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Whiskey manufacturers are suffering from a worsening hangover as a result of the trade war.

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Whiskey manufacturers are suffering from a worsening hangover as a result of the trade war.
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Whiskey manufacturers are suffering from a worsening hangover as a result of the trade war.

Whiskey manufacturers are suffering from a worsening hangover as a result of the trade war.

 

If their entanglement in a trans-Atlantic trade battle is not resolved soon, a hangover from Trump-era tariff conflicts could become much more difficult for American whiskey distillers.

In the aftermath of Donald Trump’s presidency, recent breakthroughs to begin restoring U.S. trade ties with the European Union and the United Kingdom left bourbon, Tennessee whiskey, and rye whiskey out. Tariffs on certain spirits have been suspended, but the EU and UK’s 25% tariffs on American whiskey remain in effect. In June, the EU’s tariff rate on whiskey is expected to double to 50% in the main export market for American whiskey producers.

A leading spirits advocate is pleading with Katherine Tai, the United States’ top trade envoy, not to desert whiskey makers. The American Distilled Spirits Council encouraged her to lobby for an immediate suspension of European tariffs as well as negotiations to remove them.

After Tai was confirmed by the Senate, the council issued a statement saying, “Swift elimination of these tariffs would help benefit U.S. employees and customers as the economy and hospitality industry begin to recover from the pandemic.”

Since mid-2018, when the EU levied tariffs on American whiskey and other U.S. goods in response to Trump’s decision to slap tariffs on European steel and aluminum, American whiskey producers have been caught up in the trans-Atlantic trade war.

According to the council, American whiskey exports to the EU have fallen by 37% since then, costing whiskey distilleries hundreds of millions of dollars in revenue between 2018 and 2020. Exports of American whiskey to the United Kingdom, the industry’s fourth-largest market, have dropped by 53% since 2018, according to the study.

Tariffs are a levy on whiskey producers, which they can either bear in lower income or pass on to consumers in the form of higher costs — or risk losing market share in highly competitive markets.

American whiskey has become “collateral damage” in trade disputes, according to Amir Peay, owner of the James E. Pepper Distillery in Lexington, Kentucky. It has cost him roughly three-quarters of his European business, and a looming EU tariff of 50% threatens to drain what remains.

In a phone interview on Thursday, Peay said, “That could probably end our business in Europe as we’ve known it over the years.”

As a measure against the possible doubling of the EU tariff, he has already limited some whiskey exports to Europe. James E. Pepper 1776 is his distillery’s signature bourbon and rye.

Peay invested a lot of time and money into developing European markets, especially in Germany, France, and the United Kingdom. Before the trade wars, he had planned to double his European business.

“The way things are going, everything we’ve spent so far seems to be in jeopardy,” he said.

Tariffs have also affected the spirits industry’s behemoths.

“We estimate that our business has borne approximately 15% of the entire tariff bill imposed against the United States in response to steel and aluminum tariffs,” Lawson Whiting, president and CEO of Brown-Forman Corp. in Louisville, Kentucky, said recently. “They have turned into a huge concern for us, and we must fix it as soon as possible.”

Jack Daniel’s Tennessee Whiskey, a global brand, is Brown-most Forman’s famous commodity.

According to the Kentucky Distillers’ Association, tariffs lowered Kentucky bourbon producers’ exports by 35% in 2020, with shipments to the EU falling by nearly 50%.

The EU has historically been Kentucky distilleries’ largest global market, accounting for 56 percent of all exports in 2017. According to the group, it’s already about 40%.

“For more than two years, our signature bourbon industry has been seriously affected by a trade war that has nothing to do with whiskey,” said KDA President Eric Gregory. “And if we don’t deescalate this conflict, it’ll get a lot worse.”

According to the association, Kentucky distilleries produce 95 percent of the world’s bourbon.

The thawing of US-EU and UK trade tensions was part of an attempt to settle a long-running Airbus-Boeing feud. Tariffs that had been levied on certain spirits producers on both sides of the Atlantic had been suspended. However, the breakthroughs left several problems unanswered, including the differences that led to the retaliatory tariffs that are now being levied on American whiskey.

Since tariffs have been suspended, some European spirits producers may export their goods duty-free into the United States, while American whiskey producers are still subject to tariffs, according to Whiting.

He said, “All we want is a level playing field for American whiskey.”

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