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

7 Conclusion

Results

Comparing our constructed weighted average ('synthetic control') with observed single malt exports to the US shows clear evidence of decreases in both value and quantity of quarterly single malt exports to the US due to the introduction of the tariff.

It is clear from the results in Sections 6.1 and 6.4 that the estimated impact on export quantity is more 'defined' than the impact on export value. The analysis suggests a reduction of between 19.6% and 9.5% on export quantity, totalling between 5.1 and 2.5 million litres of single malt (assuming 40% ABV). This is in contrast to the estimated reduction in export value – given by the range -100.0% to -4.7%, a total decrease of between £506.3m to £23.7m.^[50]

This wider range for tariff impacts on export value could be due to the fact that we are using total (quarterly) export value. This could mask changes in the per-unit price as well as changes in export mixes – e.g. a change in varieties exported due to importers switching to cheaper varieties of single malt. Estimated tariff impacts on the (average) export price are also non-informative, with the 90% confidence interval covering both negative and positive values.

While the quarterly specification is showcased above, it is useful to highlight the results of the monthly specification shown in Section 6.1.2. The monthly specification did not find a strictly negative impact on export value, quantity, or price – indicating an inconclusive average monthly impact on exports (i.e. either negative, positive, or zero).

This difference in results could be due to a variety of factors – for example, a change in seasonality because of Covid-19 which is reflected in monthly trade but less so in quarterly trade (i.e. did US importers delay or hasten their usual orders because of stock effects or due to hospitality restrictions being introduced in the US). It could also simply reflect the more volatile nature of monthly trade, or the fact that different lagged dependent variables were used (last quarter vs. last month).

It is important to note that the method used here is fairly novel, and that these are only provisional estimates of the tariff impact. Other methods are likely to provide slightly different answers, and even the synthetic control method as we used it can be augmented and changed – see Section 2.1.3 for some possible ways the method can be extended.^[51]

Sector Intelligence

It should be highlighted that the tariff on single malt was far from the only factor impacting on Scotch whisky exports from the UK, and that the drink and hospitality industries overall have faced a tumultuous period since October 2019 (whether that is because of tariffs, Covid-19, EU Exit, or other factors).

Crucially, total export value and quantity is not the sole indicator of the whisky sector's success. Anecdotal evidence suggests that some exporters may have absorbed (some of) the costs associated with the tariff, resulting in lower profit margins or even losses^[52]. Others may have chosen to export lower cost varieties of (single malt) Scotch whisky, potentially resulting in less revenue. Exporters of other varieties of Scotch whisky may have also seen negative impacts following the tariff introduction. In addition to this, there are likely to be longer-term impacts like a loss of market share to other spirit varieties. Similar industry effects were seen in the US whiskey sector following the tariffs imposed by the UK/EU in June 2018.^[53]

All of these impacts are not explored here, meaning the 'true' impact of the tariff on the Scottish whisky sector is underestimated in this analysis (instead, we focus on impacts on exports). The increased demand for whisky in the US, shown in Section 1.4.2, highlights this further. While Scotch whisky producers and exporters were dealing with impacts of the tariff in a variety of ways, total sales of whisky in the US actually increased – meaning some other varieties of whisk(e)y saw more success.

Tariff Suspension

The USTR suspended the tariffs on single malt for four months as of 4 March 2021, with a further five-year suspension announced on 17 June 2021.^[54] This analysis could serve as a starting point in estimating the full impact of the tariff throughout its enforcement. The same methods could also potentially be used in estimating impacts of the introduction of other tariffs as well (or indeed the removal of tariffs).

Further Discussion

This analysis serves as a discussion paper – it is meant to showcase analytical techniques and provide a starting point for discussions. We welcome any queries regarding the methodology or results presented in this paper. These can be directed to agric.stats@gov.scot.