver lining?
Increasingly, the threat of tariffs to the alcoholic beverage industry is proving to be a rare issue of bipartisan concern. On both sides of the political spectrum, in Congress and in the Office of the United States Trade Representative, Aneff believes that policymakers are recognizing that tariffs on imported wine and spirits are more likely to harm American businesses than businesses abroad. With continued opposition, he’s hopeful that wine and spirits can be excluded from potential tariff strategies altogether.
Is there anything to be done about tariffs?
For now, importers like Skurnik are resisting the urge to stockpile inventory in anticipation of new tariffs. “Instead, we’re spending all of our energy trying to fight them,” he says.
Aneff hopes consumers will take action too. Rather than panic-buying in anticipation of price hikes, he urges consumers to write letters to local congresspeople or letters to the editor, voicing support for the American businesses that are most threatened by tariffs.
After all, “free trade is what fueled the accessibility of wines from all around the world, it’s what gave America our wine-drinking culture,” Skurnik says. What a pity it would be to watch that slowly fade away.