Whiskey Offers Window Into the Pain of a Trade War

Liquor lobbyists gathered in a ritzy private club on a recent rainy evening in Brussels to swill cocktails with names like “Toasts Not Tariffs” and fret over the potential disaster confronting their industry. Again.

Seven years ago, the spirits industry found itself a casualty in a worldwide trade war as President Trump unleashed tariffs on America’s partners. The European Union retaliated with a spate of tariffs that included a 25 percent charge on American whiskey — aiming to deliver a blow to Senator Mitch McConnell, Republican of Kentucky and the then majority leader. A series of tit-for-tat tariffs followed, hitting spirits from rum to cognac on both sides of the Atlantic.

The levies were suspended during the Biden administration, but with Mr. Trump back in office and trying to rewrite the rules of global trade once again, alcohol is back in the crossfire.

The European Union suspended the tariffs in question in 2021 and extended that decision in 2023, but the hiatus lasts only until March 31. After that, ramped-up tariffs of 50 percent will automatically apply to American whiskey, and charges will hit a range of other goods, including motorcycles.

But it is the spirits industry that has been the most vocal about the risks the levies pose. Industry leaders and craft distillers say the taxes would decimate their export business, especially in growth markets like Germany and France, while risking retaliatory tariffs that would hit other kinds of alcohol.

Bars have been importing extra bottles to try to get ahead of a trade war, distilleries have been putting overseas expansion plans on ice, and industry leaders have been flocking to Brussels, Washington and Rome, where Prime Minister Giorgia Meloni has become Mr. Trump’s bridge to Europe, to try to convince policymakers to help them avoid the looming pain of tariffs.

Yet there could be strategic reasons for the liquor industry to be ensnared in negotiations. In fact, whiskey is an amber-hued window into why a trade war can be painful, and into how one may play out.

Tariffs on consumer products like bourbon generate news headlines and disproportionately hit specific geographies, inflicting a lot of political pain at a limited cost. And because the European Union’s whiskey tariffs are set to kick in automatically at the end of next month, they offer the continent a chance to exert pressure on the United States without having to come to a new political compromise, and without necessarily escalating a trade conflict.

And right now, European leaders are trying to muster any leverage that they can.

The 27-nation bloc wants to avoid a full-scale trade war with the United States. Such a conflict would be damaging at a time when Europe’s economic growth is already stagnating, and the continent’s leaders are eager to keep the United States cooperating on other geopolitical priorities, like supporting Ukraine as it battles Russia.

The European Union has yet to provide details on how it will retaliate to fresh tariffs coming from the Trump administration — including 25 percent levies on steel and aluminum announced Monday and set to kick in on March 12. On Thursday, President Trump directed his advisers to come up with new tariff levels for economies that will include the European Union, which seems likely to kick off intense negotiations with governments around the world.

While E.U. officials debate their options, the alcohol industry is watching to see whether the whiskey tariffs will be retained or even accelerated.

“This industry should not be included in a trade dispute,” said Chris R. Swonger, the chief executive of the Distilled Spirits Council of the United States, who recently took a trip to Italy and Belgium to talk to European leaders. “We are the poster child of the best of free trade.”

Europe is not the only place where cocktails may get mixed up in tariff negotiations. Trade of Mexican tequila and Canadian whiskey could be affected by the United States’ efforts to rewrite its trade relationship with Mexico and Canada, though tariffs between those nations have been suspended until March.

Given the fraught backdrop, industry lobby groups from around the world have been teaming up to make the case that the spirits industry should be left out of the tariff fight, allowing up-and-coming distillers to find a footing in new export markets and big multinationals to continue trading unabated — especially between the United States and the European Union.

American whiskey exports to the European Union fell 20 percent in the year after the imposition of 25 percent tariffs, according to industry data. E.U. liqueur and cordial exports also dropped sharply.

The decline had a relatively small economic impact — whiskey lost over $100 million in sales from 2018 to 2019, but that’s a rounding error in what was then a nearly $22 trillion American economy. But the setback damaged the industry for years, and the threat of tariffs has continued to hamper its expansion.

Victor Yarbrough, the chief executive of Brough Brothers Spirits Group, had just begun to ship bourbon from his distillery in Louisville, Ky., to Britain in 2019 when the first round of tariffs started to kick in. The firm had to pull back, because the 25 percent tariff made exporting unprofitable.

Now, he is postponing plans to sell to the French and German markets — something he had once hoped to do by this summer.

“It’s just very difficult to make any kind of business decisions,” Mr. Yarbrough said.

He had hoped his products, a connoisseur’s bourbon that tastes of cherries and chocolate and a lower-proof option with a hint of apple, would do well in the European market. But he will have to wait to find out.

Mr. Yarbrough’s concerns are an example of how trade disputes can harm some U.S. companies. Whiskey is the leading U.S. distilled spirits export, accounting for more than two-thirds of all such sales in foreign markets in 2022 and 2023.

But tit-for-tat tariffs also cost consumers, including by making products more expensive. Björn Lahmann, the owner of Whiskyplaza in Hamburg, Germany, houses 1,000 open bottles of whiskey in a 18th-century bar in the city’s historic center. His American selection is “so important” for classic cocktails like the Sazerac or the Old Fashioned, he said.

If the cost of bourbon and rye goes up substantially, he said, customers might be forced to either shoulder the cost or switch to something non-American.

The idea that tariffs cost all parties involved has, in fact, been one of the European Union’s main talking points.

“Tariffs are taxes — bad for business, worse for consumers,” Ursula von der Leyen, president of the European Commission, the European Union’s executive arm, said in a release on Tuesday.

Europe’s strategy for dealing with the United States has been to stick to that message while pushing to negotiate. Its leaders are trying to offer the Trump administration wins, like pledging more gas purchases, something that the president has been insisting upon.

But they have also promised firm countermeasures if negotiation fails. And that is where targeted tariffs could come into play. Lobbyists are eagerly awaiting the details, but European leaders have been waiting to unveil specifics.

“We don’t know,” said Ulrich Adam, director general of the European liquor lobby group Spirits Europe. “On spirits, we speak with one voice: We want to maintain tariff-free trade.”