This morning, the Trump administration announced that it will proceed with blanket 25% tariffs on almost all Canadian and Mexican products entering the U.S. In retaliation, the Canadian and Mexican governments announced reciprocal tariffs. The Canadian response includes matching 25% tariffs on U.S. alcohol products, including wine, that enter the Canadian marketplace. I discuss the effects of these developments below.
What Wine Does the Tariffs Apply To? The Canadian tariffs will apply to all U.S. produced wine that enters Canada as described above. The tariffs would not apply to non-U.S. wine (e.g. French or Italian wine) that enters Canada from the U.S. or from other countries.
When Will the Tariffs Take Effect? The Canadian tariffs take effect as of 12:01 am today (Tuesday March 4th). However, they will not apply to goods that were already in transit to Canada today. As such, these tariffs will apply to all U.S. wine arriving at the border which is shipped today or later. The tariffs are imposed when the product enters Canada so wine that is already within Canada will not be subject to the tariffs. For example, U.S. wine that is already in Canadian stores or is already in the Canadian distribution system will not be subject to the tariffs.
Will Wine Prices Rise Because of the Tariffs? U.S. Wine prices should not rise immediately because wine that is already here will not be subject to the tariffs. Wine importers will likely exhaust their existing stocks of U.S. wine at existing prices so they should be able to supply retailers and restaurants/bars for some time depending upon their stock levels in Canada. Importers will hope that the tariff disputes are resolved before they have to import new stock. If an importer brings in new stock from the U.S., that stock would be subject to the tariffs and the importer would likely have to raise consumer prices (see below).
How Much Could Prices Rise? If an importer brings in new stock from the U.S., there would likely be considerable price hikes. The 25% tariff would be added to the supplier’s cost before the imposition of other taxes and liquor board markups. The cumulative effect creates a multiplier of “tax on tax” which would significantly increase costs for the importer and make it very difficult for them to ‘absorb the cost increase’. For example, using rough calculations, I believe that a U.S. bottle of wine currently retailing for $20 would increase by about $5-6. All price points would be affected with greater dollar price increases at higher price points. I note that the effect in Alberta will be compounded with the recent change in AGLC liquor markup rates.
Will U.S. Wines Still Be Available? What Will be the Effect on Sales? The reciprocal tariffs are an action of Canada’s federal government. However, liquor distribution is controlled by the individual provinces, all of which have government monopolies on distribution at the wholesale level and most of which also have government retail stores. Some provinces have either entirely removed (Ontario, Quebec, Nova Scotia) or selectively removed (B.C.) U.S. alcohol products from distribution by their provincial liquor monopolies. These actions will obviously have severe marketplace effects. Even in those provinces which continue to permit sales, the effect on consumer purchasing of U.S. wines will likely be significant if this dispute drags on. Some consumers may choose to avoid purchasing U.S. wines due to the politics of the situation. But even for those that don’t, all U.S. wines would become less price competitive as compared to Canadian wines and wines imported from other countries. There would likely be a significant loss of market share from the U.S. in favour of Canada and other countries.
What About Bringing Wine Back After a Trip? The tariffs will not apply for accompanied imports of wine that are within an individual’s duty-free limit. However, they would apply for any amount of wine that is outside the limit. As such, the importation of U.S. wine by a traveller that is not duty-free will become considerably more expensive.
What About Selling Canadian Wine in the U.S.? The American tariffs would affect the price of Canadian wine in the U.S. marketplace in a similar way to that described above (although the U.S. does not import much Canadian wine). As a result, any new shipments of Canadian wine (or other alcohol) into the U.S. would be subject to tariffs with resulting eventual price increases and eventual erosion of market share. This issue would be more significant for Canadian spirits manufacturers.
