Whiskey Sour: US tariffs for bitter tariffs exceed 25% in June

About 4,000 miles away in Bourbon Belt, Kentucky, there were few. US whiskey producers still have 25% tariffs on spirits that they export to the UK and the European Union. What’s more, EU levies will double to 50% in June.

“We are literally frozen,” said Amir Peay, owner of James E. Pepper Distillery in Lexington, Ky. The tariff said just when he started investing heavily to take advantage of rising sales in Europe.

The misery that upsets American whiskey producers reflects both the complications of world trade and the penchant of warring parties for turning iconic products into disputes. The US imposed tariffs on Scottish and French wine, and the Europeans taxed Harley-Davidson motorcycles and American whiskey, although the underlying disputes had nothing to do with the products.

Since taking office in January, the Biden government has taken steps to ease trade tensions with European allies. In joint announcements with the EU and the UK, he recently agreed to the suspension of four-month tariffs in a dispute over subsidies to commercial aircraft makers Boeing Co.

and Airbus SE while the parties seek a resolution.

It increased tariffs that taxed Scotch whiskey and French wine exported to the U.S., among others, and U.S. baggage, products and vodka exported to Europe.

Nevertheless, the EU and Britain retained the tariffs on American whiskey, which were set separately as retaliation for US tariffs on steel and aluminum imports that remain in force.

U.S. whiskey producers say they are being punished for a fight they did not start.

“Why are we dragging ourselves into this conflict?” asked Mr. Peay, who set up a distribution base in Amsterdam and ordered bottles of European size from an Italian glassmaker before the tariff increased the expansion plans.

American whiskey producers may face even more difficult times ahead. The EU is threatening to increase tariffs on US whiskeys to 50% by June 1, unless the two parties can negotiate a solution. The UK is also considering additional measures, a government spokesman said.

Tariffs of 50% would be “truly disastrous” for the U.S. whiskey industry, said Lawson Whiting, president and CEO of Brown-Forman. Corp.

, the United States’ largest whiskey producer, including Jack Daniel’s Lemon Whiskey in Jack Tennessee.

Unrestricted by tariffs, the English and English whiskeys distilled in Northern Ireland will now increase their market share in the US, while American whiskeys will remain subject to tariffs in Europe, said Mr. Whiting said.

“We are now the only spirit under these tariffs,” he said. “The American whiskey category should not bear the brunt of the entire trade war.”

Europe and the United Kingdom account for about half of US whiskey exports. Prior to the tariffs, U.S. whiskey makers enjoyed rising sales. According to the Census Bureau, exports of American bourbon and other whiskeys to Europe (including the United Kingdom) grew from $ 527 million in 2010 to $ 741 million in 2018, when the tariffs were introduced.

According to the Census Bureau, exports shrank to $ 469 million last year, 37% lower than the 2018 peak.

Brown-Forman estimates whiskey represents a quarter of the rates the EU has collected in the steel and aluminum dispute, which increases export costs by about $ 250 million annually. Some of these costs have been passed on to consumers through higher prices, and others have been borne by exporters, the companies say.

Whiskey producers, with the support of politicians, including Senate Republican leader Mitch McConnell of Kentucky, are calling on the Biden government to reach an agreement with Europe to end tariffs on their products.

“If you ask me, the whole world could benefit from a little more Kentucky bourbon,” he said. McConnell said Wednesday before the Senate voted to confirm Katherine Tai as U.S. trade representative.

Mrs. Tai said during her confirmation hearing in the Senate that the US would seek an effective solution that would examine the whole range of policy instruments to address the bigger problem. ‘

But she did not commit to ending the steel and aluminum tariffs. The US has imposed those on national security grounds, saying they need to protect a strategic industry from being undermined by cheap imported steel produced with government subsidies.

“In some ways, it’s the way the … system is supposed to work,” she said. Tai said. “You bring each other’s stakeholders pain to motivate each other to make a decision.”

An EU spokesman in Washington said the coalition was ready to work with the US in “resolving bilateral trade irritants that had weakened our strategic partnership”, but that doubling the whiskey tariff would automatically double.

Untying the steel and aluminum dispute will be more difficult than resolving the aviation subsidy battle, said Bill Reinsch, senior adviser to the Center for Strategic and International Studies. Mr. Reinsch said the complications include the global overcapacity driven by China and support for tariffs by the powerful American steel industry.

“I do not think they will disappear easily,” he said.

Some U.S. companies, including Harley-Davidson Inc., have responded to EU tariffs by relocating some productions abroad. This is not an option for whiskey producers whose products are based on their geography – Kentucky bourbon and Tennessee’s Jack Daniels.

At James E. Pepper in Kentucky, the uncertainty over the trade dispute, especially the threat of doubling the tariff, is causing devastation in its operations, Mr. Peay said. The company is struggling to decide how many bottles to order and labels to print, let alone how many boxes of whiskey are sent there.

“Twenty-five percent took us down,” he said. “Fifty percent will literally take us out of the European market.”

For mr. Shand, enjoying his Scotch with a drop of water, it’s a brighter picture. After Duncan Taylor lost more than half of its single malt whiskey sales in the U.S. over the past year, Shand is planning a 40% setback this year.

“We are enlarging,” he said. Shand said. “We’re going to have sales ready.”

—Anthony DeBarros contributed to this article.