A new study from the University of Illinois Urbana-
Champaign shows how the beer industry as a whole determines the long term impact the trade tariffs put in place during the Trump administration will have on the U.S $117 billion beer market.
As explained by agricultural business management class professor and study co-author Aaron Staples, policies that were meant to encourage the inline production of goods tended to benefit the large multinationals rather than small independent craft breweries. He goes on to state,
The beer industry is divided into three main categories — craft beer brewed by small businesses, domestic non-craft beer from multinational companies, and imported beer.” Staples explains that, “When tariffs increase production costs, those costs often reach consumers, impacting how and what they choose to drink.”
Published in the journal Food Policy, this research was a collaboration with Michael McCullough, California Polytechnic State University and drew upon the data of nearly 700 U.S beer consumers to study the economic impact of tariffs on prices, market share and consumer welfare.
Study findings summarized.
When it comes to tariffs, the evidence indicates that benefits to the domestic breweries will not be distributed evenly. The large domestic breweries/ corporations will capture the most benefits, while small craft breweries might be left trying to compete with small economies of scale and flexibility. Of the domestic breweries,
craft breweries will be most adversely affected. The small craft brewers will, most likely, have the largest difference in price increases on their products relative to the national players, giving them further risk of loss in market share.
The loss in consumer welfare and value to consumers is large and depends on the degree of the tariffs and the consequent price.
A loss in welfare of $53.1 million and up to $306.4 million is to be expected. Since 2013, Beer import market share reached 24% of the US market, with 83% of that beer imported from Mexico. Almost one in five beers consumed in this country is from Mexico. But that might soon change with the newly imposed tariffs.
“Most Mexican beers were initially exempt under the US-Mexico-Canada Agreement (USMCA), but new regulations impose a 50% duty on the aluminum content of imported beer,” said Staples. Expect to pay more for Mexican beer, and expect smaller brewers to end their market presence in the United States.
Who Really Benefits?
Although tariffs tend to favor “Made in America” branding, Staples cautions that the real beneficiaries will be multinational corporations. They already have the means to increase production, rebrand beers as “American-made,” and splash national advertising during football games.
In contrast, smaller craft breweries operate on much thinner profit margins, and rely on imported malt, hops, steel, and aluminum whose costs tariffs increase.
“Multinational companies can better absorb or negotiate around these cost increases,” Staples pointed out. “Small brewers simply don’t have that power.”
Local Economies Could Feel the Impact
Potential Impacts on Local Economies Local economies that rely on craft breweries for employment and tourism will be impacted when craft breweries experience difficulties.
“The impact of tariffs may not be immediate,” Staples said. “But as existing supplies run out and new costs hit the market, small breweries could face serious financial pressure.” Conclusion While tariffs are generally considered to shield domestic industries, this research reveals an uncomfortable truth: in the U.S. beer market, local entrepreneurs are losing and the real winners are global beer giants.
As costs rise and consumer options shrink, American beer drinkers could end up paying more for less variety — with small-town craft breweries facing the toughest hangover of all.
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