Fortunately, this escalation never happened. On 17 May, the European Commission announced the EU and US had agreed to suspend the step, meaning the doubling of EU tariffs on US whiskey and bourbon was off the menu. Both sides have now given themselves a deadline of 1 December to sort out their remaining differences on steel and aluminium.
June also brought extremely positive news on the other great and longstanding EU-US trade dispute, the so-called ‘Airbus‑Boeing’ debate. As part of US President Biden’s visit to Brussels, the EU and the US announced a five-year suspension of tariffs, including those on unrelated products such as spirits.
So, all’s well that ends well? Unfortunately, we’re not quite there yet…
The effect on the spirits industry
The impact of tariffs has been painful for the spirits sector on both sides of the Atlantic. US whiskey exports to the EU had grown by 40 percent during 2008‑2018. By contrast, and as an immediate result of the trading dispute, they fell by 37 percent. The tariffs that the US had imposed in October 2019 had similarly negative effects; exports of EU liqueurs and cordials to the US fell by 28 percent in the 10 months following the imposition of tariffs (when compared to the same period in the previous year). While German spirits exports to the US fell by €900 million.
These significant drops contrast sharply with the previous two decades; since 1997, EU-US spirits trade was virtually tariff free. During those years, trade grew by more than 400 percent, delivering tangible, mutual benefits in the form of investments, jobs and growth on both sides of the Atlantic.
While the newly found transatlantic friendship and de-escalation steps in the two trade disputes are very welcome steps, for which the European Commission and the new US administration must be warmly applauded, we now need to make sure both sides go the full way and achieve a permanent, full removal of all tariffs after the summer.
Do trade disputes ever lead to solutions?
Are trade disputes worth the aggravation? Let’s look back at the lessons learnt from the past three tumultuous years. One learning seems more than clear today: between the US and the EU, trade wars aren’t ‘good and easy to win’, as former US President Trump (in-)famously remarked at the outset of the disputes in March 2018.
The first and most important lesson of the disputes is that they make little, if any, economic sense at all, when keeping in mind how closely interconnected and integrated many industries are across the Atlantic. The spirits sector is a good example of that. It bears a high and growing degree of transatlantic business integration. Many European producers have bought and invested in US bourbon production in recent years. In turn, some of the largest US distillers own significant assets in major European spirits categories, such as Scotch whisky, Irish whiskey or Cognac, to name but a few. In such a case, tariffs are bound to backfire.
By creating a climate of uncertainty, they hamper business confidence and negatively affect companies’ future business planning. As a result, many forward-looking investments in the spirits sector on both sides of the Atlantic were put on hold, scaled back or held off altogether by the tariffs. At a time when politicians are trying to help businesses return to growth after the COVID crisis, artificially created obstacles like tariffs should therefore be moved out of the way for good.
Secondly, it is an unfortunately common practice in trade disputes to extend the scope of tariffs beyond the nature of the original dispute. This is what happened in both the Airbus-Boeing and the steel and aluminium clashes. In both cases, tariffs were never limited to civil aircraft or steel and aluminium alone, yet extended broadly to entirely unrelated sectors, whether they be spirits, wines, cheeses or motorcycles.
Both sides claimed their approach of extending tariffs beyond the original subjects to unrelated sectors were a phenomenal success…of course, they had to. But, in reality, it’s far from clear. Tariff retaliation lists are not an exact science. Making highly successful, competitive sectors pay for disputes for which they bear no fault at all doesn’t merely cause unnecessary economic damage and harm. It is, above all, a deeply unfair and highly questionable practice that risks undermining trust in international trade and the multilateral, rules-based trading system, even among its most fervent supporters. This is politically short-sighted and dangerous, particularly at times when citizens’ support for international trade and free-trade agreements in both the EU and the US is low.
While it seems difficult to abolish the practice of using unrelated sectors as collateral hostages in trade retaliation altogether, dispute parties must become more mindful in using such mechanisms in the future. Their scope must remain limited and proportionate – and they should be seen as what they really are: half-hearted, often clumsy calls for attention to find a high-level political solution.
Finally, the EU and US need to find common ground for the reform of the World Trade Organization (WTO). Both disputes, Airbus-Boeing and steel and aluminium, never were about the EU and the US alone, but about broader global questions concerning state aid for civil aircraft and global overcapacity of these metals.
As a leader for the spirits sector, we already published detailed reform proposals for the WTO two years ago. The past three years should serve as a lesson to leave behind the folly of bilateral trade wars and work out global concept and answers to facilitate tariff-free trade and boost the recovery worldwide. The sprits sector stands ready to support the process.
About the author
Ulrich Adam has been Director General of spiritsEUROPE since January 2018. Prior to joining spiritsEUROPE, he was Secretary General of the European Agricultural Machinery Industry Association (CEMA) from 2013 until 2018. Before this, Ulrich worked for nine years in the Brussels office of the international consultancy firm Hill+Knowlton Strategies, advising a range of companies and associations on EU legislation, with a particular focus on EU policies in the areas of food, health and agriculture. A German national, Ulrich holds a PhD and MPhil degree in History and Social and Political Sciences from Cambridge University (UK).
