Washington D.C. — The US tariff landscape for French Cognac is a volatile mix of existing duties and significant threats, creating profound market uncertainty.
The distinguished amber liquid, Cognac, a symbol of French heritage and meticulous craftsmanship, finds itself navigating increasingly turbulent waters in its most vital export market: the United States. As of late June 2025, the industry faces not only standard import duties but also the specter of escalating tariffs stemming from a complex web of transatlantic trade disputes. This environment of persistent tariff uncertainty is forcing producers, importers, and distributors to recalibrate strategies, with potential ripple effects extending far beyond the spirits sector to impact American consumers and the broader economy.
The Current Tariff Tapestry: A Shifting Baseline
At its core, the import of French Cognac into the United States is governed by the Harmonized Tariff Schedule of the United States (HTS), a detailed classification system maintained by the U.S. International Trade Commission (USITC) and enforced by U.S. Customs and Border Protection (CBP). Cognac, falling under the HTS Chapter 22 for “Beverages, Spirits, and Vinegar,” is typically classified as “Spirits Obtained By Distilling Grape Wine Or Grape Marc (grape Brandy)”. For specific Cognac products, such as Martell Blue Swift, the HTS code 2208.20.4000 applies, which covers spirits valued over $3.43 per liter in containers holding not over 4 liters.
Under this classification, the standard general rate of customs duty for Cognac is “free”. However, this “free” designation is often misunderstood. It refers exclusively to
customs duties and does not exempt importers from significant US federal internal revenue taxes on distilled spirits, which can amount to $13.50 per proof gallon. This distinction is crucial for understanding the true cost of importing Cognac, as these excise taxes represent a substantial, fixed cost per unit, regardless of any additional tariffs.
Layered on top of these baseline duties are more recent, broader tariff measures. On April 2, 2025, a global tariff of 10% was announced, with a higher rate of 20% specifically for the European Union. While initially described as a “blanket 10% duty” on all European goods , this measure was subsequently postponed for 90 days on April 9, 2025. As of June 27, 2025, the EU is subject to a reciprocal tariff of 20% on all products (with certain exceptions), which has been delayed until July 9, 2025. During this temporary suspension period, until July 9, 2025, imports from these trading partners are subject to the 10% baseline reciprocal tariff rate.
This constant flux—initial announcements, swift postponements, and new deadlines—creates an environment of profound fluidity and uncertainty for businesses. Such unpredictability hinders long-term strategic planning, forcing importers and distributors to react to daily changes and contributing to heightened anxiety within the market. This volatility itself imposes a “risk premium” on supply chain management, as companies cannot reliably forecast their landed costs, deterring new investments and disrupting established trade relationships.
The Looming Threats: A Cascade of Potential Tariffs
Beyond the currently delayed reciprocal tariffs, the Cognac industry faces the chilling prospect of significantly higher duties, intricately linked to broader US-EU trade disputes. These proposed and threatened tariffs represent a Sword of Damocles hanging over the industry.
President Trump’s recent tariff proposals suggest duties could climb as high as 25% on imported alcoholic beverages. A senior Cognac industry official has warned that such tariffs would effectively “price out” French brandy from the US market, rendering sales “impossible” given that the US accounts for nearly half of global sales. Furthermore, President Trump has threatened a 50% levy on imports from the European Union. While initially announced in early April and then scaled back to 10%, the 50% threat was subsequently delayed until July 9, 2025.
The most severe threat involves a potential 200% tariff on spirits and wine originating from the EU. Although this specific threat has not yet been implemented , it remains a significant concern, with expectations that such a high tariff would lead to a “dramatic decline” in EU alcoholic beverages sold in the US. The repeated articulation of these extremely high threatened tariffs (50%, 200%), even if not immediately imposed, creates an environment of profound uncertainty and risk for businesses. Companies are compelled to factor in the
possibility of these tariffs, which can severely disrupt long-term contracts, investment decisions, and supply chain commitments. This persistent threat functions as a de facto non-tariff barrier, discouraging imports and prompting buyers to seek alternatives from domestic producers or non-EU countries, even before the tariffs are formally enacted.
The Geopolitical Chessboard: Triggers for Tariff Threats
The potential for tariffs on Cognac is deeply interwoven with broader, often seemingly unrelated, trade disputes between the United States and the European Union. This highlights the complex, multi-sectoral nature of modern trade relations, where a dispute in one area can trigger punitive measures in another.
US-EU Steel and Aluminum Dispute: The United States previously imposed tariffs on steel and aluminum imports from the EU. In response, the EU retaliated with its own tariffs on certain American spirits, notably a 25% tariff on American whiskey in 2018, which was later suspended. The EU has also considered a broader list of US imports for potential countermeasures, including Bourbon, wine, gin, vodka, liqueurs, and cordials. This situation exemplifies a clear tit-for-tat dynamic, where tariffs imposed on industrial goods by one side trigger retaliatory tariffs on agricultural and spirits products by the other. This demonstrates that trade disputes and their resulting tariffs are not confined to the sector in which they originate. Consequently, the fate of Cognac tariffs is directly intertwined with developments in entirely different industries, such as steel and aluminum. A resolution or escalation in the steel dispute could, therefore, directly impact the likelihood and severity of tariffs on Cognac.
