LOUISVILLE, Ky. (AP) –
A hangover from the Trump-era tariff disputes could become even more painful for U.S. whiskey distillers unless their entanglement in a trans-Atlantic trade battle is resolved soon.
Bourbon, Tennessee whiskey and rye whiskey have been left out of recent breakthroughs to begin rebuilding U.S. trade relations with the European Union and the United Kingdom in the wake of Donald Trump’s presidency. Tariffs have been suspended on some liquor, but the 25% tariffs beaten on American whiskey by the EU and the UK still remain. And the EU tariff will double to 50% in the main export market for US whiskey producers in June.
A leading advocate for spirits is begging top US envoy Katherine Tai not to leave whiskey producers behind. The Distilled Spirits Council of the United States has urged her to insist on the immediate suspension of European tariffs and to secure agreements that remove them.
“The rapid removal of these tariffs will support U.S. workers and consumers as the economy and hospitality industry continues to recover from the pandemic,” the council said in a recent statement after Tai was confirmed by the Senate.
U.S. whiskey producers have been embroiled in the trans-Atlantic trade dispute since mid-2018, when the EU imposed tariffs on U.S. whiskey and other U.S. products in response to Trump’s decision to cut tariffs on European steel and aluminum.
Since then, U.S. whiskey exports to the EU have fallen by 37%, costing the distilleries hundreds of millions of dollars between 2018 and 2020, the council said. U.S. whiskey exports to the UK, the fourth largest market in the industry, have fallen by 53% since 2018.
The tariffs amount to a tax, which can absorb whiskey producers with reduced profits or pass on to customers through higher prices – and lose the risk of losing market share in very competitive markets.
Amir Peay, owner of Lexington, Kentucky-based James E. Pepper Distillery, said American whiskey had become a collateral damage in trade disputes. It has cost him about three-quarters of its European affairs, and the looming EU tariff of 50% threatens to leave what is left.
“It could possibly end our business in Europe as we have known it over the years,” Peay said in a telephone interview on Thursday.
He has already restricted some whiskey deliveries to Europe as a hedge against the possible doubling of the EU tariff. His distillery’s distinctive bourbon and rye brand is James E. Pepper 1776.
Peay has spent years and a lot of money cultivating European markets, especially in Germany, France and the United Kingdom. He intended to double his European business before the trade disputes began.
“As it goes, everything we’ve invested so far seems like it could be destroyed,” he said.
The tariffs have also hurt the strong giants in the industry.
“We estimate that our company carried approximately 15% of the total tariff bill against the U.S. in response to steel and aluminum tariffs,” Lawson Whiting, president and CEO of Louisville, Brown-Forman Corp., based in Kentucky, said recently. “It has become a big problem for us and it is vital that we resolve it as soon as possible.”
Brown-Forman’s leading product is Jack Daniel’s Tennessee Whiskey, a global brand.
For Kentucky bourbon producers, tariffs reduced their exports by 35% in 2020, and shipments to the EU fell by almost 50%, the Kentucky Distillers’ Association said.
The EU has traditionally been the largest world market for Kentucky distilleries, accounting for 56% of all exports in 2017. It is now about 40%, the association said.
“Our distinctive bourbon industry has suffered significant damage for more than two years as a result of a trade war that has nothing to do with whiskey,” said Eric Gregory, president of KDA. “And it will get much worse if we can not decalcify this dispute.”
The association estimates that distilleries in Kentucky have 95% of the world’s bourbon stock.
The thaw in US disputes with the EU and the UK was part of the effort to resolve a long-running Airbus-Boeing dispute. The tariff suspensions applied to the levies levied on some liquor producers on both sides of the Atlantic. But the breakthroughs left much unresolved, including disputes that led to retaliation rates still hitting American whiskey.
The suspended tariffs mean that some European liquor producers can ship their products tax-free to the US, while US whiskey producers are still subject to tariffs, Whiting said.
“We just want an equal playing field for American whiskey,” he said.