Tariffs hit American whiskey producers hard in Europe

US & World

In this July 7, 2018 file photo whiskeys distilled and bottled in the U.S. are displayed for sale in a grocery store in Beijing. American whiskey distillers have watched more than $300 million in export revenues evaporate in the two years since becoming entangled in a trade dispute between the Trump administration and the European Union, according to estimates in a new report. Exports of American whiskey — mostly bourbon, Tennessee whiskey and rye whiskey — to the EU have fallen 33% since the EU imposed a retaliatory tariff on those products on June 22, 2018, according to the report issued Monday, June 22, 2020 by the Distilled Spirits Council of the United States. (AP Photo/Mark Schiefelbein, file)

LOUISVILLE, Ky. (AP) — American whiskey distillers have watched more than $300 million in export revenues evaporate in the two years since becoming entangled in a trade dispute between the Trump administration and the European Union, according to estimates in a new report.

Exports of American whiskey — mostly bourbon, Tennessee whiskey and rye whiskey — to the EU have fallen 33% since the EU imposed a retaliatory tariff on those products on June 22, 2018, according to the report issued Monday by the Distilled Spirits Council of the United States.

The EU targeted American whiskey and other U.S. products in response to President Donald Trump’s decision to impose tariffs on European steel and aluminum.

Those duties amount to a tax, which producers can either absorb in reduced profits, or pass along to customers through higher prices — and risk losing market share in highly competitive markets.

The new report shows that the tariffs “derailed a great American export success story,” said Chris Swonger, the council’s president and CEO.

“American distillers enjoyed two decades of unparalleled growth in the EU prior to the implementation of these retaliatory tariffs,” Swonger said. “This report makes clear that these tariffs took the wind out of the sails for American Whiskey exports to our top export market.”

Lexington, Kentucky-based James E. Pepper Distillery is among the producers struggling to maintain a foothold in Europe. Before the tariffs hit, 10% of the company’s overall sales were in exports, mostly to the EU, and that part of the business was on pace to quickly double, said Amir Peay, the distillery’s owner.

Now, his distillery — whose signature bourbon and rye brand is James E. Pepper 1776 — has lost about half its European business since the tariffs were imposed, Peay said. He absorbed the European tax to try to maintain the European ties he built, cutting into his profit margin.

He’s been able to recoup some of his EU losses by expanding his domestic business. But the lost opportunity in Europe has been painful, he said. He canceled a shipment of his distillery’s higher-end, more expensive whiskey to Europe, deciding “the risk was not worth it.”

“We have to be very cautious about shipping over too much inventory because we have to then pay all these taxes on it,” he said. “And it’s sitting in these warehouses longer. And the worst thing you can ever imagine is to one day just be stuck with all this inventory sitting in a warehouse that’s not moving.”

He had every reason to be bullish about EU business before the trade dispute.

From 1997 through June 2018, American Whiskey exports to the EU surged from $143 million to more than $750 million. The trend has turned in the other direction since the tariffs hit.

American whiskey exports to the EU fell from $757 million to $501 million — down $256 million, or 33% — between June 2018 and April 2020, the last month export data was available, the report said.

Despite the trade dispute, the EU still accounted for 52% of global American whiskey exports in 2019, the report said. But with only a 20% share in the EU’s whiskey market, American whiskey has lots of room for export growth to European countries, it said.

Globally, the U.S. exported $955 million of American whiskey in 2019, the council said.

The council is the national trade association representing producers and marketers of distilled spirits sold in the U.S. It renewed its call Monday for the U.S. and EU to resolve the trade dispute.

“With the destruction caused by the tariffs and the severe impact of COVID-19 on the hospitality industry, distillers have suffered enough,” Swonger said.

Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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