Airbus-Boeing Aircraft Subsidy Dispute: This dispute represents a long-standing and contentious issue at the World Trade Organization (WTO), spanning 17 years, concerning alleged illegal government subsidies provided to aircraft manufacturers. The US imposed countermeasures on approximately $7.5 billion of EU exports in late 2019, to which the EU responded with countervailing measures on up to $4 billion worth of US aircraft and agricultural products. While not explicitly linked to Cognac in all provided information, this dispute has historically led to cross-sectoral tariffs on various goods, including some luxury items. The fact that “single-origin beverage alcohol categories that rely on legally protected designations of origin” are at risk suggests that Cognac, with its protected designation, could be affected. The continued existence of this nearly two-decade-old dispute means it remains a potential trigger for new or renewed tariffs on a wide range of EU goods, including spirits. This highlights that even seemingly dormant trade disputes can be reactivated as powerful leverage points in broader trade negotiations, adding another layer of unpredictability for industries like Cognac, which can find themselves caught in the crossfire of unrelated, high-stakes international disagreements.
US Section 301 Investigations into Digital Services Taxes (DSTs): France, along with other EU countries, has implemented Digital Services Taxes (DSTs) that levy taxes on revenues derived from digital interface services, targeted advertising, and user data sales. These taxes primarily impact large US technology companies such as Google, Amazon, Facebook, and Apple. The US views these DSTs as discriminatory and initiated Section 301 investigations under the Trade Act of 1974. These investigations previously led to threatened retaliatory tariffs on specific French goods, including make-up, soaps, and handbags, in 2020. These tariffs were later suspended pending multilateral negotiations. However, on February 21, 2025, President Trump directed the USTR to
renew these Section 301 investigations into DSTs imposed by France and other countries, indicating a readiness to take “all appropriate and feasible action”. The renewal of these investigations demonstrates the US administration’s continued willingness to use tariffs as a tool to address perceived unfairness in the digital economy. While past retaliatory tariffs targeted luxury goods like handbags , the principle of cross-sectoral retaliation means that spirits could also be targeted in the future if negotiations fail. This signifies an evolving front in trade policy, where traditional goods tariffs are deployed to influence policy in the digital realm, expanding the scope of potential tariff triggers beyond traditional manufacturing or agricultural disputes.
Economic Fallout: A Ripple Effect Across the Atlantic
The imposition and continued threat of tariffs carry profound economic consequences for French Cognac producers and the broader US market, creating a “double whammy” effect.
Impact on Cognac Sales and Pricing: Tariffs are typically ad valorem, meaning they are a percentage applied to the import price of the goods. This directly translates to higher consumer prices. For instance, a 20% tariff on a $15 bottle of VS (Very Special) Cognac could result in an increase of over $8 for the consumer, once importer, distributor, and retailer margins are applied. This effect is particularly impactful because the majority of Cognac volumes sold in the US consist of VS and VSOP (Very Superior Old Pale) qualities, which are more sensitive to duty increases than the less price-elastic luxury segment. This means that tariffs disproportionately threaten the accessibility and market share of entry-level and mid-range Cognacs, which are crucial drivers of overall sales volume. While high-end Cognacs might retain their niche due to lower price elasticity, the industry’s overall revenue and growth prospects, heavily reliant on volume, are significantly jeopardized. The impact on sales volumes is already evident. Cognac shipments to China, another key market, dropped by 23.8% in 2024, with a more drastic decline of 72% observed in February 2025, directly attributable to tariffs. Although US-specific data on current tariff impacts is less stark, the French wine and spirits exporters group (FEVS) anticipates a sales decline of at least 20% in the US market.
Challenges in Stock Management and Production: The Cognac industry faces additional challenges stemming from past strategic missteps in production. Producers “made mistakes in the past few years to overplant vineyards, predicting that the sales would keep growing forever”. The current crisis, significantly exacerbated by the imposition of tariffs in key markets, has accelerated the urgent need to regulate stock levels to align with actual sales. This process is expected to take “several years” to achieve equilibrium. This reveals a more complex problem than just tariffs alone. The tariffs are hitting an industry that was already structurally vulnerable due to misjudged demand forecasts and overproduction. This “double whammy” creates a prolonged period of adjustment and financial strain, as producers must grapple with both external trade barriers and internal supply-demand imbalances.
Industry Responses and EU Support: In response to these pressures, Cognac producers are exploring various mitigation strategies. Discussions are underway with importers to “split the costs of the tariffs to minimise the increase in shelf prices and possibly use marketing budget to compensate for it”. However, these measures are viewed as merely “short-term solutions”. More strategically, the European Commission approved a substantial €5 billion (US$5.5 billion) scheme, active from May 8 to July 8, 2025, designed to assist French wine and spirits producers in exporting inventory to the US
before new waves of tariffs take effect. This scheme utilizes a re-insurance mechanism to provide short-term guarantees against commercial and political risks. With both the US and China, its two primary markets, impacted simultaneously, the industry is compelled to fundamentally rethink its market investment priorities and actively seek growth opportunities in other countries. These proactive mitigation efforts and strategic reorientation, while necessary, come with significant costs, including potential short-term price reductions in other markets (a form of dumping) and the long-term, often slow and expensive, challenge of building new market access.
