Diageo, the global drinks giant, has sounded the alarm over potential losses of up to $200 million in profits due to President Trump’s threatened tariffs against Mexico and Canada. The company, known for brands like Guinness and Johnnie Walker, has taken the unusual step of scrapping its key sales growth target in response to the uncertain trade environment.
The tariffs, set at 25% and initially scheduled to take effect immediately, have been postponed for a month following last-minute negotiations with Mexican President Claudia Sheinbaum and Canadian Prime Minister Pierre Trudeau. This delay has provided a temporary reprieve, but the situation remains “extremely fluid,” according to Diageo.
The company’s concerns are particularly focused on its tequila exports from Mexico and whisky exports from Canada, which together account for about 45% of Diageo’s US sales.
The potential disruption has led Diageo to drop its medium-term guidance of 5% to 7% organic net sales growth, opting instead for more frequent near-term updates.
Scottish Whisky Industry braces for impact
President Trump’s promise to impose tariffs on some of the United States biggest trading partners is already coming to fruition. So far, levies have been imposed on Canada, Mexico and China, with the President now turning his attention to the EU and the UK.
The Scottish whisky industry, still recovering from previous tariffs, is watching the situation closely. The Scotch Whisky Association (SWA) reported that the last round of tariffs imposed on Scotch as part of a transatlantic aviation dispute resulted in a £600 million loss in exports, equivalent to over £1 million a day over 18 months. The looming threat of new tariffs has reignited concerns within the industry.
Broader trade Implications for Scotland and the UK
The potential trade war is not limited to the alcohol industry. Trump has indicated that the European Union could expect levies “pretty soon” and that imposing tariffs on the UK “might happen.”
This has led to broader economic concerns, with Kallum Pickering at Peel Hunt suggesting that the sudden unveiling of huge tariffs “could thus seriously jar risk markets in the days ahead.”
Dr Piotr Jaworski, an expert in international trade at the University of Dundee’s School of Business, says that President Trump’s actions place the UK in an uncomfortable position.
“President Trump’s statement from Maryland on February 2 cast a long shadow over transatlantic trade relations. While declaring that new EU tariffs will “definitely happen,” he notably softened his tone regarding Britain, suggesting that despite the UK being “out of line,” their trade issues could be resolved. This apparent olive branch to Britain hints at potential concessions in the making.
“The timing is crucial, as trade data reveals Britain’s precarious position. According to ONS and House of Commons figures from 2023, the United States stands as the UK’s leading partner for services trade and dominates goods exports while ranking second in goods imports.”
“However, viewing the European Union as a unified trading bloc paints a dramatically different picture: EU trade volumes dwarf US figures, with EU goods trade exceeding US levels by more than threefold in exports and fivefold in imports. The services sector shows similar disparities, with EU trade surpassing US volumes by 1.3 times in exports and more than fivefold in imports.”
“This trade structure places Britain in an increasingly difficult position as tensions escalate between its two largest trading partners. With an economy less than one-sixth the size of either the EU or US, Britain lacks the economic leverage to maintain equidistant relations with both powers.”
“Sir Keir Starmer’s recent trip to Brussels, joining a gathering of European Union leaders – the first such visit by a British Prime Minister since Brexit – signals one potential direction. While rejoining the EU single market or customs union remains politically off the table, the economic realities of a US-EU trade war might force a reconsideration of Britain’s stance.
“Choosing Europe could come at a significant cost. Several industries could face harsh US tariffs, including steel and aluminium exports, Scotch whisky, digital services, and the automotive sector. The Scottish economy could face severe challenges.
“However, President Trump’s signals suggest an alternative path. His indication that trade relations with Britain could be improved more easily than with the EU opens possibilities for compromise. Such a deal might involve greater UK openness to US agricultural products, harmonisation of standards in certain sectors, enhanced investment opportunities for US companies in UK markets, and increased UK commitments to import US Liquefied Natural Gas (LNG).
“Paradoxically, the energy issue might offer a way forward for all three parties. In the face of Russian aggression and energy security concerns, increased US LNG exports could benefit both the UK and EU. The Prime Minister’s upcoming Washington visit in late February might provide an opportunity to explore such trilateral solutions.”
As the global economy braces for potential disruptions, Diageo and other spirits producers find themselves at the forefront of a complex and evolving trade landscape. The coming weeks will be crucial in determining the long-term impact on the industry and international trade relations.
