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Nick Gillett: Why Trump’s tariffs are not just a question of cost

If you were to listen to conversations between spirits boffins, you’d hear us talk about cocktails, football, the weather – you wouldn’t often hear us talk about politics. But the introduction of tariffs has loosened our tongues on the subject. Some of the big players in Scotch whisky have revealed the staggering sums the tariffs will cost them – with Diageo announcing last week that it expects the tariffs to cost them around £113m each year. In one fell swoop, producers could lose millions of pounds as a result. And while all of the above is less than ideal, it’s the fluctuating threats and lack of detail that are causing most upset to businesses. How can company leaders make sensible decisions in a shifting landscape?

Here are my two cents on what it means for spirits.

The effect on a bottle

If tariffs on American booze are around to stay (and vice versa), eventually the cost will be reflected in the price of a bottle. But many distributors have gone to some length to stop this from happening. At Mangrove we’ve stocked up on bottles of our American brands, like New York Distilling Company, Uncle Nearest and Balcones. By stocking up pre-tariff, we can supply our listings comfortably for the foreseeable and avoid passing that cost on to consumers. But if these tariffs are still in place years down the line, that price hike for customers will eventually come.

We also need to consider the effect these tariffs will have on all aspects of the bottle – not just the liquid that goes inside it. A bottle of spirit is an amalgamation of many parts – glass, a top, a label and liquid. In many cases, its components come from different parts of the world. The disruption to trade between so many countries will absolutely disrupt the supply chains for so many producers and distributors. Luckily for Mangrove, we’ve been around a long time and our supply chains are well established. However, this shake up will cause chaos for many but present an opportunity to others; especially companies who are challengers in various supplier spaces. I suppose it all depends on whether your outlook is ‘glass half full’ or ‘glass half empty’, right?

Diplomacy, however, can still deliver wins. A recent example is the £1bn trade deal between the UK and India, which will gradually scrap the eye-watering 150% tariff on Scotch whisky over the next decade. It’s a rare moment of clarity for a sector battered by red tape and rising costs – and a clear example of how government action can open up markets rather than shut them down. It’s a huge opportunity for Scotch producers and a sharp contrast to the chaos still surrounding US tariffs.

Voting with your purse

An unexpected side effect of Trump’s tariffs is people ‘voting with their purses’, and this is happening among consumers and the trade. Bartenders, procurement specialists, hospitality professionals – they can be an opinionated bunch and they pack some punch when they club together. We’re unexpectedly seeing an uptake in purchases of other whiskies in place of American products and, without getting too political, it does look like it’s in protest to Trump’s policies.

‘Conscious consumerism’ has also been on the rise for the past decade, so similar behaviour can be seen among shoppers too. If you add to this the fact that tariffs will be reflected in the price of some bottles, then there’s even more reason for shoppers to choose something different. Most products have a loyal consumer following but our experience tells us there’s an elasticity when it comes to pricing. Yes, they’ll stretch to some degree, but if a favoured bottle goes beyond a certain price, the band will ‘snap’ and people will start to switch. As a proud distributor of all categories I can say there’s always an alternative available – and plenty of loyal custom has been won this way.

Let’s be clear – I don’t say the above with any sense of schadenfreude. I love the United States and I love American booze. It’s a damn shame to think that this will affect the spectacular liquids coming out of the region. Here’s hoping the US government takes the matter seriously.

The new normal

So, how will it all affect the industry moving forward? Well, it will prevent some brands from coming to Europe, and the UK in particular. While the UK is an important market in terms of brand and recognition, it’s a relatively small one in the grand scheme of things (and a heavily bureaucratised one at that). Yes, losing European sales might damage turnover, and vice versa, but I doubt it’s going to do enough damage to see businesses collapse entirely.

It might also affect the diversity of international products joining the market. To use a real-life example, we’ve been on the hunt for a great American bourbon for some time. At Mangrove we have an exceptional world whisky portfolio, and a great bourbon is what’s missing. We’re following our usual process of looking to work with great people who have made a fantastic liquid, but the uncertainty of tariffs means we must be extra careful on price, not knowing what could come or change with future tariffs. And if we’re facing that problem – so are other conglomerates and distributors looking to bring new products to market here in the UK.

The tariffs themselves aren’t a gamechanger – it’s the uncertainty they cause that’s bad for business. And in a world where governments continue to make decisions that negatively impact businesses, can we really afford another one?

Nick Gillett is MD of premium spirit specialist Mangrove UK.

• Spirits
• whisky
• trade
• tariffs
• Trump
• Mangrove UK