Trade

R Street: A Little Less Tariff, a Lot More Booze

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Politicians from across the ideological spectrum are constantly waxing poetic about the importance of blue-collar manufacturing jobs. In fact, much of the justification for the recent tariff disputes has been a need to protect American manufacturing industries. R Street’s Jarrett Dieterle and Clark Packard argue in National Review that the best path to more manufacturing jobs is to scrap the tariff wars and start deregulating the alcohol industry:

From the earliest moments of his campaign, President Donald Trump has emphasized the importance of domestic manufacturing jobs. He’s negotiated carve-outs to keep factories in America, railed against companies that move jobs overseas, and increased tariffs in an attempt to protect blue-collar workers. Nearly all of the president’s rhetoric, however, has fixated on a handful of sectors traditionally associated with manufacturing, such as the steel industry, automobiles, and construction. This myopic focus has blinded the president to one of the most promising sources of manufacturing jobs in modern America: the alcohol industry.

President Trump is far from the only government official who obsesses over manufacturing jobs, with stories cropping up daily about politicians visiting production plants in Rust Belt states and donning hard hats for well-publicized photo ops…

Lost in all this is the fact that the American drinks industry has some of the best job-growth potential in the country. According to data from the Bureau of Labor Statistics, breweries, wineries, and distilleries created the second-most manufacturing jobs of any industry in 2017. These numbers don’t even include support industries that are tied to drinks, such as barrel manufacturers or bottle producers. With new breweries and distilleries opening every day, the growth seems primed to continue — if policymakers will let it…

Read the whole piece here.

How Does Protectionism Hurt Our Drinks?

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Last weekend, R Street's Daniel DiLoreto discussed the alcohol industry's protectionist policies in the Washington Examiner. The Trump tariffs are detrimental, and many state policies have the same impact. They increase prices and stifle consumer choice:

President Trump’s tariffs are putting a dent in the good ole American six pack. This spring, craft breweries braced for impact, as additional charges on steel and aluminum are likely to make cans and bottle caps more costly to produce. “Any raise in the cost of cans will be immediately felt,” explains Justin Cox, founder of Washington, D.C.’s, Atlas Brew Works. Cox says he’ll be forced either to cut back on labor or charge consumers higher prices.

Nevertheless, while the tariffs have made national headlines for harming American industries, similarly costly state-level policies that affect alcohol have received less media attention. Like tariffs, however, state protectionism also hurts the booze industry by increasing production costs and raising prices for consumers. Consequently, while Trump’s tariffs deserve criticism, efforts to push back against protectionist policies should not be confined to the national level...

Read the whole article here.

Trump Administration Challenging Wine Tax Breaks

Trade has been a hot topic on R Street's drinks team lately. Now, the Trump Administration is furthering this discussion, as they are questioning a tax benefit that wine importers have. Richard Rubin and Jennifer Maloney explain in the Wall Street Journal:

The Trump administration is challenging a tax benefit that gives the wine industry more than $50 million annually and blocking beer and spirits makers from using the same break.

The government’s fight against the alcohol industry stems from what officials describe as an error by a Customs and Border Protection office in San Francisco in 2004. Since then, wine importers have been able to offset taxes owed on imports by getting credit for their exports—even when excise taxes on those exports were never paid.

The Treasury Department attempted to end the benefit for wine companies in late 2009 but senators from wine-producing states, including current Senate Minority Leader Chuck Schumer (D., N.Y.), objected and Treasury withdrew the proposal...

Read the entire article here.

The Trade War Continues Hitting American Drinks

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The trade war continues to threaten American drinks. In response to the Trump Administration's decision to place tariffs on European goods, the European Union placed tariffs on American goods--including whiskey. CBS News explains below:

What American whiskey makers have dreaded is becoming reality. The European Union will start taxing a range of U.S. imports on Friday, including Harley-Davidson (HOG) bikes, cranberries, peanut butter, playing cards and whiskey. The union is responding to President Donald Trump's decision to slap tariffs on European steel and aluminum.

