Spirits Industry Under Threat as Tariffs Loom
Liquor lobbyists gathered in a swanky private club in Brussels on a rainy evening, sipping cocktails with names like “Toasts Not Tariffs,” to discuss the looming threat to their industry. The spirits sector is bracing for potential disaster as tariffs on American whiskey and other goods are set to resume after a temporary suspension. Seven years ago, the industry found itself caught in the crossfire of a global trade war when President Trump imposed tariffs on key U.S. allies, prompting the European Union to retaliate with a 25% levy on American whiskey. This move was explicitly designed to target Senator Mitch McConnell, then the Senate majority leader from Kentucky, a state famous for its bourbon. The tit-for-tat tariffs that followed affected everything from rum to cognac, causing widespread disruption to the global spirits trade.
While the Biden administration suspended these tariffs, the return of Trump to the Oval Office has reignited fears of a renewed trade war. The European Union extended its suspension of tariffs in 2023, but this reprieve is set to expire on March 31. After that, a 50% tariff on American whiskey will automatically take effect, along with increased levies on other products like motorcycles. The spirits industry has been the most vocal about the dangers of these tariffs, warning that they could decimate export businesses, particularly in key growth markets like Germany and France. Additionally, there are concerns that the tariffs could provoke retaliatory measures, further escalating the trade conflict and harming the industry as a whole.
Navigating a Fraught Trade Landscape
The spirits industry is not just another casualty of trade disputes; it has become a symbol of the complexities and challenges of global trade. Whiskey, in particular, serves as a prime example of how tariffs can inflict significant political and economic pain. Consumer products like bourbon are high-profile targets, generating headlines and disproportionately affecting specific regions, such as Kentucky. The automatic nature of the EU’s whiskey tariffs also gives Europe a strategic advantage, allowing it to apply pressure on the U.S. without requiring a new political agreement or escalating the conflict further.
European leaders are currently seeking any leverage they can muster to avoid a full-scale trade war with the U.S. With Europe’s economy already struggling, a trade war would only exacerbate stagnation. Additionally, European leaders are eager to maintain U.S. cooperation on geopolitical priorities, such as supporting Ukraine in its conflict with Russia. However, the EU has yet to reveal its strategy for responding to Trump’s latest tariffs, including a 25% levy on steel and aluminum set to take effect on March 12. The situation is further complicated by Trump’s directive to his advisers to develop new tariff levels targeting economies like the EU, setting the stage for intense negotiations with governments worldwide.
Tariffs and Their Far-Reaching Consequences
The spirits industry is watching anxiously as the March 31 deadline approaches, wondering whether the whiskey tariffs will be retained or even increased. Industry leaders argue that the sector should not be drawn into trade disputes, emphasizing that it represents the best of free trade. Chris R. Swonger, CEO of the Distilled Spirits Council of the United States, recently traveled to Italy and Belgium to plead the industry’s case to European leaders. “This industry should not be included in a trade dispute,” he said. “We are the poster child of the best of free trade.”
The impact of tariffs extends far beyond the spirits industry. Consumers are likely to bear the brunt of increased costs, as importers pass on the added expenses. In Hamburg, Germany, for instance, the owner of Whiskyplaza, Björn Lahmann, has expressed concerns that rising bourbon and rye prices could force customers to either pay more or switch to non-American alternatives. This would not only harm businesses like Lahmann’s but also diminish the variety of products available to consumers.
Battle to Preserve Free Trade in Spirits
The spirits industry is fighting to protect its hard-won gains in global markets, where free trade has allowed it to thrive. American whiskey exports to the EU fell by 20% in the year following the imposition of the 25% tariffs, according to industry data. While the economic impact may seem relatively small compared to the size of the U.S. economy, the damage to the industry was significant and long-lasting. For example, bourbon sales alone lost over $100 million between 2018 and 2019.
The threat of tariffs continues to cast a shadow over the industry, deterring investment and expansion. Victor Yarbrough, CEO of Brough Brothers Spirits Group, had just begun exporting bourbon from his distillery in Louisville, Kentucky, to Britain in 2019 when the first round of tariffs hit. The 25% levy made exporting unprofitable, forcing the company to pull back. Now, Yarbrough is postponing plans to enter the French and German markets, fearing that the looming tariffs could derail his business once again. “It’s just very difficult to make any kind of business decisions,” he said.
A Brewing Storm for Spirits and Consumers
The spirits industry is not just fighting for its own survival but also for the interests of consumers who stand to lose out if tariffs are reimposed. As bars and importers stockpile whiskey in anticipation of the looming tariffs, the cost of doing business is already rising. Distilleries, meanwhile, are being forced to put their expansion plans on hold, stifling innovation and growth.
European Commission President Ursula von der Leyen has been clear in her opposition to tariffs, stating, “Tariffs are taxes — bad for business, worse for consumers.” The EU’s strategy has been to stick to this message while pushing for negotiations. European leaders are trying to offer the Trump administration concessions, such as pledges to increase gas purchases, in the hope of avoiding a trade war. However, they have also made it clear that they will not hesitate to take retaliatory measures if negotiations fail.
The Global Ramifications of a Trade War
The showdown over spirits is just one part of a broader trade conflict that could have far-reaching consequences for the global economy. The U.S. is also seeking to renegotiate its trade relationships with Mexico and Canada, potentially affecting the trade of tequila and Canadian whiskey. Despite the current suspension of tariffs between these nations until March, the situation remains precarious.
Industry lobby groups from around the world have joined forces to argue that the spirits sector should be spared from the tariff fight. They contend that excluding spirits from trade disputes would allow emerging distillers to establish themselves in new markets while enabling multinational corporations to continue trading unaffected. Spirits Europe, a European liquor lobby group, sums up the industry’s position succinctly: “On spirits, we speak with one voice: We want to maintain tariff-free trade.”
As the March 31 deadline approaches, all eyes are on Brussels, Washington, and other key capitals as policymakers grapple with the challenges of navigating a complex and volatile trade landscape. The spirits industry, caught in the middle of this storm, can only hope that its voice is heard before it’s too late.
