After Months of Tension, How is China’s Alcohol Market Faring in the Trade War against the U.S.?

Trade War

Months after China accused the United States of instigating a trade war, the two economic superpowers are still locked in a standoff that shows no sign of abating. Recently, China announced an additional levy on over US$60 million worth of U.S. goods. More than 5,000 American exports will be affected, including alcoholic drinks, furniture and auto parts.

New tariffs mean an increase in the price of alcoholic beverages as U.S. producers scramble to avoid major loss of income. The Chinese consumers are already feeling the impact of the price hikes on imported beer, wine and spirits. The U.S. whisky exports took the hardest hit. The country is one of the biggest sources of spirits to China, with over US$8.9 million worth of whisky shipped in 2017.

Surprising Development in China’s Tariff-Threatened Alcohol Market

While many are expecting the debilitating effect of the trade war on China’s alcohol market, reports paint a different scenario. Wine imports rose in the first half of the year, while sales of foreign beers and spirits increased.

Wine Imports Up by 14%

In August, China threatened to impose an additional 25 percent tariff on U.S. wine exports. Bulk imports also faced an additional 10 percent duty. Orders were either put on hold or canceled altogether, as the two parties could not who decide would pay the levy.

Seemingly undeterred by the looming tariffs, wine shipments to China rose by 14% in value, totaling US$38.4 million. Vintners are confident that as long as the Chinese consumers’ appreciation for high-quality wines endures, demand for their products will continue to rise.

Beer Sales at US$84 million

Even though the price of beer in China increased by 8%, sales were more than stable at US$84 million in the first half of 2018. A large part of the growth is said to be the Chinese’s increased interest in imported beverages. For instance, Budweiser and Harbin beers were favorites during the World Cup season.

Carlsberg reported that its sales grew by 17% due to the growing demand for its premium brands. Foreign craft beers are also becoming popular in the market. AB InBev has invested heavily on its Goose Island craft beer. Meanwhile, California-based Stone Brewing Co., maker of Stone IPA, opened a tap room for the increasing number of followers of its own craft beer brand.

Surging Demand for Imported Spirits

In April, dealers of American spirits reported that China’s customs already imposed a 5% tariff on their imports. This did not affect sales, though, as demand continues to surge. Whisky sales rose, with single-malt seeing the fastest growth. With sales expected to balloon to US$2.8 billion by 2022, producers remain optimistic despite the threat of additional tariffs.

Meanwhile, Pernod Ricard reported in August a 6% sales increase for its whisky, brandy and vodka products. The alcohol giant also forecasted a profit growth of 7% in 2019 amidst the continuing unrest due to the trade war. Foreign spirits companies are also looking forward to the boost in sales during Chinese’s Mid-Autumn Festival in September.

Conclusion

While the trade war remains to be a huge threat to the foreign alcohol market in China, increasing demand for quality booze keeps companies optimistic about the future. As recent statistics on imports and sales indicate, the Chinese’s thirst for imported alcohol will not be waning soon.

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