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President Donald Trumps escalating trade wars with the European Union, Canada, and other international markets has led American whiskey producers such as Cedar Ridge Distillery to rethink its export strategies.We dont know what the rules are going to be, says Jeff Quint, founder and CEO of Cedar Ridge, in an interview with Fast Company. It makes you divert your attention to a more stable environment.The Iowa-based distillery sells about 80,000 cases of whiskey annually in more than 30 domestic states and markets abroad including Canada, the EU, and Australia. But craving stability in a turbulent world, Quint says he may completely shut down his export business and focus on his home turf to avoid the tariff war.You dont just pop into Canada one year and then pop back out, says Quint. These are long-term decisions, what markets you are going to play in.[Photo: Cedar Ridge]The liquor industry was rattled after the EU announced it would impose a 50% tax on American whiskey starting in April, causing Trump to retaliate and threaten a 200% tariff on wine, champagne, and spirits made in Europe. The news rattled the stock prices of Europes liquor giants including Johnnie Walker Scotch maker Diageo and Absolut vodka owner Pernod Ricard, who have already warned Wall Street that if tariffs on Mexico and Canada went into effect, they would stand to see a hit of tens of millions of dollars to their operating profits.Chris Swonger, president and CEO of trade association Distilled Spirits Council, says he was in Brussels a few weeks ago pleading with Europeans not to move forward with a tariff on American whiskey.Our industry should not be involved, says Swonger, whose organization represents producers and marketers of spirits sold in the U.S. We are the model for the benefits of fair and reciprocal trade.The group is an advocate for zero-for-zero tariffs, which the European and U.S. markets enjoyed between 1997 and 2018, resulting in a 450% increase in spirits trade that benefited Scotch whisky, bourbon, cognac, and European-made liqueurs. Swonger also praised Trumps efforts earlier this year to negotiate a lower tariff on American goods in India, including on whiskey. India is the top-selling market for whiskey globally.In 2018, the EU enacted a 25% tariff on American whiskey in a retaliatory response to steel and aluminum tariffs during the first Trump administration. The Distilled Spirits Council estimates that led to a 20% plunge in whiskey exports to the EU over a three-year period. Those tariffs were suspended a couple years ago and trade flows normalized.Nationalism tends to run high during a tariff war and that makes liquor brands, which are often intrinsically linked to their country of origin, an easy target. After Canadian retailers pulled U.S. alcohol from their shelves, Jack Daniels maker Brown-Forman lamented that these actions would be even more financially devastating than the tariffs themselves.Sometimes these trade disputes drive a lot of emotion, says Swonger. And emotion doesnt create smart and appropriate trade policy.Swonger says the tariff war presents a unique challenge to many spirits producers because legally, they cannot move production to local domestic markets to avoid paying a tariff. Tequila must come from Mexico, bourbon is only produced by the U.S., and cognac is distinctively French.Some liquor giants, including tequila producer Jose Cuervo, have shipped additional products to foreign markets to get ahead of tariffs before they go into effect. Today, everything is under control for us, says Lander Otegui, SVP of marketing at Jose Cuervos owner Proximo Spirits. Long term, well see how the conversation evolves to see what actions we take. Jose Cuervo previously warned of a $80 million impact in 2025 due to tariffs, though Trump delayed them earlier this month.[Photo: Santo Spirits]If tariffs do become a reality, brands may ask wholesalers and retailers to help absorb the cost of the tax, perhaps each cutting their profit by about 8% to avoid passing along the price increase to customers. The larger producers have much more leverage, says Dan Butkus, CEO and president of tequila producer Santo Spirits. It is much more difficult for a smaller tequila producer to negotiate.That puts pressure on new entrepreneurs such as Alana Abbitt, who in February launched Santa Almagia Mezcal, a small-batch brand she cofounded with her mother. The timing is not great, says Abbitt. Do I take a hit on those margins because its not the customers fault, or do I have to pass along [the cost] to the customer to be a viable business?Mitigation strategies to pre-ship products or attempt to share the pain across the liquor industry supply chain are only expected to help in the short- to medium-term. If tariffs are implemented over a long period of time, most experts say prices for tequila, Scotch, and other liquors made abroad will increase for Americans.Tariffs are a tax on the consumer, says Butkus, noting that a $50 bottle of booze would sell for $62.50 if a 25% tariff is imposed.Higher prices will likely change behaviors in a few different, yet equally harmful, ways. Tequila lovers may switch to vodka that can be made domestically or lower-priced spirits, resulting in fewer choices on the shelf and less innovation coming into the market. But conversely, if more distillers employ Cedar Ridges all-in strategy on selling domestically, prices may fall because the market is flooded with too much bourbon that was initially meant to be sold in Canada or the EU.This is all paralyzing, says Quint. I dont think anybody knows how this all nets out.
