2021 could be the most important year for alcohol markets since Prohibition
The alcohol sector is reeling from the COVID-19 global pandemic and its limitations on gathering-oriented businesses.
The industry just avoided a potentially disastrous tax hike, but that doesn’t mean the troubles are over.
Decisions by the outgoing and incoming administrations over tariffs will determine whether the recent craft beverage boom continues
C. Jarrett Dieterle is a senior fellow at the R Street Institute and the author of Give me Liberty and Give Me a Drink!
This is an opinion column. The thoughts expressed are those of the author.
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If ever there was a time when Americans might want to turn to the bottle, it is in the middle of our current global pandemic and in the aftermath of one of the most contentious presidential elections in modern history. Which is why it is particularly ironic that both leading candidates for president in 2020 were teetotalers who eschewed the strong stuff.But even though President-elect Joe Biden does not imbibe, his presidency will have massive ramifications for the US alcohol industry. Decisions made in the coming months by both the outgoing Trump administration and incoming Biden administration could alter the trajectory of America’s recent craft beverage boom for a generation.In fact, next year may be the most important year for alcohol since Prohibition, a century ago. At a time when the food and beverage industries continue to reel from the impact of COVID-19, and small businesses are closing by the thousands, the alcohol sector appears to have narrowly sidestepped one of the largest tax increases in its history. But despite this victory, the industry faces many more months of treacherous waters as it continues to navigate the nation’s ongoing tariff wars. We all poke fun at how out of step Washington can be with the rest of the country, but this harmful cocktail of COVID-19 and tariffs puts that reality into vivid focus.
A narrowly-avoided reckoning for alcohol Thanks to the 2017 tax cut package, federal excise taxes on alcohol were reduced for the first time in decades — in some cases relief hadn’t been felt since the Civil War. And while the larger tax cut package pushed by the Trump Administration proved highly partisan, an overwhelming bipartisan majority of Congress supported the alcohol tax cuts. Despite how successful the alcohol tax breaks have been, the cuts were set to expire on the last day of 2020. That means that unless Congress acted craft alcohol producers would face the double hit of a COVID-19 winter and a tax increase. Fortunately, at the last minute, Congress included a permanent extension of this tax relief in the year-end COVID-19 relief legislation (albeit pending President Donald Trump’s potential veto threat, which as of this writing could still derail the bill in the coming days). This will help small producers avoid tax increases as high as 100% if the taxes had snapped back to pre-2017 levels, while also providing much-needed certainty to the industry in the years ahead.The trouble with Trump’s tariffsBut a year-end tax victory alone won’t be enough to save the industry. It is also important for the Biden administration to strategically unwind the never-ending series of tariff wars that the Trump administration has waged on imported goods from across the globe. Americans might not know it, but they’re paying more for boozy beverages in many places because the Trump tariffs have wreaked particular havoc on the drinks industry.
Almost nothing was left untouched over the past four years, from heightened tariffs on Canada, Mexico, and European Union (EU) aluminum imports — which raised the cost of beer cans and therefore beer itself — to an airline subsidy spat that resulted in the EU slapping tariffs on American distilled spirits exports. All these tariffs have caused substantial job losses for the drinks sector with no offsetting gains. While in pre-pandemic years, the alcohol sector was producing some of the most manufacturing job gains of any industry, it remains at risk of shedding some of the most jobs of any sector if the never-ending tariff battles continue unabated throughout the pandemic. So far, Biden has been cryptic about his views on tariffs. Although he’s announced that he will not immediately remove the Trump administration’s tariffs on China, there’s at least some optimism from global trading partners that he might deescalate the battles that have embroiled the alcohol industry. Biden will have to move quickly as other countries are already showing little hesitancy in continuing to enact retaliatory tariffs in the weeks following Biden’s electoral victory. The Distilled Spirits Council of the United States has reported that over 40% of sales and 30% of jobs at distilleries have evaporated as a result of the pandemic, and the beer industry has estimated that over 600,000 jobs related to the beer sector could be lost by the end of 2020. Sadly, the situation could get worse before it gets better as we head toward the long, cold winter months where outdoor dining and drinking becomes even more infeasible. All this to say, if Americans want to continue enjoying a wealth of boozy riches from the breweries, distilleries, and cideries that are popping up across cityscapes and countrysides, then the drinks world needs relief on multiple fronts. The Biden administration has one of the most significant opportunities in a century to lend a much-needed helping hand. But time is of the essence.
Jarrett Dieterle is a senior fellow at the R Street Institute and author of Give Me Liberty and Give Me a Drink!