KarenComment

Wine, Trade & Unity - TT Wine Counsel Podcast

KarenComment
Wine, Trade & Unity - TT Wine Counsel Podcast

Today, March 4, 2025, the United States has introduced tariffs across the board on Canadian goods exports to the US.

I deeply hope these are short-lived and do not have catastrophic effect on Canadians and Canadian businesses. Despite (rather because of) this sombre development, I am pleased to share TT Wine Counsel’s podcast, recorded in mid-February on wine, trade, and unity. Thanks to my friend Tania Tomaszewska for inviting me to join her. I encourage you to catch her podcast! 

Click here to listen to Episode 23 of the TT Wine Explorer Podcast, or look for it on Apple Podcasts, Spotify or You Tube.

Below are my topline notes for each topic, and at bottom are the sources referenced in our chat.

In Tania’s words, we discuss A LOT, including:

  • How tariffs levied by the United States on Canadian goods may affect the wine and alcohol beverage industry and consumers (on both sides of the border).

  • Potential knock-on effects of counter-veiling measures which Canadian levels of government may take in response to US tariffs.

  • Are there any possible “silver linings” here? (Could tariffs threatened by the US trigger the dismantling Canada’s inter-provincial trade barriers?)

  • What the EU is facing in all of this, and the role of the WTO (if any) in bilateral trade wars flowing from US tariffs.

Is the Canadian-US wine trade balanced?

No.

  • Canada exports (in 2022) about C$68 million worth of wine (most of it bulk) to the US.

  • In wholesale terms Canada imported about C$484 million worth of US wine.

  • US wine accounts for 13% of overall BC Liquor Distribution Branch Wholesale Division sales by dollar value (Q3-Dec 2024). By comparison, BC wine accounts for 42% (down slightly from 47% in previous years).

  • LCBO in Ontario sells ~$1billion of American beverage alcohol products annually.

  •  “Canada is the single most important export market for U.S. wines with retail sales in excess of US$1.1 billion annually,” Wine Institute CEO Robert Koch. “Any loss of access to the Canadian market will damage the entire US wine sector.” 

What are the potential consequential knock-on effects of tariffs?

  • Very harmful for the small number of Canadian wineries exporting to the US.

  • If Canada applies a countervailing tariff of 25% on US wine, it could be very expensive for US wine, depending on the province and its retaliatory measure.

    • E.g. in BC, the wholesale markup model magnifies the tariff because BC markups and GST are placed on top of the federal tariff (e.g. BC’s 89% + 27% wholesale markup levied on a wine with an in-bond cost inclusive of a 25% countervailing tariff).

 

Would retaliatory tariffs be effective? Would it hurt Canadian consumers? What would fill the shelves?

It depends on the retaliatory policy measure. Canada has said it will apply a retaliatory tariff of 25% on select sectors. Provinces have also said they will add non-tariff measures:

  • BC says it would pull liquor brands from Republican-led states (mostly affecting spirits), but not Democrat-led states (most wine producing states that supply BC’s LDB Retail Division and private retailers). Wine purchasers will still have a choice, so no immediate change on the shelves. “Support local” purchasing in favour of BC or non-US wine will bring a temporary boost to those products.

  • Ontario’s plan to pull all US liquor from LCBO shelves and cease ordering will effectively negate the federal 25% countervailing tariff (i.e. no sales = no tariff to levy or collect), but will mean Ontarians have to make different choices. Perhaps those empty shelves will be filled with a wider array of Ontario wines, or wines from elsewhere.

 

Is an “all-or-nothing” approach to tariffs more effective?

 Nuance matters here… It depends on the coverage and purpose of the measures.

  • Tariffs are the preserve of federal / national governments.

  • On one hand, provincial governments should stay out of sub-national US politics by taking retaliatory measures distinguishing between “red state” and “blue state” liquor producers. 

  • On the other, BC’s approach is probably intended to acknowledge the cross-border purchases by BC wineries of grapes or juice from Washington, Oregon and California vineyards to rescue their 2024 vintage. 

