Meet the New Boss

donald_trumpRegardless of how you may feel about the results of our recent presidential election, I think most of us agree that the peaceful transition of power from one administration to another is a pretty slick accomplishment.   Not every country manages to pull this off.

And with this transition of power comes, naturally enough, a new administration with the potential for new policies and priorities.  So what should we expect from a Trump administration in the context of spirits?  In fairness, issues directly affecting spirits weren’t front and center for this campaign.  But if we extrapolate from the campaign rhetoric a bit, I think we may be able to learn a few things.

A staple of the Republican Party platform has long been tax reform – and the Trump campaign did not stray from the playbook.  If Trump is serious about reducing tax (and it appears that he is) then we can expect some efforts to address both individual and corporate rates.  And maybe, just maybe, this may offer an opportunity to also address the bane of small spirits producers throughout the US – the federal excise tax on spirits.

Given the “Make America Great Again” slogan and the suggestion that the Trump administration will make the promotion of American manufacturing a priority, the spirits community may have a unique opportunity to push for passage of the Craft Beverage Modernization and Tax Reform Act.  Passage of the Act would, among other things, dramatically reduce the federal excise tax obligations of spirits producers – potentially enabling many to expand production and hire additional employees.  For the smallest distillers, it might just mean survival.  This would obviously be a tremendous benefit, and while it wouldn’t make the industry great “again” (it already is great) – it would make it a whole lot greater.

For a second potential impact of the Trump administration on spirits we need to think about trade.  Throughout the campaign, Trump railed against aspects of US trade policy that he believed were disadvantageous to American interests and indicated that his administration would seek renegotiate those deals.  NAFTA is a prime example.

The US exports a lot of hooch.  In fact, according to DISCUS the US exported almost $1.6 Billion in distilled spirits in 2014, a number which has no doubt grown in the interim. That is great for our industry and worldwide demand for US spirits has fostered tremendous growth, but the US is still a net importer of spirits – importing far more than it exports.

It is possible that to the extent Trump tries to address trade issues involving beverages it will focus on enforcement of existing agreements – such as the elimination of protectionist practices involving wine on grocery shelves in British Columbia.  But he may seek to go farther and actually restructure our existing agreements with trading partners.  Is it reasonable to believe that the result of that renegotiation would be even more favorable to US spirits producers than the current arrangements?

I think the answer is “no” – or at least “probably not.”  Just as it takes two to tango, it takes at least two parties to negotiate a trading relationship.  And if we are going to try to extract concessions from other nations, we can expect that they will seek something in exchange.  What might that be?  Well, in the spirits context we could see a push for reduced duties, the relaxing of import regulations or any number of other items. Making it easier for foreign spirits producers to sell into the US will not increase consumer demand.  But we can expect that those foreign brands may be able to capture a bigger share of the US consumer market as a result.  On balance, would we prefer easier access to foreign markets if it came at the cost of reduced domestic market share?

As a final item, consider labor.  Most of the spirits producers in the United States are small independently run businesses.  But the majority of the spirit actually produced in the US – measures by volume – is made in large distilleries.  And many, perhaps most, of those distilleries are Union shops.  Recently, the spirits world witnessed a relatively infrequent sight: a workers strike at a distillery.  That strike was made possible because of legal protections afforded to workers under the National Labor Relations Act.

It seems safe to say that neither our President Elect not his party are fans of organized labor.  To the extent that the next administration seeks to increase American economic competitiveness, those efforts may involve seeking to further weaken the influence of labor unions or reform laws concerning collective bargaining.  These actions could have significant consequences on the morale of workers, which may in turn impact the quality of US-made spirits.  To the extent that we sacrifice the quality of those spirits on the altar of economic competitiveness, we will suffer as a result.

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