Whisky Tariffs Have Not Gone Away—And They Could Get A Lot Worse

These are turbulent times for the whisky world. In the U.S. and Europe, distilleries and visitor centers are just starting to reopen after sustained lockdowns due to COVID-19. Meanwhile, American whiskey companies are confronting enduring forms of racial injustice within their industry as part of the ongoing anti-racism movement. Now, distillers, importers, and retailers are facing another formidable hurdle as the U.S. Trade Representative (USTR) is, once again, threatening increased and expanded tariffs on European whiskies and a litany of other wines and spirits. The proposed new tariffs would cover all whiskies from Europe, including single malt and blended scotch, Irish whiskey, and the many styles of innovative new whiskies coming from France, England, Germany, and elsewhere.

The industry already is struggling due to the 25% tariffs the Trump administration imposed last October targeting around $7.5 billion of European goods, including single malt scotch and Northern Irish whiskey. In the nine months since the tariffs were imposed—and despite averting a threatened 100% tariff on European whiskies—scotch exports to the U.S. have fallen by more than 30%, a loss that the Scotch Whisky Association (SWA) totals at £200 million ($254 million). Meanwhile, the EU’s 25% tariff on American whiskey imports, which was passed in June 2018, has devastated exports of bourbon, rye, and other whiskeys, causing a 33% decline and costing American distillers over $300 million, according to a report from the Distilled Spirits Council (DISCUS).

All this spells a dark future for American distillers and importers—as well as whisky lovers. Small whisky businesses are already struggling, and things may be about to get much worse.

Scotch Struggles

The current American tariffs are set for review by the USTR on Aug. 12, and the outlook isn’t pretty. U.S.-EU trade negotiations have ground to a halt, and once again, the threat of 100% tariffs on all EU whiskies looms large. “U.S. tariffs continue to damage scotch whisky’s exports to our most valuable market,” said Karen Betts, chief executive of the SWA, in a statement that noted the precipitous decline. The coronavirus made matters worse as exports to the U.S. plummeted 47% in April and 65% in May, compared to the same months in 2019. “If these sorts of losses are sustained, there will be an impact on the jobs the industry and our supply chain supports, in Scotland and across the UK,” Betts added.

A view of the Arran single malt whisky distillery's visitor center in the village of Lochranza on Scotland's Isle of Arran; visitors sit around picnic tables on a green lawn in the sunshine, next to the visitor center, with mountains and blue skies in the background.

Whisky fans enjoy the sunshine at the Lochranza distillery on Scotland’s Isle of Arran. Arran’s whiskies, imported by Hotaling & Co. in the U.S., could become more expensive if the proposed tariff increase goes through.

Significantly, the fact that blended scotch is currently exempt from the tariffs offers big companies with robust business in blends—such as Diageo, William Grant & Sons, and Pernod Ricard—a buffer against raising prices on single malts. Now that cushion could be in jeopardy. Because the scotch industry is “already reeling from the unprecedented and ongoing COVID-19 crisis, the possibility that the U.S. government’s 25% tariff on single malt scotch might be increased—and that blended scotch, alongside other UK spirits, might be added to the list of tariffed goods—is an unwelcome and concerning development,” said Jean-Christophe Coutures, chairman and CEO of Pernod Ricard-owned Chivas Brothers, in a statement to Whisky Advocate. British gin—70% of which is produced in Scotland—could also become a casualty of expanded tariffs. The scotch whisky industry “already bears more than 60% of the U.S. tariff burden faced by the UK,” and scotch exports to the U.S. have been “disproportionately impacted,” Coutures added. “The longer negotiations go on, there is a risk more will be lost from existing or escalating tariffs on scotch than would be gained by industry from any ensuing free trade agreement.”

