The Spirits Industry Faces a Perfect Storm of Tariffs and Trade Tensions
The liquor industry is bracing for a potential seismic disruption as global trade tensions escalate. On a recent rainy evening in Brussels, lobbyists from the spirits sector gathered in an upscale private club, sipping on cocktails with names like “Toasts Not Tariffs” while expressing their fears about the looming crisis. This is not the first time the industry has found itself in the crossfire of trade disputes. Seven years ago, during the presidency of Donald Trump, the spirits industry became collateral damage in a global trade war. The U.S. imposed tariffs on its trade partners, prompting the European Union (EU) to retaliate with a 25% tariff on American whiskey, specifically targeting the industry in Kentucky, the home state of Senator Mitch McConnell, then the Senate majority leader. This tit-for-tat exchange of tariffs impacted spirits ranging from rum to cognac on both sides of the Atlantic.
While the Biden administration paused these tariffs, the return of Trump to the White House has reignited fears. The EU suspended its tariffs in 2021 and extended the suspension in 2023, but this reprieve is set to expire on March 31. If no resolution is reached, American whiskey will face a crippling 50% tariff, while other goods, including motorcycles, will also be affected. The spirits industry has been vocal about the dangers of these tariffs, warning that they could devastate export businesses, particularly in key growth markets like Germany and France. Additionally, there is a risk of retaliatory measures from the U.S., which could further harm the industry.
Bars and distilleries are already taking precautionary measures. Some establishments are stockpiling bottles to avoid disruptions, while others have paused expansion plans. Industry leaders are actively lobbying policymakers in Brussels, Washington, and Rome, where Italian Prime Minister Giorgia Meloni has emerged as a key intermediary between Trump and Europe. Their message is clear: the spirits industry should not be a pawn in trade negotiations.
Tariffs on Spirits: A Strategic Lever in Trade Negotiations
The spirits industry’s entanglement in trade disputes may not be accidental. Whiskey, in particular, has become a symbolic and strategic target in trade negotiations. Tariffs on consumer products like bourbon and rye whiskey generate significant media attention and disproportionately affect specific regions, creating localized political pain without inflicting widespread economic harm. For the EU, the automatic enforcement of tariffs on American whiskey at the end of March provides a unique opportunity to exert pressure on the U.S. without needing to negotiate a new agreement or escalate the trade conflict further.
Currently, European leaders are seeking any form of leverage they can muster. The EU is keen to avoid a full-scale trade war with the U.S., as such a conflict would exacerbate Europe’s already sluggish economic growth. Moreover, European leaders are eager to maintain U.S. cooperation on critical geopolitical issues, such as supporting Ukraine in its conflict with Russia. The EU has yet to reveal its strategy for responding to new tariffs imposed by the Trump administration, including a 25% levy on steel and aluminum set to take effect on March 12. However, the alcohol industry is closely monitoring whether whiskey tariffs will be reinstated or even increased.
The Spirits Industry’s Plight: A Call for Tariff-Free Trade
The spirits industry has been among the most vocal opponents of these tariffs, arguing that they undermine the principles of free trade. Chris R. Swonger, CEO of the Distilled Spirits Council of the United States, has been a prominent advocate, meeting with European leaders in Italy and Belgium to make the case for tariff-free trade. “This industry should not be included in a trade dispute,” Swonger declared. “We are the poster child of the best of free trade.” The industry’s concerns are not limited to Europe. In other regions, such as North America, the trade of Mexican tequila and Canadian whiskey could also be impacted by the U.S.’s efforts to renegotiate its trade relationships with these nations, though tariffs between these countries remain suspended until March.
Given this fraught landscape, global spirits lobby groups are collaborating to advocate for the industry’s exclusion from tariff disputes. They argue that tariff-free trade is essential for both emerging distillers seeking to establish themselves in new export markets and multinational corporations aiming to maintain uninterrupted trade flows, particularly between the U.S. and the EU. The stakes are high: American whiskey exports to the EU fell by 20% in the year following the imposition of 25% tariffs, while EU exports of liqueurs and cordials also declined sharply.
The Economic and Human Impact of Tariffs on the Spirits Industry
While the tariffs may have had a relatively small impact on the broader U.S. economy—whiskey sales dropped by over $100 million between 2018 and 2019, a minor figure in a nearly $22 trillion economy—the damage to the industry was significant and long-lasting. For smaller distilleries, the tariffs have been particularly devastating. Victor Yarbrough, CEO of Brough Brothers Spirits Group, had just begun exporting bourbon from his Louisville, Kentucky, distillery to Britain in 2019 when the first round of tariffs took effect. The 25% tariff made exporting unprofitable, forcing the company to halt its international ambitions. Now, Yarbrough is postponing plans to enter the French and German markets, which he had hoped to achieve by summer. “It’s just very difficult to make any kind of business decisions,” he remarked.
Yarbrough’s products—a premium bourbon with notes of cherries and chocolate, and a lower-proof option with a hint of apple—were poised to resonate with European consumers. However, the uncertainty surrounding tariffs has left him in limbo. His story highlights how trade disputes can disproportionately harm small U.S. businesses. Whiskey is the leading U.S. distilled spirits export, accounting for more than two-thirds of all such sales in foreign markets in 2022 and 2023. However, tit-for-tat tariffs also harm consumers by driving up prices and limiting choices. For instance, Björn Lahmann, owner of Whiskyplaza in Hamburg, Germany, relies heavily on American bourbon and rye for classic cocktails like the Sazerac and Old Fashioned. If tariffs push up the cost of these spirits, Lahmann fears that customers may either absorb the higher prices or turn to non-American alternatives.
The Broader Implications of Tariffs for Global Trade
The European Union has been consistent in its opposition to tariffs, framing them as harmful to both businesses and consumers. “Tariffs are taxes—bad for business, worse for consumers,” declared Ursula von der Leyen, President of the European Commission. As the EU seeks to avoid a full-scale trade war with the U.S., its leaders are walking a fine line. On one hand, they are offering concessions, such as increasing gas purchases, to placate the Trump administration. On the other hand, they have vowed to take firm countermeasures if negotiations fail.
The specifics of these countermeasures remain unclear, but targeted tariffs on symbolic products like whiskey could play a role. Spirits Europe, the EU’s liquor lobby group, has been steadfast in its opposition to tariffs. “On spirits, we speak with one voice: We want to maintain tariff-free trade,” said Ulrich Adam, the group’s director general. Meanwhile, industry lobbyists are anxiously awaiting clarity on the EU’s strategy. As the deadline for the expiration of the tariff suspension approaches, the stakes grow higher—not just for the spirits industry, but for the broader global economy.
The situation serves as a stark reminder of the interconnected nature of international trade and the ripple effects of protectionist policies. As the EU and the U.S. navigate this complex landscape, the spirits industry remains hopeful that policymakers will recognize the value of tariff-free trade and spare the sector from further harm. For distillers like Yarbrough, the ability to export their products without punitive tariffs is not just a matter of business—it’s a matter of preserving the legacy and future of an industry that relies on global cooperation and partnerships.
In the end, the spirits industry’s fate may hinge on the ability of global leaders to find common ground and avoid a destructive trade war. As the clock ticks down to March 31, the world will be watching closely to see whether the EU and the U.S. can navigate this challenging situation without resorting to tariffs that would harm businesses, consumers, and the broader economy. For now, the industry remains in limbo, hoping for a resolution that allows it to continue thriving in an increasingly uncertain global marketplace.
