With Whiskey Tariffs Finally Suspended, American Distillers Raise a Toast
With tariffs suspended, craft distillers across the country can finally sell their products in the U.K. and EU without the burden of heavy tariffs, but the solution is only temporary.
For thousands of distillers across the country, a celebration is in order. After four long years, they will finally be able to sell their whiskeys to the U.K. and EU without the burden of heavy tariffs. The Biden administration has successfully negotiated the suspension of 25% tariffs on American whiskeys imposed by the U.K. and EU following Trump-era trade disputes over steel and aluminum. The U.K.'s tariff suspension goes into effect on June 1.
Craft distillers, struggling for years now under the double burden of heavy tariffs and pandemic disruptions, have good cause to rejoice, but they remain acutely aware that the suspension is only temporary. The EU's tariffs on American whiskeys in the steel and aluminum dispute are set to resume in two years if there is no agreement.
It takes time to scale up export capacity, and distillers need certainty in order to plan ahead. Take the example of Koval Distillery based in Chicago. Its founder, Dr. Sonat Birnecker Hart, is eager to regain access to European shelves, but she knows it takes time — and money. It took her years of "whiskey diplomacy" at international trade shows and phone calls with foreign distributors to earn highly competitive shelf space abroad. The tariffs erased much of that progress. Her business's exports to the E.U. and Britain had been climbing by 25% every year until the tariffs hit. Then they dropped by 60%.
Now distillers like Dr. Hart face a choice: Do I go "all in" on a campaign to regain market share, only to potentially have it yanked out from under me in two years? Or do I play it safe and potentially cede valuable territory to competitors?
Many of America's more than 2,000 craft distillers are facing this choice, and supply chain issues are making it even harder. To complicate matters further, even though this is a two-year suspension of tariffs, it's really only a year and a half at best, because it takes six months to get products on a ship and for the ship to get across the Atlantic Ocean.
To be sure, the suspensions are a welcomed and exciting development for an industry that, for years, could hardly catch a break. The pandemic forced distillers to close their tasting rooms and slashed their restaurant sales — two important revenue streams. Just when the pandemic seemed to be easing up, inflation pushed up the price of corn, barley, glass bottles and other inputs.
In addition to seeking a permanent return to tariff-free trade with the EU and U.K., the Biden administration can keep the momentum going by negotiating new market opening agreements to lower import tariffs on U.S. spirits into other countries. The new Indo-Pacific Economic Framework would be an excellent place to start, but tariff reductions are not on the table. India, the world's largest whiskey market and one of the 12 countries participating in the negotiations, has imposed a 150% tariff on imported spirits for decades, effectively keeping U.S. spirits out of a potentially large marketplace. The industry is urging the administration to build on its significant victories with the U.K. and EU and expand opportunities for U.S. spirits exports to potential consumers in other markets. The best way to do so is to secure agreements with trading partners that lower or eliminate tariffs on our exports.
The data is clear: 86% of spirits exports go to countries that have no tariffs in place, and exports to those countries grow significantly faster than to countries that haven't eliminated tariffs, according to the USITC Database. When American spirits are sold abroad, they do more than just spread good cheer and strengthen cultural exchange. They also create jobs up and down the supply chain, from local family farmers to bottling and shipping facilities.
If America's vibrant craft distillers can't sell their products to the 95% of the world that lives outside of our country, their growth prospects will be limited. With the temporary tariff suspension, American distilleries scored a win. Now we hope for a more permanent solution.
In the meantime, we'll raise a toast to this exciting show of progress — and to an even brighter future ahead for American whiskey.
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