American distilleries large and small have watched warily as the threat of tariffs from Europe ratcheted up in recent weeks. And while larger, corporate-owned facilities tend to do the most business overseas, small and midsize companies could be especially vulnerable because they lack the ability to stockpile reserves and take other protective steps.

The whole article is available here.

Out-of-state wine importers criticize California's distribution laws

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As we have previously discussed, the United States has been taking action that is likely to increase drink prices. This is relevant not only at the national, but also at the state level. The debate has reached California, where Orion Wine Imports is unhappy with California's interstate shipping rules:

In California, importers and wholesalers based outside the state must first sell to an importer or wholesaler in California, even though in-state importers don't have to. Orion argues that adds distribution costs to out-of-state importers that in-state ones don't face, which violates the Commerce Clause and the Privileges and Immunities Clause, per the complaint.

Orion claims the laws could prevent it from selling and delivering some of its wine in California altogether "if the demand is so small or the wine is so new and unknown that no wholesaler will agree to carry it." Moreover, they have no plans to open a facility in California and "cannot afford to do so..."

Read the entire article here

Why Beer Could Get More Expensive Under Trump’s Tariff

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As previously noted, the Trump Administration's recently announced tariffs could have a real effect on the alcohol industry. The Wall Street Journal reports on how the aluminum tariffs could lead to higher beer prices:

"President Donald Trump’s planned 10% tariff on aluminum imports could hit America in its beer gut.

Beverage makers, including Heineken, Molson Coors Brewing Co. and Coca-Cola Co., who use aluminum cans had warned Mr. Trump last month of increases in production costs if the tax were imposed. Some of those costs are likely to be passed on to consumers, according to analysts. The Beer Institute, a trade group, said Thursday the tariff would amount to a $347.7 million tax on brewers and result in the loss of tens of thousands of jobs.

“Businesses don’t assume cost increases, they pass them on to consumers,” said Nico von Stackelberg, a consumer-goods analyst at Liberum.

More than half of the beer produced annually in the U.S. is sold in aluminum containers and is traditionally marketed to cost-conscious consumers. Cans of Natural Ice, known as “Natty Ice,” are staples of cash-strapped college students and Bud Light has become a symbol of working class America, which is a key part of Mr. Trump’s political base.


Cans are cheaper and easier to ship than bottles and they protect against ultraviolet rays, reducing the risk of beer going stale, or skunked.

The tariffs could also hurt craft beer. Part of the reason artisanal brew is increasingly sold in cans, producers say, is that aluminum offers a good surface for colorful, effective branding..."

Read the rest here.

R Street's Trade Policy Counsel Clark Packard signed a letter along with other leading trade policy experts speaking out against the tariffs

Trump Administration's Proposed Aluminum Tariffs Could Raise Beer Prices

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Last week, the Commerce Department unveiled a proposal to raise tariffs on imported aluminum, which as the Milwaukee Journal Sentinel reports could raise the price of a six-pack:

The U.S. Commerce Department has recommended the tariffs on all steel and aluminum imports, or higher tariffs — up to 53% — on imports from specific countries.

The measures are aimed at bolstering the U.S. aluminum and steel industries, which have been hit hard by imports, especially from China...

Critics say the actions could harm many U.S. industries, including breweries and canned vegetable companies that use imported metal for product containers. 

'Anything that raises our raw material costs will affect the bottom line,' said Henry Schwartz, founder and CEO of MobCraft Beer, a Milwaukee brewery. Even if a brewer wanted to switch to all bottles, Schwartz added, it would cost hundreds of thousands of dollars in additional equipment, and it wouldn't appeal to a lot of consumers. 

How much would tariffs add to the price of a six pack? The industry says for every dollar worth of beer produced in the U.S., brewers spend about a dime for cans and roughly five cents for aluminum. While that doesn’t seem like a lot, it quickly adds up as brewers produce more than $55 billion worth of beer annually..."

Read more here.

