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05.03.21

US Tariff on Scotch Whisky to be Suspended

One of the biggest obstacles to the global growth of Scotch whisky in the last 12 months has been a tax, rather than a pandemic.

While lockdown restrictions certainly played their part in having an impact on the exports of Scotch, a much more worrying trend was caused by the arrival of a tariff on the whisky that came into force in late 2019, which led to a drop in Scotch exports of 30%.

Happily, the arrival of a new US president seems to have been good news for the Scotch industry, as Joe Biden has already announced a four month suspension of this tariff. Meaning the trade can, in the short term at least, get back to normal levels.

What was the Tariff?

The tariff on Scotch whisky was brought in by President Trump’s administration in October 2019 as retaliation against the EU, which had given state support to aviation firm Airbus. That had angered the US who felt that it would impact on rival American firm Boeing.

The tariff was a 25% tax on Single Malt exports going into the US, with an identical tariff in place on American whiskies being imported into the EU. So even though the original argument was about the aerospace industry, it has had an enormous knock-on effect on whisky producers on either side of the Atlantic.

According to the Scotch Whisky Association (SWA), in 2019, the US Scotch whisky market was worth over £1 billion, making it the most lucrative in the world, but by 2020 that had fallen to £729m, a drop of £340m. In a year where Covid also impacted exports, the tariff alone resulted in a third of all export losses around the world.

After those results came out in February, Chief Executive of the Scotch Whisky Association Karen Betts demanded that the UK Government acted to resolve the situation: “These figures are a grim reminder of the challenges faced by distillers over the past year, as exports stalled in the face of the coronavirus pandemic and US tariffs. In effect, the industry lost 10 years of growth in 2020 and it’s going to take some time to build back to a position of strength.”

What Happens Now?

The tariffs, which also impacted areas like cashmere and machinery have now been lifted for the next four months, with a statement announcing: “The United Kingdom and the United States are undertaking a four-month tariff suspension to ease the burden on industry and take a bold, joint step towards resolving the longest-running disputes at the World Trade Organization.”

The reaction from the industry has been one of huge relief, with Karen Betts from the SWA saying: “Everyone in our industry – from small companies to large – is breathing a sigh of relief.  Suspending these tariffs – stemming from a transatlantic trade dispute that had nothing to do with us – and a return to tariff-free trade with the US means livelihoods and communities across Scotland will be protected.

“It means that companies can now really focus on recovery – on building back the American market as well as on building back global exports hit by the coronavirus pandemic.”

The four-month suspension has been designed to allow both the US and UK to come to new agreements on trade and resolve the bitter dispute over aerospace, so it is possible that no agreement will be reached and the tariff will return in four months.

However, it is still excellent news for the industry and for investors too. The last ten years have seen continued growth in the value of Scotch whisky and this tariff has been the first major speed bump in that growth.

So, with four months of unrestricted trade hopefully followed by a permanent lifting of the tariff, alongside the continued easing of Covid-19 restrictions, there is every reason to believe that Scotch will keep on rising in value, earning great returns for investors.