Proposed border tax could hurt Mexican and EU beer imports
In the war of words over President Trump’s proposed 20 percent border tax for goods from Mexico, which would help pay for a wall between the US and Mexico, the fact that the tariff could eventually be applied to all countries with which the U.S. has a trade deficit went somewhat unnoticed.
In actual fact, amongst its major trading partners, the US has a trade deficit with Canada, Mexico, the EU and China (see article “Walmart and other retailers team up to fight Trump’s border tax”).
However, when highlighting the potential implications of a border tax, US media immediately latched on to beer. The cover of the New York Post on 27 January 2017 accused Mr Trump of wanting to “Tax Coronas To Pay For Wall.”
Nobody knows this better than the beer-to-spirits company Constellation Brands. Investors in Constellation have worried since Mr Trump won the election that Constellation’s Mexican beer portfolio – Corona and Modelo – might get hurt. As a consequence, Constellation’s share price has been under pressure for several months.
Mexican beers are hugely popular in the US. By the middle of 2015, Mexican beer sales made up 7.8 percent of all US beer sales by volume, according to Nielsen. In fact, Mexican brands had a share of the US beer market which was greater than that of craft beers, it was reported.
Another importer of Mexican beers is Heineken USA with its brands Dos Equis, Sol and Tecate. Incidentally, Pabst Brewing Company partnered with Mexican craft brewer Minerva in 2016 to expand that brand’s presence in the United States.
According to beer industry publication Beer Marketer’s Insights, in 2016 Corona Extra was the nation’s 5th most popular brand by volume, while Modelo Especial ranked 9th.
Corona has helped make Constellation the third-largest brewer and importer in the US behind AB-InBev and MillerCoors. The 19 million hl beer it produced in 2015 was almost double the output of fourth-ranked Heineken USA. Corona’s sales alone were equal to Heineken USA’s total volumes.
Eventually, it will dawn on commentators that beers brewed in Canada but sold in the US might be affected by the tariff too, as the US has a trade deficit with Canada. This would mainly affect the Labatt brands (owned by AB-InBev), which are brewed in Canada and imported into the US by North American Breweries, which obtained the licence after an anti-trust ruling following InBev’s takeover of Anheuser-Busch in 2008. Already the Canadian brand Molson is brewed by MillerCoors.
And while we are guessing wildly, imported Heineken beer could face the levy too – provided it will be considered an EU beer. The US has a trade deficit with Europe. If it were considered a Dutch beer, it might be exempted because the US has a trade surplus with The Netherlands.
A note of warning: at the moment all this is idle speculation still.
And anyway, Constellation and Heineken will have plans in a drawer as how to handle such a tariff: increase the price of just the Mexican brands? Spread the increase over all of its brands? Or swallow the increase and take a hit to profits? are just some of their options.