  • As a matter of policy, BC should listen closely to BC wineries as they express an ongoing need for replacement grapes (it takes more than a year to regain production levels after the severe damage of January 2024). [Karen’s additional note: Ontario filled some of the supply gap in 2024, and BC’s framework for 2024 was applicable (per international trade rules) to any potential source country, not just the US.]

    • A wild card: Will Canada’s planned countervailing tariffs cover only finished bottled wine? Or also imported grapes or juice (presently a NAFTA/CUSMA good thoretically exempt from tariffs)?

What about Canada’s internal trade barriers. Could their dismantling be a silver lining? Do we have the leadership now?

  • First, we do know how to do this – there are a few sub-national models already in place (the New West Partnership among BC, Alberta, Saskatchewan & Manitoba), although even this is sadly incomplete in terms of Canadian-produced wine, beer, spirits etc.

  • We also know from the Supreme Court of Canada decision in 2017 on “Comeau” (where a New Brunswick resident was fined for driving 354 bottles of beer across the provincial boundary from Quebec) that it considers any change to trade barriers to be a Parliamentary matter, as it declined to re-interpret the recently accepted Constitutional case law.

  • Third, we heard from Minister Anita Anand (Transportation and Trade, formerly Treasury Board) that these barriers could be dismantled in a month. 

To which I ask: Why then has it been impossible to “solve” for decades?

  • Provinces and feds introduced the “Canadian Free Trade Agreement” in 2017 to replace the previous, ineffective Agreement on Internal Trade. It again carved out liquor as an area for further study – ie a parking lot. 

  • Rhetorical question: What country in the world needs an Internal Free Trade Agreement?

  • Answer: One that is unwilling to work hard on liberalisation until a crisis. And now the crisis is here – much like in the era of Canada’s founding. At the “Constitutional moment”, the Framers of the Constitution included robust free trade clauses in our 1867 Constitution because the repeal by the United States of the Reciprocity Treaty in 1866 (after 12 years) loomed large over the new country’s economic viability.

[Karen’s note: for a history of tariffs between Canada and the United States, consult the Canadian Encyclopedia’s Canada-US Economic Relations page.]

What could be the effects on the US beverage industry if the Administration takes aim at Europe, as it has signaled?

To be clear, no one in the North American wine industry asked for this.

In a tariff war, no one wins.

  • Given the US 3-tier legal system of liquor importation and movement in the US (importer, distributor and retail or on-premise) the rebound pain for Americans and the American wine industry could be significant.  If a distributor or retailer loses market share due to European wines costing 25% more, they will raise prices on domestic wine in their portfolio to maintain their revenues and profitability.

  • According to a NY-based wine merchant, for every dollar spent on European wines, American businesses make $4.52. That’s a nice multiplier, until it is taken away - from the many small and family owned businesses in the wine trade.

(Sourced from Eric Asimov’s November 13, 2024 column in the New York Times).

 

On multilateral trade frameworks, the US appears to be turning NAFTA/CUSMA on its head. Is the WTO relevant in this discussion?

  • Multilateral trade agreements are only as strong and credible as the participants agree to be bound by the rules and compliance mechanisms.

  • They rest on principles of equality of opportunity and no less favourable treatment.

  • (Karen’s teaser to listen to the end of our chat: “WTO? WTF?”)

  • We conclude this section on a realpolitik note about the strength and fitness for purpose of international institutions in today’s world. . .

We conclude our chat on a positive note: the wine sector is a global community (as we just experienced at the 46th annual Vancouver International Wine Festival).

As Tania eloquently puts it:

  • Wine unites and is borderless.

  • Passion, artistry, grit, perseverance and small business are key drivers in any wine region around the world. 

  • Making wine has been a human pursuit for centuries. So has breaking bread and connecting around a table. 

  • History matters. Trade ties matter. And so does moving forward to support and unleash our potential

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 References & Articles from this episode: 

 

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