Arizona wine industry facing Trump’s tariff war effects, amid other market struggles

Amid a volatile U.S. tariff war, the Arizona wine and spirits
industry is weighing how the ever-changing landscape could affect local
businesses and consumers.

In March, President Donald Trump threatened to impose a 200% tariff
on European Union wine and spirits after the EU threatened a 50% tariff
on American whiskey.

The trade war shifted dramatically this week. On Wednesday, the EU
approved retaliatory tariffs on U.S. goods ranging from 10% to 25%,
which it paused a day later after Trump announced a 90-day pause on most of the tariffs he’d announced last week.

Such tariffs could have implications for Arizona’s wine industry, specifically its supplies and distributors.

Kent Callaghan is the owner and winemaker of Callaghan Vineyards in
Elgin. He said his company uses barrels and corks from Europe. While he
could switch to an American supplier, this isn’t an option he wants to
pursue.

“I used to use only American (oak), but it’s definitely a flavor
issue, it’s a style issue, and it’s warranted,” Callaghan said. “I much
prefer using European oak, French in particular.”

Callaghan said his business only sells wine across Arizona, with
about 85% of their gross revenue stemming directly from consumers at
the winery. Local businesses such as his won’t feel the impact of
potential retaliatory tariffs as directly since they don’t export
internationally.

Mark Beres, president, CEO and co-founder of Flying Leap Vineyards & Distillery in Elgin, had the same sentiment.

“Most of our production goes to people in Arizona,” Beres said.
“Because we’re not exporting any of our wine, if there are retaliatory
tariffs on American goods going across the border, they’re not going to
impact us.”

Beres also said his vineyard may feel the impact of tariffs through
their supplies but expects the impact to be minimal. He said his company
has already switched to American sources for many of their supplies,
including oak for their barrels.

He said there are larger factors currently at play within the wine market that will have a more serious impact on the industry.

One of the key issues is inflation – consumers will only pay so much
for a bottle of wine. Another is oversupply amid a decrease in demand.
The third is a generational shift. Beres said there’s a natural
trajectory that occurs where adults will gravitate toward wine and
cocktails in their middle-age years.

“You can almost set a generational clock to it,” Beres said. “Those
people that do like to enjoy alcohol will follow a trajectory through
their life; right now, that trajectory funnels down into a
multi-$100-billion-dollar business of alcohol production sales.”

This trajectory – and the sales – are now being disrupted by emerging
drinking patterns of younger generations. Beres said younger people are
more often abstaining from alcohol or switching to other vices, such as
marijuana, which is now recreationally legal in Arizona and many other
states.

“There is a cultural shift happening that’s impacting the wine business,” Beres said.

Ken Phox is the president of Tequila Corrido, an Arizona-based brand
with a warehouse in Arizona and another in Mexico. He noted the
generational shift in drinking culture with spirits as well, and said
his company is in a “waiting pattern” until the tariffs actually go into
effect.

Phox said his tequila brand is sold in 11 states across the country,
all with different distributors. Potential tariffs could impact the
behavior and buying patterns of those distributors.

“We haven’t even gotten hit with tariffs, but we’ve had distributors
in Texas actually increase their orders from us,” Phox said. “I think a
month ago, they said, ‘Hey, with the uncertainty, let’s just double our
order,’ and so that actually then affected our planning. … If you guys
are stockpiling, potentially other states are going to stockpile as
well.”

It remains unclear how potential tariffs will impact prices for consumers.

Callaghan said depending on how long the trade war plays out, supply
and production costs may have to be passed on to the consumer. However,
with local wineries, these costs could be minimal.

“We’re able to absorb costs more easily because of the structure of
our business, which includes, effectively, no middle men at all,”
Callaghan said. “Folks that are newer to the industry, that have just
started out, that’s going to be, I think, a pretty serious concern for
them.”

Beres said he doesn’t think the tariffs will help or hurt his
business. He said the real question is rather how this will affect
demand for wine.

“If demand goes up for American wines, or for local wines in
particular, then we would see some bump in there,” Beres said. “If it
goes down, we might feel a bit of that, too.”

“The turbulent sea that wineries are in right now predates the
election and tariffs. … These issues are far more prescient for wineries
right now.”