Trump’s trade war leaves American whiskey on the rockshttps://indianexpress.com/article/business/trumps-trade-war-american-whiskey-5581766/

Trump’s trade war leaves American whiskey on the rocks

The American spirits industry joined the growing chorus of businesses and trade groups trying to get Trump to remove tariffs on Chinese goods and foreign metals.

Whiskey bottles
The American whiskey industry has seen sales of its products decline in the wake of President Donald Trump’s tariffs. (Jens Mortensen/The New York Times)

By Alan Rappeport

As President Donald Trump’s global trade war approaches a pivotal moment, American industry is trying to use Trump’s love of big economic numbers to get him to stand down.

Trump faces a series of decisions over the next several weeks about whether to ratchet up tariffs on Chinese goods, impose new duties on imports of foreign cars and keep metal tariffs on trading partners like Canada and Mexico. While Trump’s economic North Star has long been reducing the trade gap between what the United States exports and what it imports, industries from soybean farmers to nail manufacturers are trying to convince Trump that his policies are having the opposite effect — by dampening exports of some of America’s most cherished products.

On Tuesday, the American spirits industry joined the growing chorus of businesses and trade groups trying to get Trump to remove tariffs on Chinese goods and foreign metals by showcasing the economic pain that the trade war has inflicted.

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Since the Trump administration initiated tariffs last year on foreign steel and aluminum, $763 million worth of American spirits exports have been subject to retaliatory tariffs, according to data released by the Distilled Spirits Council, an industry group. The most draconian duties have come from Europe, where the rate on American whiskey is 25 percent.

A distiller moves barrels around the warehouse at Catoctin Creek distillery
A distiller moves barrels around the warehouse at Catoctin Creek distillery. (Justin T. Gellerson/The New York Times)

“The market is on the edge of its seat,” Chris R. Swonger, the chief executive of the industry group, said Tuesday. “We hope that the Trump administration can land the plane on these major trade agreements.”

Trump’s tariffs have exacted a toll on a range of American businesses by raising costs for imported goods and creating new trade barriers as Europe, China, Canada and Mexico retaliate with tariffs and reduced market access. Financial markets have been gyrating on signs of optimism or pessimism about the trade disputes, and economists have blamed the tariff policies for contributing to weaker economic growth and diminished business confidence.

The spirits industry data shows the trade war is stalling exports at a moment when the thirst for products such as American whiskey is surging around the globe. After Canada imposed a 10 percent tariff on American whiskey on July 1, exports from distillers in the United States went from a 12.4 percent growth rate in the first half of the year to an 8.3 percent decline after the tariffs were in place.

Global exports of American whiskey during the first half of 2018 rose 28 percent from the same period in 2017. Shortly after Trump’s tariffs went into effect, those sales slumped, declining 8.2 percent between July and November compared with the same period the prior year.

Swonger said the targeting of spirits like whiskey is no accident. Besides being a classic American product, bourbon has a manufacturing hub in Kentucky, a politically important state that supports Trump and is home to Sen. Mitch McConnell, the Republican majority leader.

The retaliatory tariffs have affected the industry in different ways. Big spirits-makers such as Beam Suntory got ahead of the tariffs by quickly exporting large quantities of their whiskey, delaying some lost sales and price increases. But smaller craft distillers that lacked the capacity to produce enough whiskey to do that have had to dramatically slow their expansion plans.

Scott Harris, the founder of the Catoctin Creek distillery in Virginia, said Tuesday that he had projected one-fourth of his company’s revenue to come from Europe last year. Because of the tariffs, sales there were scant and plans to expand were frozen. Now he fears that European customers will develop a taste for other spirits, such as German whiskey.

“Once that market is gone, it’s hard to get back into it,” Harris said. “We presently are treading water.”

Scott Harris, the founder of the Catoctin Creek distillery in Purcellville.
Scott Harris, the founder of the Catoctin Creek distillery in Purcellville.(Justin T. Gellerson/The New York Times)

The United States has been trying to reach an agreement with China to resolve its trade fight before March 2, when tariffs on $200 billion worth of Chinese goods are set to increase to 25 percent from 10 percent. Trump suggested Tuesday that he might be willing to extend the deadline to finalize a trade pact if the negotiations were going well. A delegation of senior administration officials is in Beijing this week attempting to hash out remaining differences.

The fate of the metal tariffs is less clear. The United States did not lift those levies as part of its new trade deal with Canada and Mexico, but several lawmakers, including Republican senators, are saying they will not pass the agreement unless the administration removes the tariffs on those trading partners.

“We’re caught in the middle of trade disputes which have to do with the steel industry, which have nothing to do with us,” said Christine LoCascio, the Distilled Spirits Council’s senior vice president for international trade.

The Trump administration has offered subsidies to farmers hit by tariffs, but has not extended aid more broadly to other industries. And even those offered have been limited and delayed by the monthlong government shutdown.

Economists at the nonpartisan Congressional Budget Office estimated that the administration’s trade policies would shave an average of 0.1 percentage point per year off economic growth over the next decade.

Trade has become the biggest issue facing the spirits industry, and Swonger has been canvassing Washington to plead his case to officials from the Treasury and Commerce departments and the Office of the U.S. Trade Representative. He said that members of the administration appeared sympathetic to concerns about the long-term consequences of the tariffs, but that it was not clear that Trump was ready to stand down.

Trump administration officials have argued that despite the outcries over trade, most of the country has been unscathed and that businesses are still benefiting from lower taxes and strong economic growth.

For spirits, slower exports did not stop the industry from having a booming year, thanks largely to the strong U.S. economy. Revenue across the sector was up 5.1 percent to a record $27.5 billion in 2018, with sales of the most expensive liquors growing the fastest.

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This year, the Distilled Spirits Council hosted its annual economic briefing in a gleaming Manhattan skyscraper overlooking the East River. Bloody Marys with top-shelf vodka were on tap.

“Consumers are drinking up and drinking better,” Swonger said.