No bourbon party in Kentucky as tariffs drown exports

Standing beside his Harley-Davidson motorcycle at the Wild Turkey distillery in Kentucky, Larry Sewell is in heaven after a few glasses of the bourbon whiskey that has been his drink of choice for 40 years.

“This stuff is nectar for the Gods and I should know because I’ve drunk enough,” said Mr Sewell who rode from Alabama with his brother to visit distilleries on the Kentucky Bourbon Trail.

While spirits at the Wild Turkey distillery are high, the mood across the state’s signature industry is less upbeat. Across Kentucky, distillers are worried about the impact of tariffs that Europe, Mexico and Canada have put on US whiskey — from Wild Turkey to Jack Daniel’s — in retaliation for the Trump administration’s steel and aluminium tariffs.

“There is concern for sure in the bourbon industry,” said Andy Barr, a Kentucky Republican congressman whose district boasts several big distilleries. “It’s extremely important because it is a source of jobs . . . it’s a way for us to export Kentucky to the world.”

The EU and Mexico have imposed 25 per cent tariffs on US whiskey while Canada has put a 10 per cent levy. While the duties apply to all US whiskey, they are designed to hurt Kentucky, which is home to Republican Senate majority leader Mitch McConnell.

Larry Sewell and his brother George on the Kentucky Bourbon Trail. © Demetri Sevastopulo

The tariffs are aimed at an industry that is growing rapidly. Over the past two decades, US whiskey exports have risen from $290m to $1.13bn, according to the Distilled Spirits Council. Eric Gregory, head of the Kentucky Distillers Association, said the tariffs will really hit the bourbon industry, which has been enjoying a renaissance, driven partly by more American women drinking the corn-based alcohol in addition to growing demand across Europe.

“We are riding the amber wave . . . and then something like this comes along. It’s kind of a downer,” said Mr Gregory, adding that the industry provides 17,500 jobs compared to 4,000 a decade ago. “The distilleries are frustrated because we feel kind of powerless. This is a fight we didn’t pick.”


Value of US whiskey exports

Amir Peay feels that frustration. In 2008, he relaunched the James E Pepper brand, which had been produced since the American Revolution until it went bust in the 50s. Over the past decade, he has built a business selling his “1776” bourbon and rye, and planned to make a big push in Italy and Britain this year to boost sales in Europe where Germany is his top market.

“Our business now is essentially collateral damage,” said Mr Peay, who estimates that he will have to increase his prices in Europe from €35 to €45 for a 700ml bottle.

Some of the big distillers have also warned about higher prices. Campari, which owns Wild Turkey, said the tariffs would not hurt growth plans but will “result in price increases”. Brown-Forman, which makes Jack Daniel’s, said European consumers will pay about 10 per cent more.

The large distillers have, however, played down the impact of the tariffs. But Mr Gregory said the long-term damage to the business could be significant, especially since many have made big investments in recent years to service the growing demand from Europe and countries in Asia such as Japan.

“We’ve just scratched the surface on converting Scotch drinkers and others to bourbon overseas,” said Mr Gregory, who worries that some converts will revert to Scotch as bourbon becomes pricier.

Given the stakes, Mr Peay is surprised that the big producers have not been more vocal in criticising the Trump administration. “It probably has to do with people not wanting to be perceived as taking political sides during a very contentious time in politics in America,” he said.

The James E Pepper brand, which had been produced since the American Revolution until it went bust in the 50s. It was relaunched in 2009. © Demetri Sevstopulo

Al Cross, a political columnist and University of Kentucky journalism professor, said their caution comes from producing in a state with a big evangelical population where there used to be many “dry” counties prohibiting alcohol sale. “Most places are now wet, but they are still pretty careful about making people mad. So the smart thing for them to do is wait and see.”

Lexington Mayor Jim Gray said the distillers were also hoping “that perhaps Trump’s impetuous will play out here and he will do an about face,” which he feels is overly optimistic.

Mr Gray and Mr Barr both stress that while the threat to bourbon is immediate, they are also concerned that Mr Trump is considering introducing auto industry-related tariffs, particularly since the Lexington area boasts the largest Toyota plant in the world. But until that emerges, the main concern in the area is focused on whiskey.

Mr Gregory said the last time distillers really stood up was in 2009 when the threat of taxes sparked a “Bourbon Tea Party” in which protesters poured bourbon over the steps of the state Capitol building in Frankfort. “We’ve been kind of fingers crossed,” he said. “If it continues to escalate . . . we might not be pouring bourbon on the Capitol steps or the White House, but you’ll see us continue to elevate our message.”

Mr Barr, who has lobbied everyone from Steven Mnuchin, Treasury secretary, to Mike Pence, the vice-president, hopes that there is an element of the “Art of the Deal” to the way Mr Trump is handling the issue.

But he also understands that while Mr Mnuchin and Larry Kudlow, the White House economic adviser, are less enamoured with tariffs, hardliners such as Robert Lighthizer, US trade representative, and Peter Navarro, the hawk whose views most closely align with Mr Trump, are harder to sway.

Asked whether Mr Navarro and Mr Lighthizer are bourbon drinkers, he responds with a smile: “I hope they are . . . I invite them to Kentucky so they can have a glass of bourbon with me.”

Follow Demetri Sevastopulo on Twitter: @dimi

Like it? Share with your friends!

22140 shares, 848 points

What's Your Reaction?

Fake Fake
Epic Epic
Like Like

Comments 0

Your email address will not be published. Required fields are marked *

No bourbon party in Kentucky as tariffs drown exports

MainStreet Econ

Join the MSE Community

reset password

Back to
MainStreet Econ
Choose A Format
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Voting to make decisions or determine opinions
Formatted Text with Embeds and Visuals
The Classic Internet Listicles
Open List
Open List
Ranked List
Ranked List
Youtube, Vimeo or Vine Embeds
Photo or GIF
GIF format

Send this to a friend