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Drinks firms brace as Trump elected US president

06 November 2024 By Ron Emler

As news breaks that Donald Trump will be moving into the White House in January, anxieties heighten in the boardrooms of Europe’s big drinks groups.

A central plank of his Make America Great Again campaign, which led to Trump winning the presidency for a second time, has been the proposal to impose minimum 10% tariffs on all imports in a bid to make Americans buy from domestic producers.

At a campaign event in the key state of Pennsylvania last week, he emphasised his promise to pass the “Trump reciprocal trade act” and said the European Union especially would have to “pay a big price” for not buying enough American exports.

Such a move would have negative effects on the likes of Diageo (40% of its trade is with the US), and Pernod Ricard (30%). It is also the biggest spirits market for Moet Hennessy, Remy Cointreau and Campari.

Crisis management

Duncan Edwards, chief executive of British-American Business, a trade association, said during the election campaign: “We know that a lot of people are thinking about this [Trump tariffs] and there’s some crisis management and planning going on in companies that are likely to be targeted.”

With the American consumer recoiling from price rises and the effects of inflation, overall volumes of US alcohol sales fell by 3% in the first seven months of this year, according to IWSR.

That effect could only be intensified by extra tariffs to push up the prices of European alcohol exports.

The Tax Foundation, a non-partisan think tank, says Trump’s proposed tariff increases would raise US taxes by another US$524 billion annually and shrink employment by 684,000 full-time equivalent jobs.

Hardly the encouragement Uncle Sam would need to ease personal spending restraints.

Despite being the prime partner in the US, Mexico and Canada Trade Agreement, Trump tariffs could also heavily impact exports of Tequila from Mexico, the fastest growing category in the US market, and cause problems for America’s own Constellation Brands which derives more than 80% of its business from its Mexican-brewed beer brands Modelo and Corona.

Flip side

On the flip side, Trump’s penalty tariffs ban could benefit American whiskies and Bourbons including those distilled by Diageo, Pernod Ricard and Campari.

Analysts at UBS estimate that 79% of spirits products sold in the US are imported, with about 1% from the UK, notably Scotch whisky.

They estimate, for example, that a tariff rate of between 10% and 20% would generate a 4% hit to Diageo’s earnings before interest and tax if it was fully absorbed.

Scotch whisky producers could face a double whammy under Trump.

Not only has he promised to introduce the protectionist tariffs but he will need to decide on reintroducing the 25% levy on single malts he imposed in 2019.

The 25% tariff on Single Malt Scotch Whisky was levied between October 2019 and March 2021. Over this 18-month period, the Scotch Whisky Association says, the industry lost over £600m in exports to the United States – equivalent to over £1m a day.

The tariffs related to an ongoing aerospace dispute over subsides between Airbus and Boeing and were suspended for five years in June 2021 to allow negotiations to proceed. Britain is a member of the Airbus consortium.

The five-year suspension is scheduled to end in June 2026. Unless repealed the tariff will automatically be reimposed.

The Scotch Whisky Association fears that the industry could again be collateral damage in a trade war not of its making without concerted action by the US and UK administrations to resolve the underlying dispute.

So far the Biden Administration has shown little movement and Trump is expected to take a similar hard line.