50% U.S. tariff effectively shuts out N.L.

50% U.S. tariff effectively shuts out N.L.-bottled spirits from down south, says one producer

Jonathan Hemi and Steve Ciccolini hope trade war is resolved soon

Producers of boozy beverages bottled in Newfoundland and Labrador are bracing for the fallout from new, punishing tariffs from the U.S., saying they expect the move will push their products off shelves down south.

Crystal Head Vodka and Signal Hill Whisky managing partner Jonathan Hemi said the impact from the new 50 per cent tariffs on some Canadian goods that came into effect Aug. 22 will be “significant.”

“When tariffs are 10 or 15 per cent from a business standpoint, everyone can cut a little, everyone makes a little less money, things like that,” Hemi told CBC News.

“But when they're hitting like 50 per cent, it basically puts you out of business in that market. It's just too much to absorb, especially for a small company like us.”

He said Crystal Head Vodka — co-founded by actor Dan Aykroyd — is in about 70 countries but the U.S. is their largest market by a wide margin, accounting for about 50 per cent of its profits. While Signal Hill Whisky doesn't do much business in the U.S. at present, the trade war is disrupting future expansion plans.

“We're about to have an importer on it and now that's going to be put on hold, obviously. So growth in the largest market for us… is now basically done for the foreseeable future until we can work these tariff issues out,” Hemi said.

When asked if the business would consider moving production operations to the U.S. if it looked like the trade tensions were going to be long term, Hemi replied he "hoped not.”

“We just don't want to hurt anybody, including, you know, the people that work for us,” but added to ask him again in a year.

Hemi said the U.S. gave Canada about a four-week heads up before the new tariffs came into effect, which didn’t give them much time to produce and ship more product to the U.S. to get ahead of it.

“We got some stuff in. As much as we'd like to? No. But, you know, did we buy ourselves a little bit of time? Yeah, but not much,” Hemi said, adding they weren’t sure if the 50 per cent tariffs were actually going to come into effect.

While he said Canadians have been supporting them, there is still only so much the country can do as a smaller nation, comparing the U.S. to a 800-pound gorilla.

“We can pretend to have our elbows up and we can try, but at the end of the day we need a deal for Canada to thrive like we have been,” said Hemi.

He added it will take time to develop other markets outside of the U.S. and would like to see the government help on that front.

Steve Ciccolini, president of Iceberg Brands Corporation, which makes Iceberg Vodka, also said the tariffs will have a “sizeable” negative impact but said trade tensions have been brewing for the last year and a half. In that time, he said they’ve looked at reaching other markets and other provincial liquor boards.

“The 50 per cent tax would pretty much take us out of the game,” said Ciccolini.

He said his company was hesitant to try to get more products to the U.S. ahead of the tariff coming into effect because there’s a cost to storing inventory.

“We're really in between a rock and a hard place right now when it comes to the United States. And we're watching the news a lot more than we have in the past,” said Ciccolini.

If the tariffs continue or increase, he said the situation will be "dire" for his company.

“There's nobody in the chain that's going to eat that 50 per cent. We're not going to eat it. The importer is not going to eat it. The wholesaler is not going to eat it and the consumer is not going to eat it.”

He said the plan is to sell the inventory they have in the U.S. and “ride out” the current situation.

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Both Hemi and Ciccolini hope the two trading partners resolve the situation and trade can resume.

In a statement to CBC News, national trade association Spirits Canada said it was disappointed a trade deal hadn't been reached to bring U.S. alcohol back to Canadian shelves and stop the 50 per cent tariffs from being brought into effect.

“Tariffs will not resolve the underlying challenges facing the North American spirits sector. They will increase costs, disrupt established supply chains, undermine investment and put jobs at risk on both sides of the border,” reads the statement.

The group added that Canadian spirits contribute about $5.8 billion to the country's GDP, and last year approximately 93 per cent of Canada’s spirits exports by value were sent to the U.S.

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Elizabeth Whitten is a journalist with CBC News, based in St. John's.