Whiskey Sour: US Distillers Bitter Over 25% Tariffs Set to Double in June


Tariffs imposed by the Trump administration affected US sales of single malt Scotch whiskey for more than a year, so when they were suspended this month, Euan Shand and his colleagues seized the opportunity.

“We raised a glass of whiskey to celebrate,” said Shand, president of liquor merchant Duncan Taylor in Huntly, Scotland, whose brands include the Black Bull whiskey that Mr. Shand drank to toast the occasion.

There was little to cheer about 4,000 miles away on Kentucky’s Bourbon Belt. US whiskey makers still face 25% tariffs on spirits they export to the UK and the European Union. Furthermore, EU taxes are expected to double to 50% in June.

“We’re literally frozen,” said Amir Peay, owner of the James E. Pepper Distillery in Lexington, Ky., Who says the tariff hit just as it had started investing heavily to take advantage of growing sales in Europe.

The issues that preoccupy American whiskey makers reflect both the complications of world trade and the inclination of the warring sides to target iconic products in disputes. The United States imposed tariffs on Scottish and French wine, and Europeans taxed Harley-Davidson motorcycles and American whiskey, although the underlying disputes had nothing to do with those products.

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

and Airbus SE while the parties seek a resolution.

That removed the tariffs that had been imposed on, among other products, Scotch whiskey and French wine exported to the United States, and American luggage, products and vodka exported to Europe.

The alembic at the James E. Pepper Distillery.

Sour rye puree ferments at the James E. Pepper Distillery.

Distiller Cody Giles, left, and Master Distiller Aaron Schorsch work on the bottling line at the James E. Pepper Distillery in Lexington, Kentucky.

Still, the EU and Britain have maintained tariffs on US whiskey, which were imposed separately in retaliation for US tariffs on steel and aluminum imports that remain in place.

American whiskey makers say they are being punished for a fight they did not start.

“Why drag ourselves into this conflict?” asked Mr Peay, who had established a distribution base in Amsterdam and had ordered European-size bottles from an Italian glass manufacturer before the tariff changed expansion plans.

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US whiskey makers could face even tougher times ahead. The EU threatens to increase tariffs on US whiskeys to 50% by June 1 unless the two sides can negotiate a solution. The UK is also considering additional measures, a government spokesman said, adding that it continues to pressure the US for a resolution.

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

, the largest whiskey maker in the US whose flagship product is Jack Daniel’s Tennessee sour mash whiskey.

Duty-free, Scottish and Irish malt whiskey distilled in Northern Ireland can now increase its market share in the United States, while American whiskey will remain subject to punitive tariffs in Europe, Whiting said.

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

Lawson Whiting is President and CEO of Brown-Forman Corp.


Photo:

Brown-Forman Corporation

Europe and the UK account for about half of US whiskey exports Before the tariffs, US whiskey makers were enjoying increased sales. 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 imposed, according to the Census Bureau.

Those exports fell to $ 469 million last year, according to the Census Bureau, 37% less than the 2018 peak.

Brown-Forman estimates that whiskey accounts for a quarter of the tariffs charged by the EU in the steel and aluminum dispute, raising export costs by roughly $ 250 million annually. Some of these costs were passed on to consumers through higher prices and others were absorbed by exporters, the companies say.

Whiskey makers, supported by politicians including Republican Senate Leader Mitch McConnell of Kentucky, are calling on the Biden administration to strike a deal with Europe to end tariffs on their products.

“If you ask me, the whole world could benefit from a little more Kentucky bourbon,” McConnell said Wednesday, before the Senate voted to confirm Katherine Tai as the United States Trade Representative.

During her Senate confirmation hearing, Ms Tai said the United States would seek “an effective solution that considers the full range of political tools to address that larger problem.”

James E. Pepper Distillery.

But he did not promise to end the tariffs on steel and aluminum. The United States had imposed them for national security reasons, saying it needed to protect a strategic industry from being undermined by cheap imported steel produced with government subsidies.

“In a way, this is the way … the system is supposed to work,” Ms Tai said. “You inflict pain on each other’s stakeholders to try to motivate each other to come to a resolution.”

An EU spokesperson in Washington said the coalition is willing to work with the United States to “resolve the irritants of bilateral trade that have weakened our strategic partnership,” but that in the absence of an agreement, the doubling of the whiskey tariff will be automatic. .

Unraveling the steel and aluminum dispute will be more difficult than resolving the battle over aircraft subsidies, said Bill Reinsch, senior adviser at the Center for Strategic and International Studies. Reinsch said those complications include global overcapacity driven by China and support for tariffs by the powerful US steel industry.

“I don’t think they’re going to go away easily,” he said.

Master Distiller Aaron Schorsch, left, and Distiller Cody Giles at work at the James E. Pepper Distillery.

Some US companies, including Harley-Davidson Inc., have responded to the EU tariffs by moving some of the production abroad. That’s not an option for whiskey makers whose products are rooted in their geography: bourbon from Kentucky and Jack Daniels from Tennessee.

At James E. Pepper in Kentucky, uncertainty about the trade fight, particularly the threat of doubling tariffs, is wreaking havoc on their operations, Peay said. The company struggles to decide how many bottles to order and labels to print, much less how many cases of whiskey to send.

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

For Shand, who enjoys his whiskey with a drop of water, it is a brighter image. After Duncan Taylor lost more than half of his US single malt whiskey sales last year, Shand projects a 40% rebound this year.

“We are increasing,” Shand said. “We are going to have the sales ready.”

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