Broader Economic Effects on the US Market: The economic repercussions of these trade disputes extend beyond the Cognac industry, affecting the broader US market. Retaliatory tariffs from the EU, such as those previously imposed on American whiskey, have inflicted “lasting damage to US distillers’ export markets”. Smaller US craft distillers are particularly vulnerable to losing their hard-won export markets due to potential retaliatory measures.
Furthermore, the overall increase in the US average effective tariff rate, now at a historical high, contributes to increased prices for consumers across a wide array of goods, not just imports. The Budget Lab (TBL) estimated that as of June 16, 2025, consumers face an overall average effective tariff rate of 15.8%, marking the highest such rate since 1936. This translates to an estimated average per household income loss of $2,000 in 2025. The short-run increase in consumer prices resulting from all 2025 tariffs is estimated at 1.5%. This data illustrates that tariffs are not merely affecting specific imported goods like Cognac, but are contributing to a measurable increase in the overall price level for US consumers, indicating a systemic economic impact. This means that even if Cognac were to avoid higher tariffs directly, the general increase in consumer prices for other essential goods, such as clothing, food, and motor vehicles , will inevitably reduce disposable income. This reduction in purchasing power across the economy could dampen overall demand for luxury items like Cognac, irrespective of its specific tariff rate. Economic experts caution that prolonged trade disputes could slow global growth and elevate the risk of a recession. Should a recession occur, the resulting reduction in disposable income would likely contribute to a decline in per capita alcohol consumption. This demonstrates the “no winners” paradox of trade wars. Despite stated goals of protecting domestic industries or gaining leverage, the evidence consistently shows that “everyone loses in these fights” and “there are no winners from a trade war”. The economic costs extend far beyond the specific imported goods, creating a negative feedback loop that impacts domestic industries, consumers, and overall economic growth on both sides of the trade dispute. The political objectives of tariffs often come at a significant, broad-based economic price.
Outlook and Recommendations: Navigating the Unpredictable
The current trade environment remains “sketchy and uncertain, and changing almost daily” , making definitive predictions regarding future tariffs highly speculative. The “erratic decision-making in Washington” and the inherently political nature of these tariffs mean that policy can shift rapidly, often with minimal warning. This politicization of trade policy introduces a systemic risk for all industries engaged in transatlantic trade. Businesses cannot rely on established trade frameworks or long-term agreements; instead, they must constantly monitor political rhetoric and be prepared for rapid policy shifts, which fundamentally alters the risk profile of international commerce.
The upcoming July 9, 2025, deadline for the delayed 20% reciprocal tariff and the 50% threatened levy represents a critical near-term inflection point. Furthermore, the threat of a 200% tariff on EU spirits and wine continues to loom , adding another layer of significant concern for the Cognac industry.
Given the fluid and unpredictable nature of the tariff landscape, stakeholders in the Cognac industry and related sectors must adopt proactive and adaptive strategies:
- Continuous Monitoring of Trade Policy: Real-time vigilance on announcements from key official sources, including the USITC and USTR, is paramount, especially around critical dates such as July 9, 2025. This ongoing monitoring is essential for timely responses to policy shifts.
- Scenario Planning: Developing comprehensive contingency plans for various tariff scenarios (e.g., 20%, 50%, or even 200% tariffs) is crucial. These plans should assess the potential impact on pricing, profitability, and market share, and include strategies for absorbing costs, adjusting consumer pricing, or reallocating marketing budgets.
- Diversification of Supply Chains and Markets: While challenging for a geographically designated product like Cognac, exploring and strengthening distribution channels in other non-tariff-impacted markets is vital for building long-term resilience. This strategic reorientation, though costly and time-consuming, is essential for reducing over-reliance on volatile key markets.
- Advocacy and Industry Collaboration: Supporting industry associations, such as the Distilled Spirits Council of the US (Discus), in their advocacy for “zero-zero tariffs” and the de-escalation of trade disputes is important. Collective action and a unified industry voice can play a significant role in influencing policy outcomes and fostering a more stable trade environment.
- Focus on Value Proposition: For high-end Cognacs, emphasizing brand value, heritage, and the luxury experience can help mitigate consumer price sensitivity. For volume-driven segments (VS and VSOP), exploring and implementing cost efficiencies throughout the supply chain becomes even more critical to maintain competitiveness in the face of increased duties.
The current tariff crisis is compelling a fundamental re-evaluation of business models within the Cognac industry. Companies that can cultivate greater agility in their supply chains, successfully diversify their market presence, and effectively manage the inherent political risks of international trade will be better positioned to navigate the ongoing and future trade volatility.
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