The impact of the tariffs—and anxiety of more to come—is being felt on both sides. U.S. trade groups like DISCUS and the Wine & Spirits Wholesalers of America warn that the tariffs could cost the U.S. wine and spirits industries thousands of jobs and billions of dollars, and could prompt the EU to raise its own levies on key U.S. exports like American whiskey and California wine. Tariffs “either increase pricing or limit availability, [and they] increase the cost of doing business for everyone,” says David Ozgo, DISCUS’ chief economist, warning that, as a result, prices could rise as availability of whisky falls. “While pricing decisions are up to individual brand owners, some or all of the cost of a tariff could be passed along to consumers. In addition, many single malt scotches are in limited supply. Since scotch is sold into a worldwide market, some companies may opt to limit U.S. availability if tariffs raise the cost of doing business.” DISCUS has created the “Spirits United” platform for whisky lovers and others opposed to the tariffs to contact USTR in less than 60 seconds.

Bourbon Taking A Hit

The outlook is equally bleak for American distillers shipping their whiskeys overseas, as EU tariffs are scheduled to rise to 50% in June 2021 barring a resolution between the two sides. Distillers big and small alike, including Amir Peay, owner and operator of the Old Pepper Distillery in Lexington, Kentucky, are already struggling. “The impact of the tariff and trade war has been absolutely catastrophic to our export business in Europe,” Peay says. Before the EU’s tariffs on American whiskey took effect, exports of the distillery’s James E. Pepper 1776 bourbon and rye accounted for around 10% of the company’s business, with the majority of that portion in Europe. “We thought we could at least double our business there,” Peay adds.

Since the tariffs were imposed, however, Old Pepper’s European business has declined by half. Peay says he’s absorbed the costs of the levies to maintain a competitive price and ties he’s built with distributors abroad. In the meantime, the tariffs have created a “self-fulfilling negative cycle—you ship less because you have less demand, and you delay new product launches and [avoid] shipping over more expensive products, because you’re not sure if the demand will be there,” he explains. “We canceled a container of some expensive, limited items, because the risk wasn’t worth it.”

Sonat Birnecker Hart, president and co-founder of Koval Distillery in Chicago, says her business is in similar straits. “When the tariffs began, we chose not to raise our prices because we wanted to maintain a level of competitiveness in the market. Because of that, we were already taking a hit.” COVID-19 exacerbated the financial strain. “It’s a lot of costs to deal with at the same time,” Hart adds.

A view of charcoal mellowing tanks at the Jack Daniel's Distillery in Lynchburg, Tennessee.

Unaged whiskey is filtered through maple charcoal before entering the barrel at Jack Daniel’s Distillery in Lynchburg, Tennessee. Small distilleries are feeling the pain from EU tariffs on American whiskey that took effect in 2018, but major companies like Brown-Forman—which owns Jack Daniel’s—are hurting too.

Even the largest American whiskey companies are feeling the pain of the EU’s tariffs. Brown-Forman, which owns Jack Daniel’s—the top-selling American whiskey in the world—as well as Woodford Reserve and Old Forester is losing $100 million a year, according to CEO Lawson Whiting, who said in an April interview with Shanken News Daily that the tariff situation has been “awful.” Smaller and newer brands are struggling hard, but even whiskeys as established as Jack Daniel’s are facing headwinds. “We’ve absorbed [the losses] in order to maintain momentum with our consumers,” Whiting explained, but adds that Brown-Forman has still been forced to raise prices in some places. “It’s tough in those markets [but] we believe in the long-term potential for American whiskey in Europe.”

Small Businesses Feel the Impact

Meanwhile, U.S.-based scotch importers also are confronting the potential fallout from escalating tariffs. If they ratchet up to 100% and the list of products broadens, “that will really be devastating for the single malt scotch industry, and importers,” says Raj Sabharwal, founding partner of Glass Revolution Imports. Given the scope of the current tariffs, “We’re fortunate that a lot of our imports are not from Scotland,” he notes. Glass Revolution’s portfolio includes whiskies from India, Australia, and elsewhere as well as scotch, which Sabharwal is tweaking as much as possible to get around the tariffs. “I’ve been very careful on what we’re bringing in from Scotland, trying to lean more toward single grains, blended malts, or blends in general,” which aren’t included in the current tariffs. Glass Revolution has brought in a couple of rare single malt scotches, including a 30 year old Jura, that were subject to the current levies; in those cases, Sabharwal says, he had little choice but to raise prices to cover the increased cost. “We’re not profiting from it,” he adds. “Essentially, we’re just passing on the 25% tariff [to distributors]. Unfortunately distributors and retailers are adding their markups on top of that, so it’s really impacting what consumers are paying for single malt scotch.”

