Why the American whiskey industry is freaking out
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
The $5.1 billion whiskey industry is big business. While the majority of US-distilled whiskey stays in the country, about $1.3 billion worth was shipped abroad last year, accounting for 62% of all American spirits exports.
But that could soon change. The EU, the largest export market for American whiskey, is set to impose a 50% tariff on imports of the golden liquor next year. Spirit industry advocates say that would be a devastating blow to a growing part of the US economy.
Two decades ago, there were 35 whiskey distilleries in the United States. Today that number has exploded to 2,600.
The move is all part of a retaliatory package of tariffs being imposed on US goods by the EU in relation to a dispute over steel and aluminum.
And this isn’t the first time US whiskey has been subject to this type of retribution. Between June 2018 and December 2021 there was a 25% tax imposed on the spirit, which decreased American whiskey exports by 18%.
Since that tariff’s suspension, the industry has sprung back to life. American whiskey exports to the EU jumped 118% in the first half of 2023 when compared to the same period in 2022.
A senior European Commission official said last week that the EU was aiming to resolve the steel and aluminum dispute by year-end. But US whiskey industry advocates worry that time is running out to find some way to avoid “dramatic” damage.
Before the Bell spoke with Chris Swonger, the president and CEO of the Distilled Spirits Council of the United States, about what comes next.
(This interview has been edited for length and clarity.)
Before the Bell: How did these tariffs come to be?
Chris Swonger: During the Donald Trump era, the president took a very aggressive posture on a whole host of trade issues all around the world, including with the European Union. One big issue related to trade was challenges over steel and aluminum.
So the president had his stance on steel and aluminum and in response, in June 2018, the Europeans imposed a 25% tariff on American whiskey along with other products. The industry was very alarmed by that because we were embroiled in a trade dispute that wasn’t related to our industry. They went back and forth until 2021 when the tariffs on American whiskey were suspended and we took a great sigh of relief.
They were suspended as the US and the EU committed to try to resolve the steel and aluminum case. That suspension is up at the end of December 2023. And if it doesn’t get resolved in negotiations before then, the EU will automatically impose a 50% tariff on American whiskey on January 1.
The Biden administration’s leadership and efforts on this have enabled the suspension of tariffs on American whiskey and all distilled spirits products, but we are rightly anxious because a 50% tariff on American whiskey would be beyond devastating to exports.
Has any progress been made?
President Joe Biden met with EU Commission President Ursula von der Leyen on October 20 and we did have high hopes that there would be some announcement made about continuing to suspend or eliminate those tariffs. There wasn’t and we were disappointed.
But we’re cautiously optimistic. The Biden administration is well aware of this. We’ve had a series of meetings with our European counterparts. But we are ringing the alarm bells now because we’re on the clock, we’ve got less than two months.
But God forbid, we don’t want these tariffs to go on. When the tariffs were imposed back and forth, the exports of American whiskey were significantly impacted. That impacted jobs and economic growth. Since those tariffs have been suspended, we’ve seen American whiskey exports rebound to beyond pre-pandemic levels.
Look, when there are negotiations like these within governments, they never happen sooner rather than later. It’s just the nature of the beast of negotiating complex trade disputes. We just hope that something gets sorted between now and the next 45 days because companies have to do contingency planning for this.
How detrimental will this tariff be to whiskey makers? Can you quantify it?
The EU is the largest American export market, and due to the earlier 25% tariff — which is half of what this upcoming tariff will be — exports plunged by 20%. It went from $550 million to $440 million between 2018 and 2021. If you double that, it would be pretty significant. We’ve seen the market rebound and exports are back to where they were, but if we get hit with that 50% tariff, it’s going to be pretty dramatic.
Gina Raimondo seeks better ties with China amid tensions
Ahead of high-stakes meetings this week between the United States and China, US Commerce Secretary Gina Raimondo dismissed the notion there would be a military conflict with China over Taiwan.
Both the United States and China “have a desire to stabilize (their) relationship,” Raimondo told CNN’s Christiane Amanpour in an interviewed that aired Saturday. Raimondo noted the world is looking to the United States and China “to be responsible and manage this relationship.”
Raimondo acknowledged there is a “great competition” with China, echoing similar sentiments expressed by President Joe Biden, who has stated the United States wants competition with China, rather than outright hostility and conflict.
She emphasized direct talks and open dialogue are key in preventing the breakdown of diplomacy between the two superpowers. “What I’m able to put onto the table is the fact that US businesses are feeling that China is increasingly uninvestable — because of (China’s) anti-espionage act, because of the lack of predictability and the environment, because of raids on US businesses — and at least give (China) an opportunity to respond and make changes,” she said.
At the same time, Raimondo said she has told China “there can be no negotiation when it comes to matters of national security,” particularly with regard to semiconductor chips used to manufacture advanced weapons.
“I have to use every tool in my toolbox to make sure our most sophisticated semiconductor chips (and) artificial intelligence models never get into the hands of the Chinese military,” she said.
Last month, the Commerce Department unveiled new rules limiting the types of semiconductors American companies are able to sell to China. The regulations further tightened a set of export controls that went into effect in October 2022.
More than 1,600 Jewish Harvard alumni threaten to withdraw donations over antisemitism concerns
More than 1,600 alumni of Harvard University say that they will withhold donations to the school until Harvard takes urgent action to address antisemitism on campus, part of a wave of challenges to colleges across the county in addressing hate speech sparked by the Israel-Hamas war.
High-profile billionaire alumni like Pershing Square founder Bill Ackman and former Victoria’s Secret CEO Leslie Wexner have already said that if Harvard doesn’t take steps to fix the problem they could face a donor exodus, but now the largest group yet of alumni — most of whom do not have billionaire status — are threatening to withdraw their donations.
“We never thought that, at Harvard College, we would have to argue the point that terrorism against civilians demands immediate and unequivocal condemnation,” wrote members of the Harvard College Jewish Alumni Association (HCJAA) in an open letter to President Claudine Gay and Dean of Harvard College Rakesh Khurana. “We never thought we would have to argue for recognition of our own humanity.”
Harvard President Gay wrote a letter to members of the larger Harvard community addressing the tensions on Thursday. “Harvard rejects all forms of hate, and we are committed to addressing them,” she wrote. “Let me reiterate what I and other Harvard leaders have said previously: Antisemitism has no place at Harvard.”
Philanthropy is the single largest contributor to revenue at Harvard, accounting for 45% of the university’s $5.8 billion in income last year. Philanthropic gifts accounted for 9% of the university’s operating budget last year and 36% of its $51 billion endowment amassed over decades.
While a large chunk of university donations come from big gifts, small donations from alumni are becoming an increasingly important source of funding for higher education, according to the Council for Advancement and Support of Education (CASE). About 95% of donations received by universities in 2022 were smaller than $5,000.
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