US whiskey tariff anxiety mounts

A looming 50% duty on American whiskey exports to the EU has US distillers and policymakers concerned.

“Exasperated, exhausting, anxious.” That’s how Chris Swonger, president and CEO of trade body the Distilled Spirits Council of the US (Discus), is feeling about the looming threat of a 50% tariff on US whiskey exports to the European Union (EU). A 25% tariff was suspended in January 2022, but stands to return, and double, at the start of 2024 unless a new agreement is reached.

“We’re cautiously optimistic,” Swonger said. “But that doesn’t mean we’re not going to press the envelope and elevate awareness in the coming weeks, as we get close to 1 January.”

Swonger joined Discus in November 2018, which means his entire tenure has been spent combatting retaliatory tariffs, which stem from Trump administration trade disputes with the EU and UK over steel-aluminium tariffs.

US congressman Andy Barr, of Kentucky’s Sixth District, and co-chair of the Congressional Bourbon Caucus, said: “We’re working as hard as we can to do everything we can to avoid reimposition of the tariffs.” He was encouraged by a conversation with Katherine Tai, ambassador for the US Trade Representative.

He said: “She did seem to understand the importance of the issue, and that she was working on it, but we haven’t seen any breakthroughs at this point. So we just have to remain vigilant.”

US and European trade negotiators met on 19 October, but failed to reach an agreement, as ongoing geopolitical disputes in Ukraine and the Middle East dominate attention. On 23 October, Discus released a report about the foreign trade barriers to US exports, using data to cite how harmful a tariff reimposition would be. From 2018 to 2021, when the tariffs were in place, there was a 12% decrease in total US spirits exports, and an 18% fall in American whiskey exports. From January to July 2023, meanwhile, when the tariffs were suspended, American spirits exports were up by 27% and American whiskey exports were up by 54% compared with that same period in 2022.

“The numbers speak for themselves,” Barr said. “It’s clear that the tariffs have a very material and negative impact on our export sales.”

Since 2002, total American whiskey exports have increased nearly 242% to US$1.3 billion. Exporting to foreign markets remains a key area of growth for smaller brands, and the tariffs stand to create a chilling effect that limits expansion and investment.

Major setback

Robert Hall, CEO of Old Smokey Distillery in Gatlinburg, Tennessee, said his brand of moonshine has experienced rapid growth in recent years, and the company has begun to target international markets to keep the momentum going. “We have been working hard to break into the European market over the past few years, and are beginning to gain real traction,” he said. “The reimposition of EU tariffs would be a major setback and undermine the considerable time, effort and investment we’ve made there.”

Herman Mihalich, founder and distiller at Moutain Laurel Spirits, maker of Dad’s Hat Pennsylvania rye whiskey, said that a number of factors, such as the pandemic and initial 25% tariffs have caused them to abandon European markets entirely. “Our business basically dried up,” Mihalich said, noting that the mere threat of tariffs makes his brand less attractive to distributors. “If we’re going to put effort into restarting the brand, and we run into another brick wall with tariffs, that’s going to be a waste of time.”

Mihalich said the company is taking a wait-and-see approach, and that it would like to re-enter European markets, but at this point, it isn’t a worthwhile allocation of resources for the brand.

Sonat Birnecker Hart, president of Chicago’s Koval Distillery, likewise said her brand is unable to foot the costs that tariffs would require. Larger brands with a diverse portfolio of spirits may be able to more easily take the hit. “For an independent craft brand, it’s going to be a lot more difficult because to stay competitive, we can’t really increase our prices,” Hart said. “When the tariffs were suspended, that was great, because we were able to invest a little bit more in the markets, and maintain our shelf space.”

Like Mihalich, Hart said beyond the actual tariffs themselves, there is a perception among European distributors that American spirits aren’t worth investing in if such hefty tariffs are put in place. “You can imagine the dramatic effect this is going to have on a lot of American brands,” she said, “in particular, the effect that this will have on craft brands that do not necessarily have the marketing budgets of very large companies.”

According to Discus, from January to July 2023, American whiskey exports to the EU increased by nearly 99% compared with the same period in 2022. While Barr said there is some elasticity in the demand for American whiskey, “price does matter in an inflationary global economy”.

Critical priority

Discus recently opened a new headquarters in Washington DC, and Swonger said the organisation is in constant contact with the Biden administration, and that the tariffs remain a critical priority. Barr said that were the tariffs to be imposed and increased, it would likely escalate a trade war, with the US imposing similar tariffs on European spirits.

“They have a lot at stake with respect to their spirits that they export to the United States,” he said. “We’re a huge market for them, and I don’t think they want to see further retaliation against their European spirits. That is a point of leverage that we have.” Barr said that while progress has not yet been made, Tai has assured him that she will fight for an extension if suspension or repeal do not seem viable.

Swonger reiterated that he is cautiously optimistic. “We recognise and believe that both the US and the EU are committed to trying to find a path to have those tariffs suspended. At a minimum,” he said.

Negotiations may go down to the wire, but for craft brands such as Dad’s Hat and Koval, investment decisions need to be made now. “Ultimately, we don’t want the wire around our neck,” Hart said. “We’d rather it be removed sooner rather than later.”