The president-elect says that upon taking office on January 20th he will immediately enact a 25% tariff on goods imported from Canada and Mexico. He also says he’ll add 10% to the existing tariffs on goods imported from China and other countries. If he is true to his word, the impact–for better or worse–will reverberate across the economy, impacting manufacturers and eventually consumers. That’s not a political statement; it’s the nature of tariffs. (If you need to know more about how tariffs work, you can learn here.)
While economists, manufacturers, retailers, and consumers in the U.S. wait to see what the incoming administration will do, a lot of experts and news outlets are chiming in on the expected impact of these proposed new and increased tariffs. Experts at the Brewers Association, which represents the nation’s small and independent brewers (craft brewers), recently published a story about the impact of the tariffs on the craft beer industry. Below, I share the story’s key points along with some of the thoughts I’ve hatched since reading several related articles from various sources.
Aluminum Can Crunch
Imported aluminum has been subject to a tariff for about six years. That 10% tariff, introduced in 2018, exempted aluminum imported from Canada. Most of the aluminum used to manufacture cans in the U.S. is imported from Canada. There’s no guarantee that Canadian-born aluminum will get an exemption this time around.
Even with that exemption, the cost of aluminum cans increased significantly since the tariff was introduced. In fact, before the tariffs, the Producer Price Index for aluminum cans (image source above) hovered around 110. Now, that number is around 145. The previous Canada-exempt tariff was pretty hard on the craft beer biz. A 2018 report from the Beer Institute and National Beer Wholesalers Association said the 10% tariff resulted in the loss of as many as 40,000 beer industry jobs. Seems dramatic, but that’s what the report said.
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Adding a 25% tariff to aluminum imported from Canada would undoubtedly increase the cost of aluminum cans. Logically, the tariff would most greatly impact the smallest producers. Coca-Cola’s place in the supply chain is secure and it can otherwise absorb the cost increases, but Uncle Bob’s Brewing Company isn’t so lucky. We’ve previously covered the aluminum can crunch here on the blog.
Barley Gettin’ By
In North America, most barley is grown in places like Montana, Idaho, Alberta, and Saskatchewan. It is not an easy crop to grow and requires a particular kind of climate–cool and dry. Breweries buy barley from barley suppliers, not directly from farmers. Our nation’s barley suppliers rely on farms on both sides of the border.
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Most breweries in the U.S. are small and do not have big silos full of grain; hence, they do not have contracts with their barley suppliers. This affords them the flexibility to order what they need when they need it, but it also makes them susceptible to price increases and supply chain disruptions. The system works well for craft brewers; they appreciate the agility. However, the Brewers Association reports that the system is reliant on the continued flow of affordable barley across the border and any disruption would impact craft breweries.
Disrupting the barley supply chain will have an impact. It may be harder for small craft brewers to get what they need. (Damn-near all of the nation’s craft breweries are categorized as small, BTW.) Higher prices for Canadian-grown barley will inevitably trickle down to the price of a pint. Again, the largest producers get the best prices and have contracts that ensure they’ll always get what they need. Anheuser-Busch will never have a problem getting grain, but Uncle Bob’s Brewing might find itself bereft of barley, paying a higher price for whatever barley it can find.
The Little Things
It’s not just aluminum cans and barley. There are many other things that the tariffs might impact. For instance, Mexico is a big supplier of bottle caps. Brewhouses are full of hoses, tri-clamps, pumps, filters, valves, gauges, and so on. Likely, a lot of that stuff is imported.
If other nations decide to retaliate with tariffs on US-made products, it could impact some brewers, though not many craft brewers export beer. The real worry here is the hop industry, which most certainly exports a lot of U.S.-grown hops to breweries around the world. Retaliatory tariffs would increase costs for the hop industry’s overseas customers.
The Big Things
Here’s something to think about, though it is not directly related to craft beer. In recent years, Modelo supplanted Bud Light as the top-selling beer in the United States. Modelo is imported from Mexico and legally cannot be produced in the U.S. per a consent decree with Anheuser-Busch (read about it).
In 2023, tequila overtook vodka as the number one alcoholic spirit in the United States. All tequila, and its close cousin mezcal, is made in Mexico. By definition, and because of the required ingredients, tequila made anywhere else would be something other than tequila.