There’s only so much we can mitigate against, and if additional tariffs are put in place, eventually that impact will be reflected in the prices on our shelves. – Nima Ansari, Astor Wines & Spirits

While Glass Revolution has managed to adjust to the 25% tariffs by pivoting to whiskies and other spirits that were spared from the initial list, escalated tariffs would bring a host of new obstacles. “We bring in a gin from Spain, and it has a really good position in the market,” Sabharwal says. “If that gets hit with a tariff, that’s going to certainly affect [whether we] continue to bring that brand in.” Additionally, the company was planning to launch a whiskey from the Republic of Ireland that currently wouldn’t be tariffed. “If the USTR slaps a tariff on—whether it’s 25% or 100%—when we’re about to launch this brand new product, that’s just going to have detrimental effects.”

San Francisco-based importer and distiller Hotaling & Co.—which imports Old Pulteney, Speyburn, Balblair, and Arran single malt scotches, and has an array of other European spirits and whiskies in its portfolio—would also feel the impact of tariffs beyond just scotch. “These tariffs are a significant increase in the cost of goods, and we will maintain our pricing for as long as we can,” says Hotaling & Co. president and CEO Dan Leese. “But ultimately, increases of this magnitude will have to be passed on to the consumer.” Those price increases could come sooner than most whisky drinkers would prefer. “If there were another round of tariffs—and assuming we’d have a few months’ warning, like last time—we should be able to buy forward, and not affect consumer prices this calendar year,” Leese says. “However, in 2021, prices for most scotch whiskies would have to go up relative to the new tariffs.” Leese points to single-cask whiskies as at particular risk. “Single casks have become a mainstay of the retail environment as well as the on-premise,” Leese notes. “There will be much less of an appetite from buyers on these expressions, as the tariffs would take a chunk of the value away for the consumer.”

An interior view of Astor Wines & Spirits in New York City, with bottles resting atop barrels.

New York City’s Astor Wines & Spirits has stated that if 100% tariffs on European whiskies—and a long list of other wines and spirits—goes into effect, customers will see higher prices on the shelves. (Photo by Evan Sung)

The threat of increased tariffs also puts retailers in a tough spot. New York City’s Astor Wines & Spirits has stated unequivocally on its website that 100% tariffs will increase pricing “substantially” on all of the store’s European wines and spirits. “As a business, we always try to provide the best value possible, in any given circumstances or time,” says Astor spirits buyer Nima Ansari. “Everything from the bottle selection to how we purchase those items and price them reflects that general strategy. But there’s only so much we can mitigate against, and if additional tariffs are put in place, eventually that impact will be reflected in the prices on our shelves.”

But while prices may rise, it’s unlikely widely popular whiskies will vanish altogether. “If single malt scotch is your favorite drink, the products remain available,” Ansari notes. “The tariff situation is not going to impact a category so severely that the most important items of those categories will all of a sudden become unavailable. A lot of these items—whatever big brand you want to think of—we haven’t seen any of them go on allocation or stop being imported as an impact of the tariffs so far.”

The USTR is accepting comments on the proposal through its online portal until July 26, and Ozgo says that “it’s important for Americans who enjoy whiskies—whether American, Irish, or scotch—to make their voices heard.” Speaking up “could make a real difference for businesses trying to stay afloat during mounting economic uncertainty.” Meanwhile, importers, retailers, and whisky companies are girding themselves for whatever may come. “It is our hope that the tariffs will go away, but a wait-and-see approach will not be our plan,” Leese says. “We will be planning for multiple scenarios.”

Even with the threat of more tariffs, however, Ansari says there’s a bright side, and urges whisky drinkers to keep an open mind—and palate. “There’s still going to be plenty of categories that are not affected by tariffs, and we’re always expanding our selection,” he adds. “The world of spirits, in terms of available products in the market, and the number of producers, has expanded exponentially in the past decade. If your motivation as the drinker is getting something that is really well made at a fair value, you’re going to be able to find plenty of [whisky] exactly like that. There is fantastic whisky being made in virtually every single corner of the globe at this point.”

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