LOUISVILLE, Ky. (AP) – A hangover from Trump-era collective bargaining could become even more painful for American whiskey distillers if their involvement in a transatlantic trade war is not resolved soon.
Bourbon, Tennessee whiskey, and rye whiskey were excluded from recent breakthroughs to begin rebuilding US trade ties with the European Union and the United Kingdom after Donald Trump’s presidency. Tariffs have been suspended on some spirits, but the 25% tariffs imposed by the EU and UK on American whiskey remain in place. And the EU tariff will double to 50% in June, the most important export market for US whiskey manufacturers.
A leading liquor advocate begs US Trade Ambassador Katherine Tai not to leave whiskey producers behind. The United States’ Distilled Spirits Council urged them to press for an immediate suspension of European tariffs and to reach agreements to remove them.
“The swift removal of these tariffs will help support US workers and consumers as the economy and the hospitality industry continue to recover from the pandemic,” the council said in a recent statement after Tai was ratified by the Senate.
American whiskey makers have been embroiled in the transatlantic trade dispute since mid-2018 when the EU introduced tariffs on American whiskey and other US products in response to Trump’s decision to impose tariffs on European steel and aluminum.
Since then, American whiskey exports to the EU have declined 37%, costing whiskey distillers hundreds of millions in revenues between 2018 and 2020, the council said. American whiskey exports to Great Britain, the fourth largest market in the industry, have fallen by 53% since 2018.
The tariffs represent a tax that whiskey manufacturers can either absorb in reduced profits or pass on to customers through higher prices – and can lose market share in highly competitive markets.
Amir Peay, owner of the James E. Pepper Distillery in Lexington, Kentucky, said American whiskey has become “collateral damage” in trade disputes. It has cost him about three-quarters of his European business, and the looming 50% EU tariff threatens to exhaust what is left.
“That could potentially end our business in Europe as we have known it over the years,” Peay said in a telephone interview on Thursday.
He has already cut some whiskey deliveries to Europe to protect himself against a possible doubling of the EU tariff. The typical bourbon and rye brand of his distillery is James E. Pepper 1776.
Peay spent years and considerable money cultivating European markets, particularly Germany, France and the UK. He planned to double his European business before the trade disputes occurred.
“The way things are going, everything we’ve invested so far looks like it could be destroyed,” he said.
The tariffs have also harmed the giants of the liquor industry.
“We estimate our company … bore approximately 15% of the total tariffs levied in response to steel and aluminum tariffs against the United States,” said Lawson Whiting, president and CEO of Louisville, Kentucky-based Brown- Forman Corp., recently. “You have become a huge problem for us and it is imperative that we resolve it as soon as possible.”
Brown-Forman’s lead product is Jack Daniels Tennessee Whiskey, a global brand.
For Kentucky bourbon producers, tariffs have cut their exports by 35% in 2020 and shipments to the EU have fallen by nearly 50%, according to the Kentucky Distillers’ Association.
The EU has traditionally been the largest world market for distilleries in Kentucky, accounting for 56% of all exports in 2017. According to the association, it is now around 40%.
“Our bourbon industry has suffered significant damage for more than two years due to a non-whiskey trade war,” said KDA President Eric Gregory. “And it will get a lot worse if we can’t de-escalate this dispute.”
The association estimates that Kentucky distilleries make 95% of the world’s bourbon supply.
The thaw in the US in disputes with the EU and the UK was part of an effort to resolve a longstanding dispute between Airbus and Boeing. The tariff suspensions applied to tariffs imposed on some spirits producers on both sides of the Atlantic. But the breakthroughs left many unsolved, including disputes that led to the retaliatory tariffs still spilling across American whiskey.
The suspended tariffs mean that some European spirits manufacturers can ship their products to the US duty-free, while American whiskey manufacturers are still subject to tariffs, Whiting said.
“We just want a level playing field for American whiskey,” he said.