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 battle is quickly resolved.
Bourbon, Tennessee whiskey and rye whiskey were left out of the recent breakthroughs to begin rebuilding US trade relations with the European Union and the United Kingdom in the wake of Donald Trump’s presidency. Tariffs for some spirits have been suspended, but the 25% tariffs levied by the EU and the UK on American whiskey remain in effect. And the EU rate will double to 50% in June in the main export market for US whiskey makers.
A leading proponent of spirits begs US trade envoy Katherine Tai not to leave the whiskey producers behind. The United States Distilled Spirits Council urged her to push for an immediate suspension of European tariffs and to negotiate agreements to lift them.
“A swift removal of these tariffs will help support American 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 confirmed by the Senate.
US whiskey makers have been embroiled in the transatlantic trade dispute since mid-2018, when the EU imposed tariffs on US whiskey and other US products in response to Trump’s decision to lower 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, are down 53% since 2018.
The rates amount to a tax, which whiskey producers can either absorb in diminished profits or pass on to customers through higher prices – and run 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 the trade disputes. It has cost him about three quarters of his European business, and the impending 50% EU tariff threatens to drain the rest.
“That could potentially put an end to our operations in Europe as we have known it over the years,” Peay said in a telephone interview on Thursday.
He has already curtailed a number of whiskey shipments to Europe to protect against the potential doubling of the EU tariff. His distillery’s signature bourbon and rye brand is James E. Pepper 1776.
Peay spent years and a lot of money cultivating European markets, especially in Germany, France and the UK. He planned to double his European operations before the trade disputes hit.
“As things are going, everything we have invested so far seems to be able to be destroyed,” he said.
The rates have also hurt the giants of the ghost industry.
“We estimate that our company … has borne about 15% of the entire tariff bill charged to the US in response to steel and aluminum tariffs,” Lawson Whiting, president and CEO of Brown-Forman Corp., based in Louisville, Kentucky, said recently. “They have become a big problem for us and it is imperative that we fix 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, with shipments to the EU plunging by nearly 50%, according to the Kentucky Distillers’ Association.
The EU has historically been the largest world market for distilleries in Kentucky, accounting for 56% of all exports in 2017. It is now about 40%, the association said.
“Our signature bourbon industry has suffered significant damage for over two years as a result of a trade war unrelated to whiskey,” said KDA President Eric Gregory. “And it will get much worse if we don’t de-escalate this dispute.”
Kentucky distilleries manufacture 95% of the world’s bourbon supply, the association estimates.
The thaw in the disputes between the US and the EU and the UK was part of an effort to resolve a protracted dispute between Airbus and Boeing. The tariff suspensions applied to duties imposed on some spirits producers on both sides of the Atlantic. But the breakthroughs left much unresolved, including disputes leading to the retaliatory measures that continue to apply to American whiskey.
The suspended tariffs mean some European spirit producers can ship their products to the US tax-free, while US whiskey makers are still subject to tariffs, Whiting said.
“We just want a level playing field for American whiskey,” he said.