The Trump administration has signalled that it plans to place tariffs on all alcohol imported into the United States.
US Commerce Secretary Howard Lutnick told Jesse Watters Primetime that the President’s goal was to dismantle the Internal Revenue Service (a similar government department to the Australian Tax Office) and utilise tariffs so the “whole economy explodes”.
How will the US economy continue thrive without the IRS? Through the new External Revenue Service, which will focus on raising revenue through tariffs.
Lutnick provided examples of industries that were in the line of fire: “Cruise ships — you ever see a cruise ship with an American flag on the back? They have flags of, like, Liberia or Panama. None of them pay taxes … Every supertanker, none pays taxes. Alcohol, all foreign alcohol, no taxes. This is going to end under Donald Trump.”
That’s bad news for sectors of the drinks industry that produce geographically specific spirits, such as Scotch Whisky and tequila, that can only legally be made in Scotland and Mexico respectively.
While Diageo revealed plans last week to open a $US415 million manufacturing and warehousing facility in Montgomery, Alabama later this year, it will be restricted to producing non-geographically indicated products.
The Scotch Whisky industry is already facing difficult headwinds, with China’s State Council Tariff Commission announcing last week that it was removing a 5% provisional tariff on brandy and whisky, meaning both spirits will now be subject to the 10% most-favoured-nation (MFN) tariff rate. As a result, the total tax burden on these spirits will rise from 48.31% + 0.912 RMB per litre to 55.38% + 0.912 RMB per litre.
The Scotch Whisky Association (SWA) this week released global export figures that show the value of Scotch exports stood at £5.4billion in 2024, a decrease of 3.7% on 2023 exports by value. The United States retained its long-held position as the largest export market by value, worth £971 million in 2024.
Scotch Whisky Association Chief Executive Mark Kent said: “Overseas, the tectonic plates of trade are shifting, and exports to traditionally strong markets in the EU and North America have become much more challenging.
“The United States remains a key market for Scotch, and where the industry contributes to the US economy through direct investment and jobs.”
The US President has previously expressed a desire bringing the US economy back to a “golden age,” prior to 1913 when federal income tax was first created. However, CNN Business reports this could be tricky.
“America raises about $3 trillion each year from income taxes,” CNN explained.
“The United States also happens to import around $3 trillion worth of goods annually. So that means tariffs would have to be at least 100% on all imported goods for tariffs to replace income taxes, said Torsten Slok, chief economist at Apollo Global Management, in a note to investors Thursday.
“But replacing all that tax revenue is not even as simple as doubling the price of everything that comes into America, Slok notes: If you remember your Econ 101 class, as prices rise, demand trails off. Just ask Walmart, which said Thursday morning it expects sales growth to slow this year because of Americans’ concerns about high prices and tariffs.
“So the government would have to find the right fulcrum point to balance its revenue needs with consumer demand. That could mean much higher prices.”
Diageo announces US expansion plans