Last week, the European Union and United States agreed to suspend tariffs on certain European wine exports for four months. Similarly, the United Kingdom and U.S. announced they will withhold tariffs on exports like single-malt Scotch for the same time period.
The news comes as a relief to the U.S. wine industry, as well as to domestic producers of brandy, rum and vodka. Yet, the agreements do not address the 25% tariffs currently imposed on American whiskey. This is especially concerning because, in June, tariffs on Bourbon, Tennessee whiskey and other American whiskey categories are slated to spike to 50%.
“We’re marching against the clock,” says Chris Swonger, president of the Distilled Spirits Council of the U.S. (DISCUS).
Tariffs on American whiskey were first imposed in June 2018, he says. Since then, American whiskey exports to the E.U. have declined 37%, and 53% to the U.K. By means of comparison, from 2008–2018, exports to the E.U. grew 40%.
“The great American success story is about to be destroyed, unless these tariffs get resolved,” Swonger says, and adds that he’s hopeful the new administration “will not leave Bourbon and American whiskey behind.”
“We’re marching against the clock.” Chris Swonger, Distilled Spirits Council of the U.S.
The fallout has been severe. The Kentucky Distillers’ Association (KDA) reports that exports of Kentucky Bourbon to the E.U. and U.K. dropped nearly 50% last year. The E.U. had previously been Kentucky’s largest global market for Bourbon and whiskey, making up 56% of all exports in 2017. It’s now about 40%.
These changes have considerable economic ramifications for U.S. workers and employers. In 2019, Kentucky’s distilling industry generated some 20,100 jobs and $8.6 billion, according to a KDA study.
While equivalent figures for Tennessee whiskey aren’t yet available, the largest producer in the category is Brown-Forman, parent company to Jack Daniel’s. The producer has been vocal about the impact of the tariffs on its bottom line, as international exports to the E.U., U.K. and beyond comprise about 60% of its sales.
“Brown-Forman has been hurt and unduly impacted by this trade war with Europe,” says President/CEO Lawson Whiting, who estimates that the company has borne roughly 15% of the entire tariff bill, citing statistics compiled by data provider Eurostat. He believes it’s “imperative” to resolve the dispute as soon as possible for the sake of the U.S. spirits industry.
Smaller producers have suffered as well. In 2018, Virginia craft producer Catoctin Creek had been poised to start exporting its rye whiskey to Europe when the tariffs were announced.
“At that point, 2018, we’d been working six or seven years on trying to get deals, we were getting so close,” recalls Rebecca Harris, Catoctin’s president and chief distiller. “Suddenly, nobody’s calling you back, because a 25% price increase is just too much.” Since then, the distillery’s American whiskey sales in Europe “went to a trickle,” with sales plunging a whopping 70%.
The impact on global competition is vast, especially for small producers still finding their footing.
“It not only cost us the opportunity to grow the market share in Europe, it also gave other world producers that wide-open playing field to start making their own rye whiskey,” says Harris. “It’s just going to be that much harder when we can get back in to become competitive.”
What’s at stake extends beyond distilleries, Swonger says. “It’s also the consumers, the hospitality sector, the restaurants. It has a trickle effect also to barrel makers, the farmers who provide the wheat, the grain.
“The entire supply chain is impacted by the tariffs, and it’s important to say that.”