US-China Tariff War: Pepsi is impacted by a 10% tariff on Irish concentrate imports, reducing its competitiveness compared to Coca-Cola.

Taiwan • Business • 04/27 15:02
US-China Tariff War: Pepsi is impacted by a 10% tariff on Irish concentrate imports, reducing its competitiveness compared to Coca-Cola.

Due to its reliance on Ireland for concentrate production, PepsiCo is facing the impact of a 10% import tariff due to the US-China trade war, which weakens its competitiveness in the US market. In contrast, Coca-Cola, which produces its concentrate domestically, is less affected. Both companies are also facing the challenge of a 25% tariff on imported aluminum in the US, which drives up packaging costs. Pepsi's market position in the US has weakened, and it has lowered its full-year profit expectations, while Coca-Cola demonstrates greater resilience.

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04/27 15:02

US-China Tariff War: Pepsi is impacted by a 10% tariff on Irish concentrate imports, reducing its competitiveness compared to Coca-Cola.

Due to its reliance on Ireland for concentrate production, PepsiCo is facing the impact of a 10% import tariff due to the US-China trade war, which weakens its competitiveness in the US market. In contrast, Coca-Cola, which produces its concentrate domestically, is less affected. Both companies are also facing the challenge of a 25% tariff on imported aluminum in the US, which drives up packaging costs. Pepsi's market position in the US has weakened, and it has lowered its full-year profit expectations, while Coca-Cola demonstrates greater resilience.

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Pepsi's Ireland Strategy Becomes a Critical Weakness

Over 50 years ago, Pepsi chose to produce its concentrate in Ireland, taking advantage of the local low tax rates to reduce global operating costs. Pepsi Ireland President Pankaj Agarwal once pointed out that Ireland played a key role in Pepsi's digital transformation, helping the company drive innovation and product development. However, what was once considered a wise tax-saving strategy has now become Pepsi's biggest weakness in the US-China trade war.

On April 2, 2025, former US President Trump announced a 10% baseline tariff on global economies. Although the implementation was delayed by 90 days, the 10% tariff still took effect as scheduled. Since the concentrate for Pepsi and its Mountain Dew products sold in the US is primarily imported from Ireland, an additional 10% tariff must be paid, directly increasing production costs.

Coca-Cola's Advantageous Position with Less Impact

Unlike Pepsi, although Coca-Cola also produces concentrate in Ireland for the global market, the concentrate for the US market is mainly produced in Atlanta and Puerto Rico. This allows Coca-Cola and its brands like Sprite to effectively sidestep the direct impact of the new tariffs.

Coca-Cola CEO James Quincey noted that when facing tariff challenges, the company can mitigate cost impacts through local production and flexible supply chain adjustments. This strategic difference has made Coca-Cola relatively stable in this tariff war, further solidifying its leading position in the US market.

Aluminum Tariffs Increase Beverage Packaging Costs

In addition to concentrate import tariffs, Pepsi and Coca-Cola face another challenge: a 25% tariff on imported aluminum imposed by the US from March 2025. Since aluminum is a crucial material for soda canning, this policy directly increases beverage packaging costs.

For Coca-Cola, Quincey stated that although some aluminum comes from Canada and is affected by tariffs, the company plans to increase the use of plastic bottles and prioritize purchasing domestically produced aluminum to ease cost pressures. Pepsi has not yet disclosed what measures it will take to address the impact of aluminum tariffs or whether it will raise product prices as a result.

According to reports from The Wall Street Journal and The Guardian, Pepsi currently has concentrate production bases in Texas, Uruguay, and Singapore, but adjustments to the US market supply chain remain unclear. HSBC analyst Carlos Laboy pointed out that Pepsi is at a disadvantage in the cola wars and is unlikely to quickly adjust its supply chain to counter tariff impacts in the short term.

Market Position and Financial Impact

Pepsi's position in the US soda market continues to decline. According to the latest rankings from Beverage Digest, Pepsi has been overtaken by Dr. Pepper, falling to third place. This change comes at a time when Pepsi is facing cost pressures from the tariff war, making the timing particularly unfavorable.

Additionally, Pepsi has recently revised its full-year profit expectations downward, from the originally expected low single-digit growth to zero growth. The company stated that this adjustment reflects consumers' conservative spending and the negative impact of aluminum tariffs on canning costs.

In contrast, Coca-Cola has shown greater resilience. JPMorgan analysts noted that although Coca-Cola also faces rising costs for imported juice and aluminum, its executives have stated that these factors are unlikely to shake the company's overall outlook.

Pepsi's Diversified Business Structure

Despite setbacks in the soda market, Pepsi has remained relatively calm in response to the decline in market share. The Guardian's analysis pointed out that Pepsi's business structure is more diversified, being the only major beverage company with less than half of its revenue from soda. More than half of its profits come from its Frito-Lay snack division, enabling Pepsi to maintain some financial stability amid fluctuations in the beverage business.

However, given the direct cost pressures from the tariff war, Pepsi's future competitive stance in the US market still requires close attention.

References

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