LOUISVILLE, Ky. (AP) –
A hangover from Trump-era tariff disputes could become even more painful for American whiskey distillers unless their entanglement in a transatlantic trade fight is resolved soon.
Bourbon whiskey, Tennessee and rye whiskey were left out of recent advances to begin rebuilding America’s trade relations with the European Union and the United Kingdom after the presidency of Donald Trump. Tariffs on some spirits were suspended, but the 25% tariffs on American whiskey by the EU and the UK remain in effect. And the EU tariff rate will double to 50% in June in the key export market for US whiskey makers.
A leading spirits advocate is imploring America’s top trade envoy, Katherine Tai, not to leave whiskey makers behind. The US Distillates Council urged her to press for an immediate suspension of European tariffs and to secure agreements that eliminate them.
“The rapid removal of these tariffs will help support American workers and consumers as the economy and the hotel industry continue to recover from the pandemic,” the council said in a recent statement after Tai was confirmed by the Senate.
American whiskey makers have been embroiled in the transatlantic trade dispute since mid-2018, when the EU imposed tariffs on American whiskey and other American products in response to Trump’s decision to impose tariffs on European steel and aluminum.
Since then, US whiskey exports to the EU have fallen by 37%, costing whiskey distillers hundreds of millions in revenue between 2018 and 2020, the council said. US whiskey exports to the UK, the industry’s fourth-largest market, have fallen 53% since 2018, he said.
The tariffs amount to a tax, which whiskey producers can absorb in reduced profits or pass on to customers through higher prices, and risk losing market share in highly competitive markets.
Amir Peay, owner of the Lexington, Kentucky-based James E. Pepper Distillery, said American whiskey has become “collateral damage” in trade disputes. It has cost it about three-quarters of its European business, and the looming 50% EU tariff threatens to drain what’s left.
“That could possibly end our business in Europe as we have known it over the years,” Peay said in a telephone interview Thursday.
It has already reduced some whiskey shipments to Europe as a hedge against possible doubling of the EU tariff. Your distillery’s signature bourbon and rye brand is James E. Pepper 1776.
Peay spent years and a lot of money cultivating European markets, especially Germany, France, and the UK. He planned to double his European business before the trade disputes came.
“The way things are going, everything we’ve invested to date looks like it could be destroyed,” he said.
The tariffs have also hurt the giants of the spirits industry.
“We estimate that our company … has borne approximately 15% of the total tariff bill imposed on the US in response to tariffs on steel and aluminum,” Lawson Whiting, President and CEO of Brown-Forman Corp. recently said. “They have become a big problem for us and it is imperative that you solve it as soon as possible.”
Brown-Forman’s leading product is Jack Daniel’s Tennessee Whiskey, a global brand.
For Kentucky bourbon producers, tariffs cut their exports by 35% in 2020, and shipments to the EU plunged nearly 50%, the Kentucky Distillers Association said.
The EU had traditionally been the largest global market for Kentucky distilleries, accounting for 56% of all exports in 2017. It is now around 40%, the association said.
“Our signature bourbon industry has suffered significant damage for more than two years due to a trade war that has nothing to do with whiskey,” said KDA President Eric Gregory. “And it will get a lot worse if we can’t reduce this dispute.”
Kentucky distilleries make 95% of the world’s supply of bourbon, the association estimates.
The thaw in the United States’ disputes with the EU and the United Kingdom was part of an effort to resolve a long-standing dispute between Airbus and Boeing. The tariff suspensions applied to duties that had been imposed on some spirits producers on both sides of the Atlantic. But the breakthroughs left many things unresolved, including disputes that led to retaliatory tariffs that still plague American whiskey.
The suspended tariffs mean that some European spirits producers can ship their products to the United States duty-free, while American whiskey makers are still subject to tariffs, Whiting said.
“We just want a level playing field for American whiskey,” he said.