U.S. Whiskey Distillers Avoid 50% Tax on Shipments to Europe
U.S. whiskey distillers can breathe a sigh of relief as they will avoid a looming 50% tax on shipments to Europe. The European Union (EU) announced on Tuesday that it would extend the suspension of tariffs on U.S. whiskey until March 31, 2025. This decision comes in the context of a broader steel and aluminum dispute between the U.S. and the EU, and the 50% levy was set to take effect in the new year.
Trade Negotiations and Goals
“For the past two years, the United States and European Union have been engaged in critically important negotiations,” said U.S. Trade Representative Katherine Tai, who oversaw the deal. The goal of these negotiations is to establish a forward-looking arrangement that will promote fair and clean production and trade in the steel and aluminum sectors.
American whiskey makers found themselves caught in the middle of a trade dispute that began in 2018 when former President Donald Trump imposed tariffs on steel and aluminum. In response, the EU imposed taxes on select U.S. products, including whiskey, to exert pressure on politicians in Republican and swing states.
The EU initially set the whiskey tariff at 25%, which resulted in a 20% decline in American whiskey exports to the EU from 2018 to 2021. However, with the suspension of tariffs in October 2022, American whiskey exports to the EU increased by 29% in 2022, reaching pre-trade dispute levels of $566 million.
To fulfill the agreement, the U.S. still needs to extend the suspension on steel and aluminum taxes to the EU. The Distilled Spirits Council of the U.S. (DISCUS) has urged President Joe Biden to negotiate an end to these tariff disputes.
‘Whiskey River’ Runs Dry
The extension of the tariff suspension is good news for American whiskey makers, especially as the spirit is losing market share. Whiskey popularity is declining among American consumers, with agave-based spirits like tequila and mezcal overtaking American whiskey to become the second-fastest growing spirits category by revenue and volume within the U.S., according to analysis by DISCUS.
Brown-Forman, the maker of Jack Daniels and Woodford Reserve, reported weak whiskey sales for the first half of its current fiscal year. Whiskey net sales at the company fell 2% year over year, while net sales for the company’s tequila portfolio grew 2%. Despite this, Brown-Forman CEO Lawson Whiting believes that American whiskey and tequila are still the two strongest categories in the U.S. spirits business.
The extension of the tariff suspension provides a much-needed boost for U.S. whiskey distillers, allowing them to continue exporting to their most important international market without facing additional taxes. However, efforts to resolve the broader trade dispute between the U.S. and the EU are ongoing, and it remains to be seen how these negotiations will impact the future of transatlantic trade in the steel and aluminum sectors.