How The U.S. Bourbon Industry Could be Hurt by a Trade War

With the Trump Administration contemplating a steel tariff, eyes are turning to other countries to see how they might respond to such a move. According to a recent report, the EU could potentially slap tariffs on American exports of whiskey:

"We'll give it to you straight: If President Trump slaps a tariff on steel, the U.S. bourbon industry might be left reeling.

Trump has long vowed to impose tariffs on some imports, and his administration has recently focused on the steel industry. A blanket tariff on steel wouldn't just hurt China, the frequent target of Trump's trademark trade tirades. It would also deal a blow to allies such as Germany.

According to a report by The Financial Times (behind a paywall), officials in the EU are planning how they'd respond to blanket steel tariff. Their targets, the FT reports, include dairy, orange juice — and whiskey.

A tariff on bourbon, a classic American spirit that is produced only in the U.S., isn't just symbolic. American whiskey has experienced a serious boom in global popularity over the last few years...

[B]ourbon is increasingly popular worldwide. Roxanne Scott of member station WFPL in Louisville, Ky., notes that the EU is 'a major bourbon customer.'

'Data from the Distilled Spirits Council of the United States [DISCUS] shows that about 59 percent of the country's bourbon exports went to EU member countries last year,' Scott writes..."

Read more here: http://www.npr.org/sections/thetwo-way/2017/07/10/536420496/u-s-distillers-brace-for-possible-eu-backlash-against-bourbon

The New York Times also ran an op-ed about how these tariff wars could hurt the bourbon industry: https://www.nytimes.com/2017/07/11/opinion/will-trump-kill-the-bourbon-boom.html

Import Duties on Aluminum Could Make Your Beer More Expensive

Slapping tariffs on aluminum imports could make beer more expensive, writes Joe Deaux over at Bloomberg Markets:

"Donald Trump’s efforts to save American metal-making jobs by punishing cheap imports may come with an bitter side effect: pricier beer. 

That’s the view of Tim Weiner, senior commodity risk manager at Molson Coors Brewing Co. and its MillerCoors LLC unit. 'If there are duties on aluminum coming to this country, it will obviously get passed on to us and the customer,' he told an industry conference in Chicago Wednesday. 'Our prices will go up.'

The brewer’s warning juxtaposes the enthusiasm of producer Century Aluminum Co. at the prospect U.S. authorities will take action against unfairly priced imports. Following a World Trade Organization complaint filed by the Obama administration in January, Trump signed an executive memorandum in April initiating an investigation into aluminum imports as part of a push to bring back jobs to America’s rust belt.

But if the U.S. does impose import duties on primary aluminum, it will affect the roughly 5,000 brewers scattered across every congressional district, Weiner said. Asked about the likelihood of such duties, he said: 'It depends on whether it’s politically motivated, or business motivated. I think there’s political motivation for putting some tariffs on.'

About 60 percent of the brewer’s packaging is aluminum can, 'and we don’t expect that to change,' Weiner said. 'We’re giving our customers what they want, and what they want is cans.'..."

Read more at: https://www.bloomberg.com/news/articles/2017-06-07/beer-drinkers-beware-if-trump-taxes-metal-for-cans-millercoors

Guinness' decision to build in Baltimore County an example of free trade that Trump doesn't like

In case you missed it, R Street's Clark Packard previously wrote an op-ed in the Baltimore Business Journal about the trade policy implications of Guinness' decision to expand in Maryland: 

Diageo Beer Co. USA will open a Guinness brewery in Baltimore County, assuming the Maryland General Assembly approves a new kind of liquor licensethat would allow it to serve up to 5,000 barrels annually in the tap room. That's a huge increase from the 500 barrels allowed by state law.

Diageo, a British-based alcohol company, estimates that it will invest $50 million and create “up to 70 jobs.” Gov. Larry Hogan rightly noted that the announcement is “great news for job creation, manufacturing, and tourism” in Maryland. As a resident of Washington, D.C., and a frequent consumer of Guinness Stout, I will be one of the beer tourists Governor Hogan described – happily spending my dollars in the Old Line State...

Read the whole thing here: http://www.bizjournals.com/baltimore/news/2017/03/02/opinion-guinness-decision-to-build-in-baltimore.html