The sudden imposition of a 20% tariff by former U.S. President Donald Trump on European imports sent shockwaves through France’s centuries-old cognac industry. An industry that has thrived through wars and economic upheavals now finds itself teetering under the weight of a trade war. For an export-heavy product like cognac, the tariffs aren’t just a financial blow — they represent an existential threat.

Even more alarming is the looming specter of a potential 200% tariff hike. This threat casts a long shadow over the industry, intensifying uncertainty and crippling long-term planning. The anxiety is no longer about competing in the market — it’s about surviving within it.

The United States has long been the golden goose for French cognac, consuming one out of every two bottles sold globally. This overwhelming dependence on a single market, once seen as a triumph of brand positioning and cultural resonance, has turned into a glaring vulnerability.

With tariffs now blocking that pipeline, the entire business model is under strain. What was once an advantageous focus is now a structural flaw, exposing how geopolitical decisions in Washington can send tremors through rural France.

Chinese Retaliation Adds to the Pain

The damage isn’t confined to the Atlantic. China, reacting to European tariffs on electric vehicles, responded by targeting French cognac. This tit-for-tat escalation has already slashed sales to China — cognac’s second-largest market by volume — by more than half.

The impact of facing simultaneous economic fire from two global superpowers is immense. It’s not just volumes that are shrinking — it’s profit margins, brand equity, and global competitiveness.

In scenes reminiscent of agricultural collapse, growers have begun uprooting decades-old vines. These aren’t routine crop rotations — they’re deliberate reductions in capacity to address oversupply. The decision to tear out valuable vineyards represents a deep pessimism about the future of the industry.

What’s most telling is the scale and permanence of these cuts. These aren’t stopgap measures for a tough season. They reflect a grim forecast, where demand is expected to remain suppressed for years to come.

Boom to Bust After COVID Overexpansion

During the COVID-19 pandemic, demand for luxury spirits surged, prompting producers to expand aggressively. More land was acquired, production scaled up, and investments poured in. But the boom proved short-lived.

Now, with demand retracting, thousands of growers are left grappling with heavy debts and idle production. The industry expanded for a world that no longer exists, and the gap between investment and return is swallowing producers whole.

Even beyond tariffs, the global slowdown in luxury spending is eating away at cognac’s base. Premium buyers, who once fueled high-margin sales, are tightening their wallets in response to economic uncertainty.

This compounds the export pain. It’s not just trade barriers anymore — it’s a broader contraction of the target consumer base. The luxury identity of cognac, once its greatest asset, is now a liability in a cautious market.

U.S. Bond with Cognac Begins to Fray

Cognac’s connection with the American market goes beyond economics — it has deep cultural roots. The drink has enjoyed a special status among Black American communities and featured prominently in music, fashion, and sports.

But even that bond is weakening. As price hikes hit, American consumers have started shifting to other spirits like tequila and whiskey. The emotional connection is no longer enough to justify the cost, especially for mid-range buyers.

Producers are eyeing new territories like Thailand, Vietnam, and Nigeria in a desperate bid to diversify. But breaking into new markets takes time, cultural understanding, and marketing muscle — all of which are in short supply during a financial crisis.

These new frontiers may one day offer relief, but for now, they represent risk, not reward. Distributors and growers are entering unfamiliar waters without a safety net.

The economic damage goes far beyond the vineyards. Roughly 70,000 jobs in the region depend directly or indirectly on the cognac industry — from barrel-makers and packaging firms to distilleries and transporters.

As demand crashes, orders to suppliers are being canceled overnight. Factories are scaling back production. Temporary contracts are not being renewed. The economic ripple effect is pulling down entire communities.

Contract Cuts by Major Houses Cause Panic

Major cognac houses like Hennessy and Remy Martin have begun slashing their supplier contracts, cutting off smaller growers from their lifeline. For many families, this translates to a sudden 40% drop in projected revenues.

These decisions aren’t just numbers on spreadsheets — they’re breaking the backs of multi-generational farms. With no alternative buyers and mounting costs, the future for these producers is increasingly bleak.

Even if producers wanted to offset tariff costs by raising prices, American consumers aren’t biting. In the U.S. market, even a $1 or $2 increase can result in a dramatic drop in sales, especially for mid-tier brands.

Caught between soaring costs and falling volumes, cognac producers are facing a painful squeeze. They can’t absorb the tariffs, but neither can they pass them on. The result: evaporating margins.

While local officials and industry leaders raise alarms, national support remains conspicuously absent. There is no robust safety net or structural recovery plan to cushion the blow.

Banks have been asked to offer leniency, but loan relief alone cannot reverse systemic decline. Without coordinated intervention, the industry is left to weather this storm alone — and many won’t survive it.

Multi-Generational Businesses at Breaking Point

The emotional toll of this economic collapse is as severe as the financial one. Families that have nurtured cognac estates for generations are now watching their legacy unravel. For some, this is likely to be the final chapter.

With younger generations unwilling or unable to take over the burden, family-run vineyards are disappearing. It’s not just a business crisis — it’s a cultural and historical loss.

Cognac has always prided itself on being a global export. With 97% of production shipped overseas, it was once the poster child for French excellence abroad. Today, that very strength is proving to be a fatal weakness.

When global trade fractures, industries built on exports crumble quickly. Cognac’s proud internationalism is now its Achilles’ heel, laying bare the risks of over-reliance on volatile foreign markets.

Just two years ago, producers were buying land and expanding vineyards in a euphoric wave of optimism. Today, the mood has flipped entirely. The industry has reduced production for three consecutive years.

This isn’t a temporary slump — it’s a systemic reset. What once looked like a golden era has swiftly transformed into a prolonged crisis, one that may redefine the future of cognac altogether.

(Adapted from Reuters.com)