Sen. Mark Warner (D-VA) on Friday held a round table discussion at Lost Rhino Brewing Company with craft brewers and distillers and the industry groups that represent them as the craft beverage business faces tariffs and taxes threatening their businesses.
Friday morning, news broke that a deal had been brokered to lift President Donald J. Trump’s tariffs on steel and aluminum from some of the U.S.’s closest trading partner like Canada, Mexico and European Union, levied under a section of law relating to national security. But craft beverage makers had already felt the impact of higher prices. Beltway Brewing Company founder and president Sten Sellier said talk of tariffs causes uncertainty—which causes fluctuations in market prices, making it hard for his business to predict what they need to do.
“Even if a lot of manufacturing is being done in the U.S., some of the raw materials are coming from outside the U.S.,” Sellier said. “Even if the tariffs aren’t in place or they’re adjusted, just talking about it is making the market go crazy.”
Matt Hagerman, founder and CEO of Lost Rhino, said as soon as one of Trump’s tweets went out about tariffs, he got a memo from the supplier of his aluminum cans that prices would increase 10 percent immediately. They have gone up again since in the face of that uncertainty. And while those costs can threaten his business, he said at the end of the day, “we all know in a trade war that ultimately the consumer’s going to lose. They’re the ones that are ultimately going to be paying the price.”
“Eventually, we will have to begin passing those down, and like I said—the consumer is the one that ultimately will end up making the call at the end of the day whether they’re going to buy our products, or they’re going to move on,” Hagerman said.
“Running a small business and trying to budget it and feed the people that are working for you, uncertainty goes counter to all that,” said David Cuttino from Reservoir Distillery in Richmond. “We need certainty.”
“Virginia can be the next Kentucky or Tennessee as it relates to distilled spirits,” said Amy Ciarametaro, executive director of the Virginia Distillers Association. “However, our constituency does face an enormous amount of unique pressures.”
Other tariffs on products from the European Union—and retaliatory tariffs in the E.U. on American products sold into Europe—have particularly affected distillers, such as Purcellville’s Catoctin Creek Distilling Company and Middleburg’s Mt. Defiance Cidery & Distillery.
Catoctin Creek founder, president and chief distiller Becky Harris said her company has spent about $100,000 on entering the international market, and in 2017 the E.U. accounted for 11 percent of sales. In 2018, she hoped to see a quarter of her sales go to the E.U.
“Instead, the tariffs took effect,” Harris said. “The average price of a bottle, if you are a consumer in the E.U., went from roughly 50 euros to 65, and that price increase coupled with the difficulty on our part in being able absorb that. We can’t afford to absorb that.”
In 2018, she said, instead of 25 percent of sales going to the E.U., Europe only accounted for 1 percent of sales.
Mark Chretien, managing partner of Mt. Defiance, said at five years old, the company was ready to start selling internationally.
“We were finally going to be able to try to export in Germany and in Europe, where American whiskies enjoy a certain caché,” Chretien said. “Well, we can’t with the tariff on it.”
He said his company uses bottles for Germany for its ciders—bottles that now face a six percent tariff coming into the U.S.
“We’re locked in on our prices,” Chretien, a military veteran, said. “I just ate 6 percent. But it’s more than that. It’s for an arbitrary, capricious reason. If you’d said we have to suck in our guts and be good Americans and there’s a reason for it, that would be one thing, but I just don’t see that.”
All of those businesses are also facing the possibility of an end to a federal tax on sales of alcohol. That would further jack up prices and cut into small business budgets. And Warner said he learned something from the distillers in the room on that topic.
“I thought the benefit was disproportionate only to the large distillers,” Warner said after the meeting. In fact, the excise tax exemption only applies to the first 100,000 gallons sold—a threshold most small distilleries will not cross, but one easily exceeded by major corporate distillers. The Tax Cuts and Jobs Act of 2017 cut the alcohol tax on beer from $7 to $3.50 per barrel for the first 60,000 barrels. It cut the rate on liquor from $13.50 to $2.70 per gallon for the first 100,000 gallons.
That two-year reduction on the alcohol tax will expire at the end of 2019.
“The immediacy of this shock to their system combined with the tariffs makes their case very compelling,” Warner said.
Warner agreed that while something must be done on trade—particularly around China and theft of intellectual property—“there has not been a coherent plan at all.”
“There’s no national plan here,” Warner said. “It’s kind of—I would argue, not unbiased—this is ego-driven by Mr. Trump, and doesn’t have a lot of rationale.”
Warner would not commit that day to co-sponsoring a bill on the excise tax, but has already introduced a bill to give restore Congress’s authority over national security tariffs. He also serves on the Senate’s budget and finance committees.