Just how damaging for the sector will Trump’s new 25% tariffs be?

Donald Trump is famously teetotal. Perhaps that’s why he has no qualms with putting the squeeze on scotch.

Last Friday, the US imposed 25% tariffs on a swathe of EU goods, including French wine, many cheeses and meat products, as punishment for EU subsidies to Airbus. UK exports of cheddar and biscuits will likely take a hit from the new tariffs, but it is likely single malt scotch (blended whiskies won’t face any new tariffs) where the effects will be felt the hardest.

Single malt represents over half the total value of all UK products on the US government’s hit list, according to the Scotch Whisky Association, which warns tariffs will “undoubtedly damage” the sector and could lead to job losses.

UK suppliers need only look across the pond to see the damage tariffs can do. Bourbon suppliers have been paying a punitive 25% on EU exports for the past year, after all. According to Spirits Europe, those tariffs have led to a 21% sales decrease for American whiskey in the EU.

So who’s likely to be worst hit? And what does this mean for the future of the industry?

It seems the likes of Diageo and Pernod Ricard are large enough to absorb the hit - at least for now. A spokeswoman for Diageo says the business will be “taking measures to mitigate the effect of these tariffs on our scotch single malts and liqueurs portfolio” and, as a result, does not expect “a material impact” to the business.

That’s not to say the big boys are completely safe. There is no certainty Trump’s trade war won’t expand in future - and the spokeswoman stresses Diageo “would not be immune from a further escalation”.

After all, Johnnie Walker, Diageo’s largest global whisky brand, is a blend. Were Trump to extend the tariffs to cover blended scotch, things could go south, and quickly.

It’s likely smaller businesses will bear the brunt this time around. “Businesses in our turnover range of between £50m to £150m, we’re going to feel the impact,” says Ian Macleod UK MD Neil Boyd. “We reckon it’s going to remove 20% of our annual sales.”

One saving grace, says Atom Brands head of whisky Sam Simmons, is that many scotch whisky exporters “will have inventory already in the [US] market. All of our stuff was exported a year ago - when that comes out of bond and goes to distributors we won’t pay a tax.”

Indeed, when this was first announced, there was “a lot of forward buying on behalf of our importers ahead of the tariffs”, says Boyd.

Price increases

Simmons says it’s too early to tell how the US will react to price increases, particularly at the higher end. “I think we might be surprised at the threshold for what the US can handle in terms of price. This could be an opportunity to reconcile prices up to where they should be.”

However, should the tariffs stay in place in the long term, they could have a knock-on effect on product development.

“We would have to sell lower price products into the States to establish a lower price point, which would inevitably mean lower age statements,” says Boyd. “We would have to re-educate ­consumers because US consumers do largely navigate the category through age statement.”

That could be an upside for the UK, though. “If the US is unable to sell older stocks, it may mean we can reallocate to markets that are not so damaged, he adds.

Indeed, while the US is “massive and important strategically, if what ends up happening is that less scotch is being sold or prices aren’t being hit, there’s plenty of demand from the rest of the world,” adds Simmons.

The uncertainty around how long the tariffs could last is the biggest problem for newer UK distilleries scaling up. “We are about to invest significantly in production capacity and the impact on us is about trying to understand the medium to long-term,” says Eden Mill founder Paul Miller. “For companies of our size this is about the potential in five or six years for whisky stocks that we will be laying down in a year.”

However, he points out “these things tend to balance out - we are getting a benefit at the moment from the weaker pound, which gives us an advantage selling overseas”.

Still, as Boyd puts it: “It is galling to have such hard work and investment over a long period damaged so dramatically.” Not that Donald Trump would care.