Trade – Our special relationship or whiskey sour(ed)

Blog | 01 March, 2022

As DIT gets a new Secretary of State, WSTA Chief Executive Miles Beale gives his thoughts on the current state of the UK-US trade relationship and how removing the ‘Section 232’ tariffs on Bourbon could prove a strong investment in the special relationship.

As Anne-Marie Trevelyan takes over as the new Secretary of State in the Department for International Trade, and Penny Mordaunt takes on the role of Trade Policy Minister, they’re joining the Department at an exciting and challenging time. DIT has been up and running for 5 years, and it is fair to say from the WSTA’s perspective in that time it has made big strides in Whitehall. DIT has shot up the Departmental rankings just like its former Chief did on Conservative MP league tables. Colloquially it’s become known as the “Department of Wins” for its recent successes and positive agenda, and there is some truth to this statement. DIT’s officials are increasingly skilled and confident, gaining experience in their craft rapidly. Former Secretary of State Liz Truss has had some significant public moments which have no doubt helped her rise to one of the four big offices of State as the new Foreign Secretary. These successes include beginning accession talks with CPTPP members, securing continuity deals for all key EU trade agreements, attaining a ceasefire on large civil aircraft hostilities, and most recently, achieving ‘Agreement in Principle’ with Australia for a new bilateral FTA.  It also looks like a deal with New Zealand might not be a million miles away too.

But Anne-Marie Trevelyan now has the job, alongside Penny Mordaunt and new Permanent Secretary James Bowler, of converting those early wins into long term strategic gains for the UK economy, and not all of the challenges facing the Department can be tidied up in an FTA or are fully within DIT’s control. One such challenge that will be hitting Trevelyan’s desk is UK-US trade relations. With Boris Johnson and Liz Truss doing the rounds in New York and Washington this week, the UK will be looking to move forward on a host of political and economic issues with the US, including climate, defence, security, trade and investment but top of Trevelyan’s wish list has to be the resolution of Section 232 dispute. Without it, wider DIT engagements with the US on trade are liable to be in the deep freeze for the Biden years. And unlike at the point of the dispute’s emergence in 2018, the UK – Global Britain – is outside the EU and fully in control of its own relationships.

Secretary Trevelyan must resolve the Section 232 trade dispute with the US over steel and take UK-US spirits trade out of the firing line permanently.

Since June 2018, the US has been applying tariffs against UK steel exports (and exports from a host of other countries), in response to Chinese overproduction of steel and on the grounds of national security[1]. Around the same time in 2018, the EU and UK began applying tariffs against sensitive US products, such as motorcycles, orange juice and Bourbon whiskies to pressure the US to remove the tariffs – the pressure hasn’t worked, but it has harmed our UK wine and spirit industry. To target spirits was a decision taken by the Juncker Commission, without consultation. It was a clear example of why this Government wanted Brexit. In a UK context, targeting Bourbon or any alcoholic drink from the US for tariffs is nonsensical, as it draws our spirits exports into the firing line, with which we have a huge trade surplus with the US. The decision to target Bourbon led to Scotch whisky tariffs in response to the Boeing dispute and cost the UK over £500m in lost export revenue.

Continuing to apply tariffs is causing great harm to the UK’s spirits industry and our struggling hospitality sector, already hit by Covid.  Bourbon imports have fallen by 53% since 2018, drying up US investment in the UK spirits sector, and brand marketing budget for hospitality. UK consumers themselves have been slapped with an extra £55m in tariff on the whiskey they have consumed. Independent UK importers are looking at the tariff and asking “is this what Free Trade under Brexit was supposed to mean?” – it wasn’t their understanding. Several US whiskey companies own large Scotch whisky distilleries and even gin brands, and with less overall margin in their portfolio, UK brands are prevented from investing in distillery expansion and export promotions. Such is the level of interconnectedness of the Spirits industry and one of the reasons why it’s been a leading proponent of free trade for so long. These tariffs are really a tax on US investment in UK jobs and businesses, UK hospitality and UK consumers. The harms are being felt in distilleries in Scotland, and pubs and restaurants across the midlands, as much if not more than in towns in Kentucky and Tennessee. Soon US investment will look elsewhere, to Japan, Ireland or Australia.

One of our UK entrepreneur importers is looking to grow his bespoke US whiskey brand but can’t invest in the marketing until the tariffs come off. Being able to switch lost profits to marketing would help him to boost his portfolio’s exports by 20%, he reckons. Another of our importers wants to employ a workforce of bottlers, marketeers and brand ambassadors, but has casks of whiskey stuck Stateside because the tariffs make his business plan unviable.

At a Bourbon Alliance reception in Westminster last week, one UK Bourbon importer stood up and said: “I thought Brexit would give us the power to make our own decisions. Is it therefore our decision to penalise British businesses, to penalise the high street, our vibrant on-trade of restaurants and bars?”. It is difficult to put it more clearly than that. And with news emerging this week that a quick UK-US trade deal is looking further away than 12 months ago, dropping whiskey tariffs would be a small but significant step towards greater trust, and an investment in the special relationship. It’s time to remove tariffs on Bourbon and let spirits be free trade spirits again.

[1] Believe it or not, the US’s protectionist linking of tariffs, trade and national defence goes back as far as founding father and musical star Alexander Hamilton.