By Alistair MacDonald
ABERLOUR, Scotland -- As Washington's trade dispute with China
cools, Europe is still skirmishing with the U.S. on a number of
tariff fronts, and this Scottish town of about 1,000 people is
getting caught in the crossfire.
For decades, Aberlour and the surrounding area in the Scottish
Highlands has exported single malt whisky, cashmere and cookies to
the U.S. In October, the Trump administration hit all three with a
25% tariff to punish the European Union over subsidies to Airbus
SE, the aircraft manufacturer.
The move was introduced with tariffs on $7.5 billion in European
goods -- including aircraft, food products, luxury goods and other
sectors. Washington is now threatening to increase some of those
tariffs to 100% and introduce new ones on other products.
The U.S. is also threatening levies on $2.4 billion of French
goods in response to a digital tax by Paris, and hasn't ruled out
imposing duties on some $60 billion in annual European car and
auto-parts exports.
Washington's tariffs on European goods are aimed at some of the
EU's most politically sensitive and iconic businesses -- national
symbols such as whisky, champagne, cheese and cashmere.
Across the region, companies are raising prices or absorbing
additional costs of tariffs while fearing an extension on duties,
and wondering why a U.S. tariff drive they had mainly associated
with China is landing on their doorsteps.
"This has got nothing to do with us, sat in the Highlands," said
John McDonough, chief executive of Speyside Distillers Co.
The local single-malt whisky producer has about $131,000 of the
spirit sitting in its warehouse that its U.S. distributor no longer
wants. Mr. McDonough said he is waiting to see if the tariff on
single malts is extended to 100%. That decision could come at any
point.
"It would be a disaster for us," Mr. McDonough said.
This week, the U.S. agreed to a cease-fire in its two-year trade
war with China, cutting tariffs on $120 billion in Chinese goods by
half and pausing further planned tariffs.
President Trump has said Europe is worse than China on trade
issues.
"I am very afraid that now President Trump will focus more on
Europe," said Matilde Poggi, a winegrower in northern Italy who
sells half the 150,000 bottles she produces each year to the
U.S.
Italian wine wasn't levied in October but appeared on a December
list from the office of the U.S. Trade Representative as a
potential target for further Airbus-related tariffs.
Italian winemakers are already suffering. Ms. Poggi typically
sells about $222,680 in rosé wine to the U.S. around this time. But
she has yet to sell a single bottle, as U.S. importers fear it
could be subject to tariffs by the time it is shipped for summer
consumption, she said.
Producers in the EU sell more than $3.34 billion in wine each
year to the U.S., its biggest market. French winemakers already
bear a 25% tariff. The European Confederation of Independent
Winegrowers reports that its French members who export to America
lost 10% of last year's revenues because of the October U.S.
tariff.
Food and drink is the EU's largest manufacturing industry,
generating revenue of $1.34 trillion. The tariffs are causing
companies to choose between raising prices or eating the loss to
protect market share.
Scotland's largest food exporter, Walkers Shortbread Ltd., chose
to raise U.S. prices of its high-end cookies, all but ensuring loss
of sales.
"Company profits could be almost wiped out," said James Walker,
a managing director.
Mr. Walker spent 40 years building up the U.S. business. It is
the family-owned company's biggest export market and generated
about 15% of its sales last year.
Any hit to the Walkers factory -- whose smell of butter and
sugar drifts into the town -- threatens all of Aberlour. Sean
Cattanach, who runs a small general store with his wife, described
a trickle-down effect in spending at his and other local businesses
if employees of Walkers and the whisky industry stop spending as
much.
Nearby, Johnstons of Elgin Ltd. has left U.S. prices on its
cashmere clothing unchanged, taking the loss on sales. While the
U.S. accounts for around 10% of the company's sales, its U.S.
market grew by 40% last year.
"You lose market share in an instant, and it takes years to get
it back, " said Simon Cotton, the company's chief executive, as
clattering looms worked on a factory site that has been weaving
cloth for 222 years.
Almost half of Scotland's 120 whisky distillers are within a
roughly 15-mile radius of Aberlour, including one in the town
itself. The industry expects the 25% tariff on single-malt exports
will reduce sales by 20% in the U.S. over the next year. If the
tariff is increased to 100% and extended to blended whiskys, then
large drink makers -- such as Diageo PLC and Pernod Ricard SA --
will take a hit.
Ewen Mackintosh, managing director of Gordon & MacPhail, a
whisky distiller and exporter, said any loss in U.S. market share
could be difficult to overcome even when tariffs are removed.
"We live in a competitive category to other whiskies," he
said.
Locals here wonder why it is Scottish biscuits, not French ones;
Scotch whisky, not Irish; and local cashmere, rather than Italian.
They talk of Mr. Trump's ties to Scotland; his mother was Scottish.
But governments typically use tariffs to target high-profile goods
that also won't hurt domestic jobs or industry. French cheese and
wine were hit in the Airbus tariffs, as aircraft parts
manufacturers were left untouched because European manufacturers
supply U.S. planes.
Brussels has itself gone after high-profile U.S. targets,
hitting bourbon and Harley-Davidsons last year in retaliation
against Washington's steel tariffs.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
(END) Dow Jones Newswires
January 19, 2020 11:14 ET (16:14 GMT)
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