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 struggle is resolved soon.
Bourbon, Tennessee and rye whiskey have been left out of the latest discoveries to begin rebuilding US trade relations with the European Union and the United Kingdom following Donald Trump’s presidency. Tariffs have been suspended for some spirits, but 25% tariffs on US whiskey from the EU and the UK remain in place. And the EU tariff rate will double to 50% in June on the key export market for US whiskey producers.
A leading spirits lawyer is urging Katherine Tai, a top US sales representative, not to leave whiskey producers behind. The United States Distilled Spirits Council urged her to push for an immediate suspension of European tariffs and to reach agreements to eliminate them.
“The rapid elimination of these tariffs will help support American workers and consumers as the economy and hospitality industry continues to recover from the pandemic,” the council said in a recent statement after Tai was confirmed by the Senate.
US whiskey producers have been embroiled in a transatlantic trade dispute since mid-2018, when the EU imposed tariffs on American whiskey and other US products in response to Trump’s decision to pay tariffs on European steel and aluminum.
Since then, US whiskey exports to the EU have fallen by 37%, costing whiskey distillers with revenues of hundreds of millions between 2018 and 2020, the council said. US whiskey exports to the UK, the fourth largest market in the industry, have fallen 53% since 2018, he said.
Tariffs amount to a tax, which whiskey producers can absorb at low profits or pass on to customers at higher prices – and risk losing market share in highly competitive markets.
Amir Peay, owner of the James E. Pepper Distillery in Lexington, Kentucky, said American whiskey had become “collateral damage” in trade disputes. It cost him about three-quarters of his European business, and the 50% EU tariff threatens to deplete what is left.
“That could end our business in Europe as we know it over the years,” Peay said in a telephone interview Thursday.
It has already restricted some shipments of whiskey to Europe as cover against the potential doubling of the EU tariff. The brand signed by his bourbon and rye distillery is James E. Pepper 1776.
Peay has spent significant years and money cultivating European markets, especially in Germany, France and the United Kingdom. He planned to double his European business before trade disputes broke out.
“As things stand, everything we’ve invested so far looks like it could be destroyed,” he said.
Tariffs have also affected the spirits industry giants.
“We estimate that our company … has borne approximately 15% of the entire U.S. tariff bill in response to steel and aluminum tariffs,” said Lawson Whiting, president and CEO of Brown-Forman Corp. from Louisville, Kentucky, said recently. “They have become a big problem for us and it is imperative that we solve them as soon as possible.”
Brown-Forman’s main product is Jack Daniel’s Tennessee Whiskey, a global brand.
For bourbon producers in Kentucky, tariffs reduced their exports by 35% in 2020, and shipments to the EU fell by almost 50%, the Kentucky Distillers Association said.
Traditionally, the EU has been the world’s largest distillery market in Kentucky, accounting for 56% of total exports in 2017. It is now about 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 much worse if we can’t disqualify this dispute.”
Kentucky distilleries make up 95% of the world’s bourbon supply, the association estimates.
The thawing of US disputes with the EU and the United Kingdom was part of an effort to resolve a long-running Airbus-Boeing dispute. Tariff suspensions have been applied to taxes on spirits producers on both sides of the Atlantic. But the discoveries left a lot unresolved, including disputes that led to retaliatory tariffs that still hit American whiskey.
Suspended tariffs mean some European spirits producers can deliver their products to the US free of charge, while US whiskey producers are still subject to tariffs, Whiting said.
“We just want a level playing field for American whiskey,” he said.