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The owner of Guinness and Johnnie Walker has warned it faces a £110m-a-year hit from Donald Trump’s tariffs despite Britain striking a trade deal with the US.
Diageo, which also makes Smirnoff Vodka, said on Monday that 10pc tariffs levied on UK and European exports to the US would have an “unmitigated impact” of about $150m (£113m) on its profits.
It comes despite the signing of a trade deal with the US earlier in May, which was hailed by Sir Keir Starmer as a boost for British business that would protect companies from the worst of Mr Trump’s trade war.
Under the terms of the deal, tariffs on steel and aluminium were slashed to zero, but a 10pc levy remains on other goods – including the drinks made by Diageo.
Speaking in the wake of the trade deal, the Scotch Whisky Association (SWA) said it was “disappointed” that UK spirits such as scotch would still face levies.
Diageo claimed it would be able to mitigate “around half” of the $150m hit to its operating profits, and said it would be looking at potential ways to bring it down further.
It follows warnings from the company earlier this year that it would have to raise some prices because of Mr Trump’s trade war.
Diageo is particularly vulnerable to the effects of fluctuating tariffs because it produces its drinks in many countries including Scotland; Mexico, where it makes tequila; and Canada, where it makes Crown Royal whisky.
In February, before Mr Trump kicked off his trade war, the company said it was anticipating a hit of up to $200m because of planned 25pc tariffs on Canadian and Mexican goods. However, those tariffs were eventually suspended.
Diageo said its expectation of a $150m hit came “assuming the current 10pc tariff remains on both UK and European imports into the US, that Mexican and Canadian spirits imports into the US remain exempt under the US-Mexico-Canada Agreement, and that there are no other changes to tariffs”.
It added: “Tariffs between the US and China do not have a material impact on our business.”
The trade war has heaped pressure on Diageo at an already difficult time for the company, which has been battling weaker sales around the world. Shares in the company have fallen by around 50pc after climbing to record highs in 2022.
The company said on Monday that sales over the three months to March 31 rose by 2.9pc to $4.4bn. However, it warned that profits were expected to decline over the course of the financial year. Diageo announced a $500m cost-cutting push alongside its quarterly results.