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The liquor business suffered a massive hangover as the pandemic-era cocktail boom waned. Trade wars threaten to make the headaches significantly worse.

This week, US President-elect Donald Trump, who has already floated tariffs of between 10 and 20 percent on non-Chinese imports, threatened on his first day in office to impose a 25 percent tariff on all imports from Mexico and Canada raise. Meanwhile, China has imposed tariffs of up to 39 percent on EU brandy in response to tariffs on Chinese electric vehicles.

It’s a nasty cocktail for Europe’s drinks companies. Those with tequila brands such as Britain’s Diageo and Italy’s Campari face tariffs between the U.S. and Mexico. Diageo also faces higher tariffs on Crown Royal whiskey shipped from Canada to the US. These companies, as well as Rémy Cointreau and Pernod Ricard, both based in France, would also be affected by tariffs on imports from the EU and the UK.

For some, the impact would be difficult to digest. Imposing a 25 percent tariff on U.S. imports from Canada and Mexico and 10 percent on imports from the EU and the United Kingdom would cut per-share earnings for Pernod, Campari, Diageo and Rémy by 3 percent, 8 percent, 8 percent and 10 percent cut 19 percent each, according to Deutsche Bank.

It might not happen. In 2019, Trump’s tariff threats rattled the market for months but were eventually toned down to only cover UK single malt Scotch and Irish whiskey, says Jefferies’ Ed Mundy. The industry is working hard to address the impact on consumers and job losses in the hospitality sector.

Chinese tariffs are already proving disruptive. Hennessy, owned by French luxury conglomerate LVMH, briefly considered bottling its brandy in China to avoid import tariffs. However, the plan was suspended after hundreds of workers went on strike. Rémy Cointreau is particularly exposed. On Thursday, it said the proposed 10 percent U.S. tariff rate “certainly won’t kill us” but acknowledged that Chinese tariffs were a concern. To mitigate the impact, cost reductions and price adjustments are planned. However, weak demand will make it difficult to pass on the additional costs.

Even before Rémy feels the impact of Chinese tariffs, sales will fall more this year than analysts expected. However, there are initial signs of stabilization in the US market. The share price’s 3 percent rise on Thursday is a sign that some investors believe the decline in shares – which has fallen 70 percent since 2021 – has gone far enough.

As tariffs ease, investors can look forward to a time when the party gets back on track. For the time being, however, the threat of an increase in tariffs is significantly dampening the good mood.

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