U.S., European Union slowdown on tariffs good news for bourbon industry

LEXINGTON, Ky. (WTVQ/Wire Services) — What could have been an even more serious hangover from former President Donald Trump’s trade wars three years ago got a hint of good news Monday.

The European Union agreed to postpone plans to raise tariffs on American whiskeys, motorcycles, boats and other items set to take effect June 1 as it begins talks with the Biden administration aimed at lifting U.S. steel tariffs.

In a joint statement, the U.S. and EU said they would begin formal discussions to address problems plaguing the global steel and aluminum industry, and “agreed to chart a path” toward resolving the dispute that led to tariffs.

They said the talks would include discussions on how overproduction in China depresses prices and threatens the viability of domestic metal producers.

The EU’s tariffs pending for June would have hit about $4 billion in U.S. exports to Europe. They were first announced three years ago, when the Trump administration imposed global tariffs on steel and aluminum, according to the Wall Street Journal.

The EU retaliated at the time and scheduled further retaliation to begin in June of this year if no progress was made at resolving the trade spat between Brussels and Washington.

“The United States and EU Member States are allies and partners, sharing similar national security interests as democratic, market economies,” said the joint statement released Monday from the European Union’s trade directorate, the Office of the U.S. Trade Representative, which is President Biden’s top trade agency, and the Commerce Department.

The U.S. and EU “can partner to promote high standards, address shared concerns, and hold countries like China that support trade-distorting policies to account,” the statement said.

The suspension of tariffs was quickly greeted with relief from American exporters who were poised to be affected, including U.S. whiskey makers.

“Distillers across the United States are breathing a huge sigh of relief after bracing for a 50% tariff on American Whiskeys in just a matter of days that would have forced many craft distillers out of the EU market,” Chris Swonger, the president of the Distilled Spirits Council, told the Wall Street Journal.

“We are encouraged by today’s agreement between the U.S. and the EU to avoid the doubling of tariffs on American whiskey. We applaud the Biden Administration and its EU counterparts for this positive step forward. However, American whiskey still remains subject to 25% retaliatory tariffs in the EU and UK. We remain hopeful that the negotiators will build on the progress that’s been made and ultimately secure a removal of tariffs on
American whiskey,” said Tracy Frederick, Corporate & Portfolio Media Relations Manager for the Brown-Forman Corporation, onew of the nation’s largest distillers.

For now, the U.S. tariffs on steel and aluminum remain in place, as does the European’s first round of retaliatory tariffs from three years ago. No specific action to do anything about overcapacity in China’s steel and aluminum industry was announced.

Despite a de-escalation, finding a solution to the issue that satisfies both trade partners, as well as the domestic steel and aluminum industries, could be difficult. The U.S. steel industry has strongly supported the tariffs.

American whiskey makers have been caught up in the trans-Atlantic trade dispute since mid-2018, when the EU imposed tariffs on American whiskey and other U.S. products in response to Trump’s decision to slap tariffs on European steel and aluminum.

Since then, American whiskey exports to the EU are down by 37%, costing whiskey distillers hundreds of millions in revenue between 2018 and 2020, the council said. American whiskey exports to the UK, the industry’s fourth-largest market, have fallen by 53% since 2018, it said.

The tariffs amount to a tax, which whiskey producers can either absorb in reduced profits or pass along to customers through higher prices — and risk 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’s cost him about three-fourths of his European business, and the looming 50% EU tariff threatens to drain what’s left.

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

He’s already curtailed some whiskey shipments to Europe as a hedge 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 significant money cultivating European markets, especially in Germany, France and the UK. He was planning to double his European business before the trade disputes hit.

“The way things are going, everything that we invested to date looks like it could be destroyed,” he said.

The tariffs have hurt spirits industry giants as well.

“We estimate that our company … has borne roughly 15% of the entire tariff bill levied against the U.S. in response to steel and aluminum tariffs,” Lawson Whiting, president and CEO of Louisville, Kentucky-based Brown-Forman Corp., said recently. “They have become a big problem for us and it’s imperative that we get it resolved as soon as possible.”

Brown-Forman’s leading product is Jack Daniel’s Tennessee Whiskey, a global brand.

For Kentucky bourbon producers, tariffs slashed their exports by 35% in 2020, with shipments to the EU plummeting by nearly 50%, the Kentucky Distillers’ Association said.

The EU had traditionally been the largest global market for Kentucky distilleries, accounting for 56% of all exports in 2017. It’s now about 40%, the association said.

“Our signature bourbon industry has sustained significant damage for more than two years because of a trade war that has nothing to do with whiskey,” KDA President Eric Gregory said. “And it will get much worse if we can’t deescalate this dispute.”

Kentucky distilleries craft 95% of the world’s bourbon supply, the association estimates.

The thaw in the U.S. disputes with the EU and UK were part of an effort to resolve a longstanding Airbus-Boeing dispute. The tariff suspensions applied to duties that had been imposed on some spirits producers on both sides of the Atlantic. But the breakthroughs left plenty unresolved, including disputes that led to the retaliatory tariffs still hitting American whiskey.

The suspended tariffs mean some European spirits producers can ship their products into the U.S. duty free, while American whiskey makers are still subject to tariffs, Whiting said.

“We just want a level playing field for American whiskey,” he said.

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