Cognac is a spirit built on export. Last year, according to the category’s trade body, the BNIC, 96.8% of all the spirit was consumed outside of its homeland, generating a hair’s breadth short of €3bn for the region. Being such an overseas sensation has created a huge industry in a small corner of western France. Today, it’s not only the country’s largest white wine region, but the 240 cognac houses are home to nearly 3,000 active stills, and the BNIC reports that there are 72,500 people whose “livelihood depends on cognac”. Cognac’s not just big business or a powerful ambassador for France – it’s an economic keystone.
The cognac export market is a story of two countries – China and the US. Combined, the North America and Far East markets accounted for 118 of the 166 million bottles that made it out of France in 2024 according to the BNIC. That’s over 70%.
The US is the world’s leading cognac market. The spirit was introduced en masse to the country through returning American GIs who developed an appreciation while stationed in France during the First and Second World Wars. But cognac really only found its home away from home in Black communities following targeted marketing campaigns in the late 1990s and early 2000s and soon the centuries-old spirit was appearing in contemporary music videos, song lyrics and movies. “The US is our number one market for our own brands of cognac and liqueurs,” says Luc Merlet, the fifth-generation distiller who is currently managing director of sales and marketing for Distillerie Merlet & Fils.
But that long-standing relationship is under threat. At the beginning of April, the Trump administration placed a blanket 10% tariff on all imports to the country and threatened to place a 20% tariff on European goods. A week later, the president announced a 90-day pause to additional tariff hikes, as Washington turned its sights solely to China, but while cognac can enjoy a temporary reprieve from the 20% tax bump, the blanket 10% duty still applies and carries a potentially critical impact to the $1bn-worth of cognac entering the States each year.
Duty sensitivity
There’s a general principle that higher-end products have more capacity to swallow price increases and market fluctuations and, while cognac can certainly fit that billing, Merlet says that the majority of cognac entering the US simply doesn’t.
“The luxury segment is less sensitive to duty hikes, but today the majority of volumes are of VS quality first, then VSOP. Those are more sensitive to duty increases,” says Merlet.
“The main issue is that tariffs are ad valorem, so they are a percentage of the import prices. If a VS bottle is imported at $15, then a 20% tariff would be a $3 increase on the import price. However, when we apply the different margins for importers, distributors and retailers, the increase for the consumer can be above $8.
“We are in discussions with our importers to see how we can handle the situation. We are looking at options to split the costs of the tariffs to minimise the increase in shelf prices and possibly use marketing budget to compensate for it. But this can only be a short-term solution. If these tariffs stay in place on a long-term basis, then this means that all spirits will also become more expensive – the US alone cannot compensate for all of them.”
And of course, the impact of this trade war spread far beyond the balance sheets of importers and exporters.
“The big question for us is to understand how this commercial war will impact the economy and, in the end, the consumer’s buying power”, continues Merlet. “Even if we could maintain the retail prices as much as possible, if consumers are in a difficult position they will make choices to prioritise the products they purchase.”
And, while EU goods will be stable at the blanket 10% tariff until June, increases could well follow. Trump has even threatened to impose 200% tariffs on European wine and spirits if the EU puts additional duties on bourbon imports. While it is difficult to separate realistic intentions from posturing, tariffs that tip beyond 100% are not beyond the administration – at time of writing, the duty on imports from China stands at 145%.
Even before this round of tariffs from the current Washington administration, cognac was having a difficult time across the pond. According to the French wine and spirits trade body, FEVS, exports of French spirits to the US fell by 37% in 2023 due to poor stock management during the pandemic.
At the time, FEVS president Gabriel Picard said: “The reduction of overstocks in some markets – notably in the US – has resulted in a decrease of wine and spirits exports in volume.” He added: “This decline is a wake-up call for exporting companies. It reminds us of the continued need to adapt to changing consumer and market demands.
“It also demonstrates how much the sustainability of the export success of wines and spirits requires strong and long lasting support from the public authorities: new markets must be opened, and others must also be prevented from closing, in particular through trade retaliatory measures.”
The “trade retaliatory measures” that Picard refers to are related not to the US but to the anti-dumping enquiry that the Chinese government had recently launched against all EU-made brandy and cognac entering the country.
The investigation was launched following a complaint made by the China Alcoholic Beverage Association on behalf of its domestic brandy industry which purported that EU-produced brandy was being sold below the price of its domestic market. The investigation deadline was initially 5 January but has since been extended twice until at least 5 July. With the investigation ongoing, from 11 October last year, taxes were placed on all cognac imports into China.
Prior to the launch of the investigation, cognac was soaring in China. In 2021, the post-Covid bounce saw cognac sales increase by 56% and optimistic projections at the time had the region overtaking the US to become the category’s most valuable market.
“The US market has remained a relatively small market for us in terms of volumes,” explains Cyril Camus, president of Camus Cognac. “China is Camus’s largest market and has accounted for most of the growth of the company over the past two decades. With our own distribution company, one of the largest independent distributors in the country, we have leveraged the market’s appetite for premium products into a strong presence for Camus and our partner brands.”
Major shift
But with the increased duties, cognac shipments to China dropped 23.8% year on year in 2024 and are worsening. The BNIC recently reported that in February 2025, shipments had dropped by 72%.
“Cognac has had its share of crises and unexpected obstacles thrown its way,” says Camus. “It is the first time ever, though, that its two main markets, accounting together for 75% of the total, are impacted at the same time.
“This implies a major shift in relative competitive advantages between the key actors of the category. For some it will force changes in the route to market, for others a shift in portfolio mix, and for all a rethinking of market investment priorities. Cognac remains a highly visible, but small in volume, category in most countries. Investment in growth in those markets outside the US and China had been constrained by the limit on the supply of cognac for the past two decades. As pressure on supply capacity abates due to decreased sales in the two main markets, this opens the possibility to grow the business pretty much everywhere else.”
Cognac’s reliance on two key markets has been central to the scale of this crisis. It echoes Picard’s warning from 2023 and, while the category has been gaining ground in emerging markets – particularly in South Africa, which saw a 24% growth in value last year – the category has been caught out.
“This crisis started before China and US tariffs’ barriers,” says Merlet. “We made mistakes in the past few years to overplant vineyards, predicting that the sales would keep growing forever. China and US events have accelerated the crisis and, unfortunately, there will be several years until we regulate the level of stock and have it in phase with actual sales.
“We face a crisis every two decades or so, in the ’70s, the end of the ’90s, and now and each time, the cognac industry suffered but made some adaptations to face the situations.”
If cognac was able to rebound from phylloxera, it’ll surely rebound from these market troubles, but for the 72,500 people whose livelihoods depend on the category, these are troubling times. While a major player in the world of spirits, cognac operates at relatively small volumes in comparison to vodka or whisky, and its strategy to grow itself in the world’s two largest economies has, up to now, been an unmitigated success, but meant putting too many eggs in too few baskets. This storm will eventually pass, and the centuries-old houses will survive but must adapt to these new conditions – and it’s pouring, not just raining, on the banks of the Charente.
