American whiskey exporters may have caught a break last month, but they’re still feeling punch drunk from being trapped in trade disputes among U.S. trade partners.
Last year, after the Trump administration imposed steel and aluminum tariffs, other countries responded with tariffs of their own. The European Union imposed a 25% tariff on American whiskey, China and Mexico did the same, while Canada imposed a 10% tariff.
In May, Canada and Mexico dropped their tariffs on American whiskey after the U.S. lifted steel and aluminum tariffs, but producers still face EU and Chinese duties.
Exporters had a good start to 2018. In the first six months, American whiskey exports overall grew 28%, according to the Distilled Spirits Council. But after retaliatory tariffs were imposed, exports fell 11% compared to the second half of 2017.
Looking at trade with the EU, American whiskey exports in the first half of 2018 increased 33% compared to the first half of 2017. But after EU tariffs were imposed exports fell 13.4% compared to the second half 2017.
Tariffs lower exports and revenue growth
Traditional whiskey-producing states are feeling the effects of tariffs. A Middle Tennessee State University report finds “Tennessee whiskey exports fell more than 30% in the fourth quarter as the sector faces headwinds from tariffs,” The Nashville Tennessean reports.
In Kentucky, the home of bourbon, tourism could be a possible victim of tariffs, as columnist Robert Farley explains in The Diplomat: “Kentucky distilleries have increasingly depended upon tourism as a substantial portion of their revenue. This includes distillery tours (along the Bourbon Trail), gift shop purchases, and the like.”
Reduced exports could prevent drinkers outside the U.S. from getting a taste of American whiskey and, as a result, not develop the desire to visit where it’s made.
“We’re losing money on every bottle”
Outside of Tennessee and Kentucky, distilleries also feel the effects of tariffs. Some don’t know how long they can last in the European market, The Associated Press reports:
Catoctin Creek Distillery in Virginia has a couple hundred cases of its rye whiskey sitting in a European warehouse. The inventory was built up in anticipation of growing European sales in 2018. But since the tariffs took effect, Catoctin Creek's sales in Italy and Germany have plunged and its plans of expanding to the United Kingdom are on hold, said its co-founder and general manager, Scott Harris.
About 11 percent of its overall 2017 revenues came from Europe. The distillery hoped its European business would increase to one-fourth of total revenues in 2018, but "that part just never materialized," Harris said in an interview.
"If we were able to get the tariffs removed, I think we'd be in good shape to really just take off," he said.
For now, Catoctin Creek is absorbing the costs of tariffs for the scaled-back European sales it's able to make in hopes of maintaining relationships with distributors and staying competitive, Harris said.
"For European sales, it means we're losing money on every bottle," he said.
Asked how long his distillery can afford to do that, he replied: "I don't even want to think about it. We might do it for another half of year and see. Honestly, it's hard to be optimistic at this point."
The weight of tariffs reached the Midwest as well. Paul Hletko, who founded Few Spirits in Evanston, IL. eight years ago, worries Europeans will start substituting American-made bourbon for other alternatives such as Irish whiskey, the Chicago Tribune reports. The newspaper went on to show how small distilleries in the area have been affected by tariffs from the EU and China:
Few Spirits, which exports its whiskeys and other spirits to 35 countries, is shifting its focus to South America and Africa, where countries have not imposed retaliatory tariffs, Hletko said.
Koval, a distiller in Chicago’s Ravenswood neighborhood that exports to 55 countries, put a planned product launch to mainland China on hold because of that country’s 25 percent whiskey tariff, and now plans to move forward with fewer products and a focus on gin instead of whiskey, said Sonat Birnecker Hart, who co-owns the 11-year-old business with her husband.
Exports account for 30 percent of Koval’s sales, so the tariffs have eaten into profits. The company is extending its reach into Australia and Japan, which are not involved in the tariff battle, Birnecker Hart said.
The tariffs scuttled Chicago Distilling’s plans to start exporting whiskey and gin to Europe and China, said Jay DiPrizio, who co-owns the Logan Square distillery with his wife and brother. Importers informed the 6-year-old business that they won’t take on new brands, he said.
Chicago Distilling, which currently sells its products in 10 states and Australia, plans to redirect its resources to expand into new U.S. markets because of the trade war.
“It’s been a hindrance to growth,” DiPrizio said.
Millions of dollars are at stake. Last year, $704 million in whiskey was exported to the EU, while China imported $12.8 million worth.
News of the U.S. and China resuming talks to end their trade battle couldn’t come soon enough for distillers. Hopefully it leads to China lowering its tariffs. The same hope applies to the EU.
Whiskey producers of all sizes hope these trade battles end soon so consumers all over the world can raise a toast with the best spirits the U.S. can offer.