American whiskey producers are swept up in a trade dispute that could result in the return of pricey Trump-era tariffs on their exports to Europe.
At a summit held earlier this month in Washington D.C., an agreement was not reached between President Biden and Ursula von der Leyen, the president of the European Commission, to permanently remove or extend the suspension of the European Union’s tariffs on American Whiskey, which are scheduled to be reimposed and doubled to 50% on January 1. The talks were down to the wire, with the deadline to strike a deal originally slated for today. We looked into the hold up, and what American whiskey producers should expect next.
The Backstory: Metal Tariffs Strain Other Industries
The ordeal began in 2018 when, citing national security, the Trump administration slapped tariffs on imports of steel and aluminum, a move that later came at the cost of American whiskey producers. The EU responded by unfurling retaliatory tariffs, singling out iconic American products like motorcycles, cranberries, and bourbon and whiskey.
The imposition of those tariffs took a hit on the U.S. whiskey industry, with exports to the EU— its largest international market—dipping 20% from $552 million in 2018 to $440 million in 2021, according to the Distilled Spirits Council of the U.S. (DISCUS).
But the Biden administration suspended the steel and aluminum tariffs, and in October 2022 the EU agreed to suspend the 25% tariff on American whiskeys for two years starting January 1, 2022. As a result, American whiskey exports to the EU rebounded back up by 29% in 2022 compared to 2021, reaching $566 million last year, according to DISCUS. This accounted for 44% of all American whiskey exports, surpassing the pre-tariff level of $518 million in 2017.
Through July 2023, American whiskey exports to the EU are up nearly 91% as compared to the same period in 2022 (January to August). But without a new deal that trajectory could be paused.
Advocates Push for Deal by Year End
The good news? There’s more time to strike a deal, after the U.S. and EU agreed to extend their original self-imposed deadline of October 31.
The original deadline was tied to the EU’s insistence to have an agreement by then in order to go through a domestic process to remove the tariffs in the new year, according to Lisa Hawkins, chief of communications and public affairs for DISCUS.
“It’s our understanding, however, that the EU does have the ability to move quickly, if required, at the end of the year to issue a regulation quickly to ensure that the tariffs are not reimposed,” said Hawkins.
Hawkins cited the joint presidential statement released after the summit about the “global arrangement,” which centers on encouraging trade in steel and aluminum made in more environmentally friendly ways to combat climate change. The two administrations said they “look forward to continuing to make progress on these important objectives in the next two months.”
“The removal or suspension of the EU’s retaliatory tariffs on American whiskeys is tied to the U.S.-EU negotiation on the complex steel and aluminum dispute, which is ongoing,” she said.
Differences over the ways in which the U.S. and the EU address climate change, as well as trade with China, are holding talks up. As the administrations scramble to make progress, DISCUS has focused its advocacy efforts on the unintended impact of the retaliatory tariffs on sectors, including American whiskey, that are unrelated to the fundamental dispute. The membership group partnered with other industry associations in 2021 to oppose beverage alcohol tariffs through the Toasts Not Tariffs coalition.
While negotiations continue, Washington is already eyeing a two-year extension of the tariff relief, considering the challenges of getting a deal done next year given early June EU elections and U.S. elections in November, according to Reuters. But that doesn’t give the spirits industry much clarity.
“Until the threat of tariffs returning is fully removed, the uncertainty will continue to restrict our growth in our most important international market,” said Chris Swonger, DISCUS president and CEO.