What do airplanes have to do with Scotch? What do steel and bourbon have in common?
We learned this lesson in the 1930s, after the United States passed the now-infamous Smoot-Hawley Tariff Act. Then, Congress caved to business groups demanding greater protection and jacked up average import duties by about 20 percent. Other countries responded with counter-tariffs, and global trade plummeted. Most economists believe this cascade worsened the Great Depression.
Because Trump won’t learn from history, a similar chain reaction is playing out today.
In March 2018, Trump announced worldwide steel and aluminum tariffs, on spurious “national security” grounds. Understandably, other countries — including allies — were furious, and they began levying reciprocal duties on U.S. goods.
Many of them taxed U.S. goods produced in politically strategic areas: Iowa-farmed soybeans, Wisconsin-made motorcycles, Florida orange juice. And, of course, Kentucky bourbon, among other American whiskeys.
And that’s how Trump’s metal wars inadvertently set off a whiskey war, which no one asked for and no one in the industry wants.
New trade data, released by the United States last week, shows how painful these tariffs have been. Global U.S. whiskey exports declined 16 percent in 2019 compared with a year earlier. Exports to the European Union — the U.S. spirits industry’s largest export market — fell 27 percent.
Recent research also suggests that these tariffs were successful in their political aims: The trade war may be responsible for five (of the 40 total) House seats lost by Republicans in the 2018 midterm elections.
How did the Trump administration respond to this? Not by retracting the punch that set off the counterpunch. But by counter-counterpunching, and whacking itself in the face.
In October, the administration levied more tariffs as part of a separate trade case involving the E.U.’s subsidies of Airbus. Taking a cue from the previous go-round, it targeted a range of politically sensitive European goods, including wine, cheese and — you guessed it — whiskey.
In fact, the new U.S. tariff on Scotch was identical to that placed by the E.U. on American bourbon in 2018: 25 percent.
“As soon as tariffs went on bourbon, we knew we were at risk,” says Karen Betts, the chief executive of the Scotch Whisky Association. For that reason, Betts says her industry group urged the E.U. in 2018 not to punish U.S. whiskey. Sure, in the near term, duties on U.S.-made bourbon could advantage Scotch distilleries; but U.S. reprisal seemed inevitable and likely to be painful.
And it has been.
Also last week, the British government released data showing that Scotch exports to the United States plunged by 25 percent in the fourth quarter of 2019 compared with a year earlier. Some Scotch distilleries I spoke with said they’ve delayed shipments, in the hopes that U.S. and E.U. officials will soon come to their senses and realize that their humble industry has little to do with their larger disputes; others are writing off the U.S. market entirely, at least for now.
Maybe Americans will shed few tears for their peaty competitors across the pond, or the U.S. customers who’ll have to shell out a bit more for their next dram. But these aren’t the only parties losing out. The full U.S.-based supply chain is now suffering from higher costs and reduced business.
“There’s just a huge amount of people these tariffs touch,” says John Beaudette, president and founder of the importer and distributor MHW Ltd. “Freight companies, marketing companies, administrative workers, restaurants, retailers.”
Even so, perhaps the Trump administration might argue that the whiskey wars (and the cheese and meat and other wars) are worth it, if they ultimately help the metal manufacturing industry.
Alas, that hasn’t happened, either.
U.S. Steel’s stock price has fallen more than 70 percent since the tariffs were announced. Employment in primary metals manufacturing is down slightly (by about 2,000 jobs); and the U.S. manufacturing subsectors that purchase these metals have an estimated 75,000 fewer jobs than they would without the tariffs.
The Trump administration’s prescription for such disappointment? Even more tariffs. This month it levied additional duties on metal-using products such as nails and tacks. Scotch and bourbon aside, it’s yet another way in which Trump’s supposedly narrowly focused tariffs have trickled down into even more industries.
In the end, the metal-turned-whiskey wars look likely to leave everyone’s glass empty.