By 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.

Coca-Cola and PepsiCo both could be hurt by a 25% tariff on aluminum imports imposed by the U.S. in March. Coca-Cola imports some aluminum from Canada, and soda prices could rise as a result of the levy, Coke Chief Executive James Quincey said in February. He said that his company could ease the impact by packaging more drinks in plastic bottles or sourcing aluminum from the U.S.

The tariff war comes at a particularly bad time for PepsiCo. Pepsi's U.S. market share has plummeted over the past two decades, and last year hit a new low when Dr Pepper unseated Pepsi-Cola as America's No. 2 soda. After years of focusing on food and energy drinks, PepsiCo is now trying to revive its U.S. soda sales. The new tariffs could make that more difficult.

PepsiCo also makes concentrate in Texas, Uruguay and Singapore. The company declined to comment on what steps it might take to mitigate tariffs. It also declined to say whether the levies could drive up prices for sodas like Pepsi or Mountain Dew.

The cola wars aren't the only rivalry whose scales have been tipped by tariffs. In the world of bluejeans, Levi Strauss sources from many countries whose goods are now subject to 10% tariffs. Wrangler's parent company, on the other hand, makes 40% of its jeans and other pants in the Western Hemisphere, including seven facilities in Mexico. The products Wrangler makes in Mexico are compliant with the U.S.-Mexico-Canada Agreement trade pact, and so are currently exempt from the 25% tariff on Mexican imports President Trump introduced earlier this year.

The escalating tariff war could also embroil toothpaste makers. Most of the Crest toothpaste consumed in the U.S. is made domestically, while Colgate produces some of its U.S.-bound toothpaste in Mexico.

For PepsiCo's independent bottlers -- many of them family-owned businesses whose sales have been hurt by Pepsi's market-share decline -- the trade war is a fresh blow.

Bottlers receive small orders of concentrate in 55-gallon containers; large orders arrive in tanker trucks. Some independent bottlers say they expect tariffs on concentrate to push up their costs, and worry that the trade war could make it difficult for PepsiCo to compete with its rivals.

PepsiCo opened its first concentrate plant in Ireland in 1974. In the Irish city of Cork, PepsiCo now operates its global concentrate head office, two concentrate plants and a research and development center. And the soda giant recently doubled down on Ireland: In 2022, it invested 166 million euros, or about $189 million, in its manufacturing facilities in Cork.

Keurig Dr Pepper opened a concentrate facility in Ireland in 2022, but also makes concentrate in St. Louis. The company declined to say how much it imports to the U.S.

Write to Laura Cooper at laura.cooper@wsj.com

(END) Dow Jones Newswires

April 20, 2025 05:30 ET (09:30 GMT)

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