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American whiskey distillers rejoice as EU suspends tariff increase

May 17, 2021, 2:10 PM UTC

American whiskey manufacturers have welcomed the European Union’s decision not to increase tariffs on their wares for now, as trade relations between the EU and U.S. continue to thaw.

The presidency of Donald Trump sparked trade chaos around the world. While much attention was focused on U.S.-China relations, there were also significant ructions between the U.S. and the EU. This was partly to do with an extremely long-running dispute over Boeing and Airbus subsidies, and partly because of President Trump’s decision to impose tariffs on EU steel and aluminum under Section 232 of the U.S. Trade Expansion Act.

In March, as the post-Trump era began to take shape, the two sides announced a truce in their tariff disputes. Specifically, they suspended their aircraft-subsidy–related tariffs on each other for four months. But while the EU suspended tariffs on many types of U.S. distilled spirits, its 25% tariff on American whiskey, bourbon, and rye remained in place, because that measure was related to the metals dispute rather than planes.

To make matters worse, the EU’s tariff on those drinks was set to double to 50% in two weeks’ time. But now that threat has been warded off, or at least delayed.

Rebooting relations

On Monday, as the two sides announced negotiations on their respective steel and aluminum industries, the EU relented over the tariff hike.

“In our effort to reboot transatlantic relations, EU will temporarily suspend the increase of its rebalancing measures on U.S. 232 steel & aluminium tariffs,” tweeted EU Trade Commissioner Valdis Dombrovskis.

The Distilled Spirits Council of the United States reacted swiftly and enthusiastically.

“This news couldn’t come soon enough,” said council president and CEO Chris Swonger in a Monday statement. “Distillers across the United States are breathing a huge sigh of relief after bracing for a 50% tariff on American whiskeys in just a matter of days that would have forced many craft distillers out of the EU market.”

There’s no doubt that the existing tariffs have already caused real harm to the U.S. whiskey industry, which saw exports to the EU fall by more than two-fifths.

“American whiskey distilleries are being crushed,” wrote Michael Langan, head of distillery for Yellow Rose Distilling in Houston, in a CNN op-ed last week. “Our declining international business has created significant challenges. American whiskey takes time to age, and production plans are made years in advance. Not only am I now losing out on exponential international sales, but I also have nowhere to store the whiskey we had planned to ship to Europe.”

The question now is how long the U.S.-EU truce will last.

Protectionist measures

American distillers can take courage from the fact that, in a joint statement, the two sides indicated they would stop taking aim at each other and instead focus on “countries like China that support trade-distorting policies.”

However, the fact remains that the EU’s high tariff on U.S. whiskey could return unless the U.S. drops its 25% tariffs on European metals—and those tariffs are proving highly successful as a protectionist measure for the American steel industry, which is experiencing an investment boom as a result.

“To be successful, the bilateral discussions must take into account that, while China is the single largest source of global steel oversupply, subsidies and other market distorting policies in many countries are contributing to the overcapacity crisis—and that injurious surges in imports have come from every region of the world,” said American Iron and Steel Institute president and CEO Kevin Dempsey in a Monday statement, reacting to the U.S. and EU’s joint announcement.

“Achieving an agreement that produces real results for our industry will take time and will not be easy,” he added.

“We recognize there is still work to be done to get EU and U.S. spirits back to zero for zero tariffs,” said the Distilled Spirits Council’s Swonger in his statement. “We greatly appreciate the Biden administration’s ongoing efforts to resolve these long-standing trade disputes and reduce the economic pain felt by those industries unfairly caught in the middle.”

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