Cola Wars: The Trump Tariffs Are Tilting the Scales in the Coke Versus Pepsi Battle

PepsiCo makes nearly all of the concentrate for its US sodas in Ireland, unlike Coca-Cola

- Laura Cooper

Pepsi was already losing the cola wars. The trade war isn't going much better. It all comes down to where PepsiCo and Coca-Cola make the secret-recipe concentrates that are the essence of their sodas. Concentrates are made in special facilities, then shipped to bottling plants. There, they are combined with water, bubbles, and sweetener to make soda.

PepsiCo more than 50 years ago began making concentrate in Ireland because of the country's low corporate tax rate. Now, PepsiCo's tax-saving move has backfired: The concentrate for nearly all U.S. sales of Pepsi and Mountain Dew is subject to a 10% tariff.

Coca-Cola for decades has also produced concentrate in Ireland, shipping it to markets around the world. But Coca-Cola makes most of the concentrate for its American sodas in Atlanta and Puerto Rico, a U.S. territory. That means drinks like Coke and Sprite are less exposed to tariffs.

"Ireland has long had the tax advantage—until the tariffs hit," said Carlos Laboy, an analyst at HSBC.

No one could have seen the tariffs coming, and it is unclear how long they will last, but Pepsi clearly is at a disadvantage now, he said.