Estimating the impacts of US tariffs on UK exports of single malt Scotch whisky

Summary

• In October 2019, the US government imposed a 25% tariff on single malt Scotch whisky imports from the UK. Impacts of this tariff will not only have been felt by US importers, but UK exporters as well.
• These tariffs are especially of interest since the United States is the largest overseas export destination for Scotch whisky. Single malt Scotch whisky exports to the US were valued at £344 million in 2018, accounting for 26% of total overseas single malt exports, and 21% of total drink exports to the US.
• This analysis aims to (a) provide a best-effort estimate of tariff impacts on exports while accounting for effects of Covid-19, (b) elicit discussion on the novel methods used, and (c) serve as a proof-of-concept for future analyses of trade deals and/or tariffs.
• The results suggest that the quantity of single malt exports declined by between 9.5% (1.0 million litres of pure alcohol, or LPA) and 19.6% (2.0 million LPA) between Q4 2019 and Q4 2020 as a result of the tariff. Impacts on export value were similarly negative but less precise, with an estimated impact between -100.0% (£506 million) and -4.7% (£24 million). Estimating the impact on average export price was also explored but this led to inconclusive results.
• The analysis itself uses the 'synthetic control' method to create a counterfactual – a hypothetical time series of single malt exports to the US in which a tariff was never introduced. It does this by creating a weighted average of single malt exports to other destinations. This collection of other destinations is referred to as the 'donor pool' and contains 28 OECD nations which had no change in tariff (and available data).
• It is important to highlight that the results presented above were sensitive to the frequency chosen (e.g. using monthly exports instead of quarterly exports), and also sensitive to the countries included in the donor pool. The method is fairly novel, with limited current use within trade economics. This analysis is therefore being published to generate discussion of the approach used.
• Not all potential effects of the tariff are taken into account in this analysis – only the impacts on exports. Other potential negative impacts on the sector include reductions in profitability and/or market share.

Any questions or comments can be sent to agric.stats@gov.scot. The team are especially interested in queries regarding the methods used.