The alcohol tariff war is hurting small craft distillers
The most recent collateral damage from the years-long trade war could not come at a worse time for small US craft distillers who are struggling to stay open in the pandemic
The European Union is imposing additional tariffs on US spirits, and small craft distillers are taking a major hit.
The new measures come as retaliation over the ongoing dispute between the US and the EU over aircraft manufacturing subsidies, which has heaved the drinks industry into a trade war with which it has nothing to do. The new tariffs will apply to $4 billion worth of American-made goods, including 25% tariffs on vodka, rum, brandy and vermouth from the US.
The most recent collateral damage from the years-long trade war could not come at a worse time for small US craft distillers who are struggling to stay open in the pandemic, according to President and CEO of the Distilled Spirits Council of the United States, Chris Swonger.
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“This industry was undergoing great growth and great prosperity prior to the first tariffs being imposed in June 2018,” Swonger told FOX Business. “The EU and the US are longstanding trading partners and allies, and there is no reason whatsoever that this industry is implicated in the tariff and trade disputes over steel, aluminum and aircraft parts.”
In addition to a trade battle unrelated to the spirits industry, the challenges of the pandemic have forced many distillers to close down and suffer revenue loss from the shuttering of restaurants, bars and taprooms. On-premise sales from locations like bars and restaurants make up nearly 20% of distillers’ business and also provide channels of distribution to consumers.
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For Kóloa Rum Company, a local craft distillery in Hawaii, the tariffs are hitting just as its first shipment of rum to the EU is being prepared to head overseas. After 70% of Kóloa’s revenue disappeared when COVID-19 hit Hawaii, with the closure of the tasting room and the plunge in tourism, the significant decline in its domestic sales has made its exports to international markets even more critical.
“The importance of our initiative to send rum to Europe was amplified by covid and the impact it has had on our business,” President and CEO of Kóloa Rum Company Bob Gunter told FOX Business. “The pandemic has been especially impactful in Hawaii because we are so remote and isolated and dependent on the visitor industry. Clearly having a 25% tariff imposed is not going to help. The timing of it all is extremely unfortunate.”
The distilled spirits industry in both the United States and the European Union are begging the government administration in the EU and the US to come to the negotiation table, stressing the damage that the tariff wars have done to the wine and spirits industry.
For example, since the EU levied a 25% tariff on American whiskey in June 2018 in response to Trump administration steel and aluminum tariffs, American whiskey exports to the EU declined by 41%. The sanctions hindered the growing export market for American Whiskey, which accounted for 65% of all U.S. spirits and exports in 2019. The EU is the top export market for American whiskey, making up 52% of total American Whiskey exports.
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In fact, the EU is the largest export market for US distilled spirits. In 2019 alone, total US spirits exports to the EU comprised 40% of total US spirits exports and reached $602 million.
“The craft distilling industry is emblematic of the great American success story,” Distilled Spirits Council of the United States’s Swonger told FOX Business. “It has grown over the past 12 to 15 years, and that is now being stunted by the threat of the tax increases, the tariffs and the pandemic. Many craft distillers may not be able to survive.”