LOUISVILLE, Ky. (AP) –
The hangover from Trump-era tariff disputes could become even more painful for American whiskey distillers, unless their involvement in a transatlantic trade struggle is resolved soon.
Bourbon, Tennessee whiskey and rye whiskey were left out of recent discoveries to begin rebuilding U.S. trade relations with the European Union and the United Kingdom after Donald Trump’s presidency. Tariffs have been suspended on some spirits, but the 25% tariffs applied to American whiskey by the EU and the United Kingdom remain in force. And the EU tariff is set to double to 50% in June on the main export market for US whiskey makers.
A leading proponent of alcoholic beverages is pleading with the top US commercial envoy, Katherine Tai, not to leave whiskey producers behind. The United States Liquor Council has urged it to press for an immediate suspension of European tariffs and to secure agreements to remove them.
“Rapid 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 board said in a recent statement after Tai’s confirmation by the Senate.
American whiskey makers have been involved 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, American whiskey exports to the EU have fallen 37%, costing whiskey distillers hundreds of millions in revenue between 2018 and 2020, the council said. American whiskey exports to the United Kingdom, the industry’s fourth largest market, have dropped 53% since 2018, he said.
Tariffs are equivalent to a tax, which whiskey producers can absorb at reduced profits or pass on to customers through higher prices – with the risk of 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 him about three quarters of his European business, and the EU’s impending 50% tariff threatens to drain what remains.
“This could 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 shipments to Europe as a protection against possible doubling of the EU tariff. The distillery’s brand of bourbon and rye is James E. Pepper 1776.
Peay spent years and a lot of money cultivating European markets, especially in Germany, France and the United Kingdom. He was planning to double his European business before trade disputes started.
“The way things are going, everything we’ve invested so far looks like it can be destroyed,” he said.
Tariffs have also hurt giants in the spirits industry.
“We estimate that our company … has borne about 15% of the entire tariff charged against the US in response to steel and aluminum tariffs,” Lawson Whiting, president and CEO of Brown-Forman Corp in Louisville, Kentucky, said recently. “They have become a big problem for us and it is critical that we resolve them as quickly as possible.”
Brown-Forman’s flagship product is Jack Daniel’s Tennessee Whiskey, a global brand.
For Kentucky bourbon producers, tariffs reduced their exports by 35% in 2020, with shipments to the EU plummeting nearly 50%, the Kentucky Distillers’ Association said.
The EU has traditionally been the largest global market for Kentucky distilleries, accounting for 56% of all exports in 2017. Now it is around 40%, the association said.
“Our bourbon industry has suffered significant damage for more than two years because of a trade war that has nothing to do with whiskey,” said KDA President Eric Gregory. “And it will be much worse if we cannot reduce this dispute.”
Kentucky distilleries produce 95% of the world’s bourbon supply, the association estimates.
The meltdown in U.S. 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 advances have left many unsolved, including disputes that led to retaliatory tariffs that still affect American whiskey.
The suspended tariffs mean that some European alcoholic beverage producers can ship their products to the United States tax-free, while American whiskey makers are still subject to the tariffs, Whiting said.
“We just want a level playing field for American whiskey,” he said.