Casualties of US-EU aircraft trade dispute: Tariffs on cheese, wine, scotch

Washington Examiner


October 10, 2019

Melissa Quinn

For Justin Drury, there is nothing that compares to Dutch-made cheese.

It's not as if he has a golden tongue but more that in the Netherlands, people have been making cheese for 1,600 years. It's the history and the climate, the grass the cows eat, and the breed of the animal. Drury, whose mother is Dutch-born, said that combination makes it taste different than American-made products.

Drury was raised eating imported Dutch Gouda, and he has taken the food of his youth and turned it into a business: Spicy Mo's, a Los Angeles-based company he co-founded in 2014 that specializes in handcrafted cheese spreads and, specifically, smoked Gouda.

Spicy Mo's imports their cheese from Europe but does all the mixing and blending of locally sourced ingredients for their spreads in Los Angeles. The products don't include fillers like mayonnaise and cream cheese, instead relying primarily on imported cheeses.

And for Drury, that process is why he believes new tariffs the Trump administration is set to impose on goods from the European Union will be "devastating" for his business. Drury is hoping to find a way to offset the cost of the tariffs to protect customers, including by working with Spicy Mo's ingredient supplier in Europe, importer, distributor, product manufacturer, and retailer to see if they all can absorb a bit of the added costs. But it's unclear whether that will take hold, as it requires cooperation from the entire supply chain.

"I'm the business guy," he said. "If I could find a domestic replacement, by all means, I'd be 100% about it. We've done blind taste tests with our family, friends, clients. It's just not the same. I don't think there is a domestic replacement, and that's why it hurts so bad."

Drury is one of more than 2,000 business owners, consumers, and cheesemongers who raised concerns with the Trump administration over its tariffs targeting the EU.

The duties stem from a long-running dispute between the United States and the 28-country EU over large aircraft subsidies.

The World Trade Organization ruled this month that the EU was providing illegal subsidies to Airbus, a competitor to Chicago-based Boeing, and gave the go-ahead for the U.S. to impose countermeasures in response.

As a result, the Office of the U.S. Trade Representative announced it would slap 10% levies on new aircraft from the EU and 25% tariffs on various cheeses, olive oil, liqueurs and cordials, wine, Irish and Scotch whiskey, and apparel.

The majority of the tariffs will hit goods shipped to the U.S. from France, Germany, Spain, and the United Kingdom, as they're the central countries responsible for the subsidies to France-based Airbus, according to the Trump administration.

For the makers of distilled spirits, in particular, the levies are the latest penalties to hit the industry, as the EU already slapped American whiskeys with 25% retaliatory tariffs last year in response to the Trump administration's duties on steel and aluminum.

The tit-for-tat tariffs led to a 21% drop in whiskey exports, according to the Distilled Spirits Council, and the distilled spirits industry fears the hits will continue.

A separate, parallel case before the World Trade Organization involving the U.S. and Boeing is still pending, and EU leaders have suggested they could impose fresh tariffs on American rum, vodka, and brandy.

"The picture-perfect example of the benefits of free trade is what has transpired with the distilled spirits industry across the United States and the EU over the last 24 years, where there's been great growth for Europe and the United States," Chris Swonger, president of the Distilled Spirits Council, said. "These two trade disputes not related to our industry are having a direct impact on an industry that has done great as a result of free trade. That's frustrating and unfortunate."

An analysis conducted by the Distilled Spirits Council found the retaliatory levies on single malt Scotch whisky, single malt Irish whiskey, liqueurs and cordials, and wine could affect roughly $2.5 billion in imports and negatively affect up to 8,000 jobs ranging from farmers, bartenders, truckers, and servers working in the hospitality industry.

"These are going to be extraordinary costs that our member companies are going to have to determine how to grapple with," Swonger said. "There's probably going to be an impact on overall price of the product in some form. There's likely going to be a reduction in imports and exports back and forth."

The 25% tax on cheeses, olives, olive oil, and pork products has La Tienda, a company based in Williamsburg, Virginia, that sells Spanish food and wine, concerned it will have to raise its prices.

But doing so "is not great for our customers and not great for our partners in Spain," said Jonathan Harris, a co-owner.

Hiking prices also won't cover the full added cost of the tariffs, so the family-owned company is expecting to take a hit in its margins as it absorbs some of the cost increases.

Harris started La Tienda in 1996 before word spread about gourmet food from Spain and runs the business with his father and brother. The company specializes in e-commerce and is gearing up for the busy holiday season when many customers send gourmet food as gifts.

The timing of the levies, which are set to take effect Oct. 18, has put La Tienda in a time crunch, as it sends out a print catalog featuring products that will now have a tax rate of 25%.

"We have to decide are we going to raise those prices and deal with the customer complaints, or do we absorb the whole increase?" Harris said.

The holiday season is the prime selling season for the alcohol industry, too, and Swonger said the latest round of tariffs are likely to be felt more acutely by American consumers as they make purchases for the holidays.

"There's no better gift than buying a friend a great bottle of distilled spirits, whether it's scotch or their favorite liqueur or cordial," he said. "We're very concerned and alarmed about the timing."

Many in the specialty foods industry had been watching the ongoing dispute between the EU and the U.S., and expected tariffs would be the chosen method of retaliation, especially given President Trump's penchant for using the levies against other countries.

But what has them flummoxed is the decision to rope the specialty food and beverage industries into a dispute over aircraft.

"Most of the businesses both in Spain and Europe and the U.S. that are involved are family-owned, small businesses that have nothing to do with this trade battle," Harris said.

Read full article...