American Distillers Face a Double-Shot of Tariffs in June. Will Biden Save Them?
Biden's new trade representative should outline a plan to remove the economically nonsensical and politically pointless tariffs on European steel and aluminum in order to deescalate this costly conflict.
Before the tariffs hit, Sonat Birnecker Hart's Chicago-based distillery was seeing exports to Europe and the United Kingdom grow by about 25 percent annually.
It's been a different story for KOVAL Distillery recently, with sales across the Atlantic down 60 percent since whiskey got caught up in a trade war. "This erodes years' worth of effort by our team to get onto European shelves," Hart writes in an op-ed for The Washington Post. "The longer we're off these shelves, the harder it will be to get back on them."
The tariffs that have wrecked Hart's ability to grow her brand overseas were imposed in retaliation to the Trump administration's tariffs on steel and aluminum imported from Europe. Since June 2018, the European Union has applied 25 percent import taxes on American whiskey and a variety of American agricultural goods including corn, orange juice, peanut butter, and tobacco products.
Combined with the economic impact of the COVID-19 pandemic, the tariffs have forced Hart to scale back significantly: closing the distillery's tasting room and laying off employees. Across the industry as a whole, American whiskey exports to European countries have declined by 53 percent since the tariffs were imposed, according to trade data tracked by the Distilled Spirits Council of the United States (DISCUS), an industry group.
And now another major hurdle looms on the horizon. Unless the U.S. reaches a deal with Europe to roll back the Trump-era tariffs before June 1, the European tariffs will automatically double from 25 percent to 50 percent.
That's one of the first significant deadlines looming for the Biden administration as it navigates (and at least partially embraces) the haphazard trade environment left by Trump. When the Senate convenes next week for a confirmation hearing on Biden's pick to be the U.S. trade representative, Katherine Tai, members should demand a plan to avoid that scheduled tariff hike.
The tariffs on Chinese imports that came to define Trump's trade agenda have been economically damaging, but Biden appears unwilling to discard them for fear of losing the domestic political benefits that come with standing up to China. The U.S.-E.U. front of Trump's trade war, meanwhile, is economically nonsensical and politically pointless—it is causing unnecessary pain to American businesses and the economies of longtime allies without providing any apparent benefits (even vacuous, populist ones).
Further complicating things is a mostly unrelated set of tariffs imposed by the U.S. in 2019 on European cultural goods, including Scotch whisky and French cheeses, in response to what the U.S. sees as unfair E.U. subsidies for Airbus, a European airplane manufacturer. The dispute over airplane manufacturing subsidies predated Trump's election, but it came to a head alongside his other tariff maneuvers.
In short, at the same time that European tariffs on whiskey have hurt U.S. exports for American distillers, the U.S. tariffs on Scotch have raised prices for American consumers. It's a lose-lose mess.
"Hospitality businesses on both sides of the Atlantic have been decimated by the global pandemic, and these tariffs are a significant and unnecessary drag on their recovery," says Christine LoCascio, chief of public policy for DISCUS. "We are hopeful the Biden administration will clearly recognize the widespread damage being caused by the escalation of these trade disputes."
Last month, 72 trade associations representing booze businesses on both sides of the Atlantic sent a letter to the White House requesting the "immediate suspension" of tariffs on alcohol and other products unrelated to the underlying disputes over steel, aluminum, and airplanes.
And the U.K. seems eager to work out a deal. Reuters reported last month that British trade minister Liz Truss was seeking a meeting with Tai to specifically discuss the U.S. tariffs on Scotch whisky.
With Britain having left the E.U., it makes little sense for the Biden administration to continue punishing Scotch producers and consumers for the crimes of the European government. But it's probably true that the only way to avoid a June 1 escalation of the E.U. tariffs on American whiskey is for the Biden administration to abolish Trump's tariffs on steel and aluminum. Tai should outline a plan to do exactly that at her confirmation hearing next week.
Until then, however, KOVAL Distillery and other American whiskey-makers are caught in the middle of an awful political mess. Almost no one wants the retaliatory tariffs on whiskey to remain in place, but policy inertia might cause them to worsen before they get better.