The Impact of Tariffs on US Alcoholic Beverages

As reported in a previous article, in the past few weeks the European Union and the United States agreed to a four-month suspension of the tariffs related to the Airbus-Boeing legal dispute, dragging on since October 2019. The suspension, which will be implemented as soon as the internal procedures of both parties are completed, is surely a positive signal for the resumption of dialogue and the consolidation of transatlantic relations.

Alcoholic beverages are doubtlessly one of the sectors which has been most penalized from the retaliatory tariffs imposed by the EU and the United Kingdom. Albeit the retaliatory tariffs related to the Airbus-Boeing dispute are currently suspended, those implemented in response to US duties on steel and aluminum are still in place. In this context, it might be useful to analyze the dynamics of US imports and exports of alcoholic beverages, and see how the tariff war impacted trade dynamics.

Imports and exports: an overview

The following graphs illustrate the evolution of US imports and exports of alcoholic beverages, from 2011 to 2020.

Fig. 1 - US imports and exports of alcoholic beverages (2011-2020)

Overall, the United States are a net importer of alcoholic beverages, with imports amounting to over four times exports.
Wine, beer and distilled spirits are the main alcohlic beverages that the US trades with the rest of the world; the three categories constituted about 97% both of imports and exports of the total segment in 2020. At much lower levels we can find cider and vermouth, not particularly penalized by the trade spat, and which in 2020 saw a growth in terms of US imports. On the other hand, the products that bore the brunt of the tariff war are wines, that experienced a decline in imports, and spirits, on the side of exports.

In the last few days, several US congressional representatives signed a letter addressed to the Biden administration and, in particular, to the US Trade Representative Katherine Tai, to demand the prompt removal of all tariffs affecting US, EU and UK distilled spirits and wine.
“The UK and the EU continue to impose a damaging 25 percent tariff on American Whiskey. This tariff issued in June 2018, in response to U.S. tariffs on steel and aluminum, is scheduled to double to 50 percent on June 1, 2021. These tariffs have damaged what had been a great American export success story for many years.”, as is reported in the letter¹.

Below we will provide a focus on this two products significantly impacted by the tariffs.

Wine

As of October 2019, the US government applied a hefty tariff of 25% to wines coming from France, Germany, Spain and United Kingdom. Its distorting effects were immediately evident, with a sharp 15% decrease in wine imports in 2020.
As discussed in a previous article, among the European countries most affected by the tariffs we can find France, whose wine exports to the United States fell by 13% YoY already in Q4-2019². As a result, for the first time ever, in 2020 the value of beer imported in the United States topped the value of wine, reaching almost $6 billion (see Fig. 1 above).

Distilled spirits

The infographic below shows the timeline of the US-EU trade war on distilled spirits.

American distilled spirits, firstly hit by tariffs in June 2018, experienced significant falls in terms of exports both in 2019 (-10%, year-over-year) and 2020 (-5%). The US government responded to these EU tariffs with an equal tax on distilled spirits from Germany, Italy, Ireland, Spain and the United Kingdom; this led to the beginning an escalation causing a fall, not only in exports, but also on the imports’ side (-6% YoY in 2020).

Looking closer at US exports of distilled spirits, we can see how the presence of tariffs influenced foreign sales to the main trading partners in 2019 and 2020.

Fig. 2 - Distilled spirits: YoY growth rate of US exports,
by main partners (2019-2020)

As can we see from the chart (Fig. 2), the United Kingdom and many European countries - namely, Spain, Germany and France - cut their imports of US distilled spirits, which fell between 40% and 19% in 2019. The outbreak of the Covid-19 pandemic has not halted this negative trend, with Germany France and United Kingdom further cutting imports, respectively by 9%, 16.5% and 28% YoY. On the contrary, Italy bucked the trend, showing a 10% increase in imports during 2019, YoY. However, this good performance appears to have stopped during the pandemic year, which recorded a contraction of 14% YoY.

As a result of the tariff actions, US firms concentrated their exports to alternative markets, such as Panama and Japan. In particular, exports to Panama showed a significant increase over the last few years (+19.6% in 2019 and +31% in 2020, YoY), making the country the main market for US distilled spirits in 2019.

Conclusions

In summary, the tariff war harshly hit US alcoholic beverages, harming both firms and consumers. On one hand, tariff barriers penalized domestic producers, which found it harder to sell their products abroad (this is the case for distilled spirits); on the other hand, they damaged consumers, faced with a loss in terms of variety (this is the case for wine). In light of the tariff suspension, the next few months will be crucial to to relax commercial relations between Washington, Bruxelles and London, and manage to drop tariffs before the planned increase in June 2021.

1. Click here to read the whole letter.
2. For more information about the trends of US wine imports, see the article “The US-EU Truce and Competitive Balances”.