Kentucky bourbon seen as likely victim of Trump’s trade war

Retaliatory trade actions against the U.S. in response to President Trump’s steel and aluminum tariffs are poised to inflict significant economic damage on Senate Majority Leader Mitch McConnell’s home state of Kentucky and its bourbon industry.

Last week the European Union imposed a 25 percent duty on all U.S. whiskey products, part of $3.8 billion in tariffs on American goods. That came after Mexico’s slapped on a similar tariff for American whiskey exports, which amounted to $13.4 million last year.

And starting July 1, Canada will impose a 10 percent tariff on all U.S. whiskey products, valued at $48.7 million in 2017.

But despite pressure at home to fight back against the tariffs targeting an industry synonymous with Kentucky, McConnell has not spoken out forcefully against the administration’s trade strategy, beyond saying in a speech in Louisville earlier this month that Trump’s steel and aluminum tariffs “will not be good for the economy.”

“Canada and Mexico, Europe — these are our allies, and we need to work this out in a way that’s comforting to everyone,” he said on a separate occasion. 

When asked if he thought the EU was trying to get his attention by targeting the whiskey industry, he said: “Well, they got my attention. They didn’t need to do that.” 

Sen. Rand Paul (R-Ky.) warned that tariffs from traditional U.S. trading partners “would be a major blow to Kentucky’s economy and our country’s recent economic gains.”

“While I agree we must take a tough stand against countries that are cheating, I do not believe the solution is to impose taxes on consumers and our most important trading partners,” Paul said in a statement to The Hill. 

The Kentucky Distillers’ Association (KDA) says the state produces about 95 percent of the world’s bourbon, and it predicts the tariffs “will have a significant impact on bourbon investment, employment and economic growth throughout the commonwealth.”

The distilled spirits business in Kentucky supports almost 31,000 jobs and exports more than $452 million in goods, with roughly $200 million going to Europe.

KDA President Eric Gregory warned that a hit to the state’s bourbon exports could pose widespread damage to Kentucky’s economy, affecting the entire supply chain in bourbon production.

“An extended trade war would not only harm our iconic industry, but also Kentucky’s farm families, cooperages, glass and other suppliers, hospitality and tourism partners, and ultimately, our loyal consumers through higher prices and limited availability,” Gregory said.

Those consequences have prompted calls for McConnell to take a stronger stance against Trump’s tariffs.

But the Senate’s top Republican has faced criticism for not letting fellow lawmakers attempt to rein in Trump’s tariffs through legislation, saying the president would simply veto such a measure.

Rep. John Yarmuth (D-Ky.), told The Hill on Tuesday that McConnell took “the coward’s way out” by avoiding a confrontation with Trump on tariffs despite being against them.

“He won’t act because he says the president wouldn’t sign it,” Yarmuth said. “There’s something called an override.”

The Courier Journal, the state’s largest paper, also called on McConnell to take a harder line against the tariffs or risk “dire” consequences for Kentucky.

“The time for genteel chatter has passed,” the paper wrote in a June 11 editorial, citing the $825 million in federal, state and local taxes produced by the Kentucky bourbon industry. “We need strong action to protect jobs and Kentucky-made products.”

The retaliatory tariffs on U.S. spirits could also hit the economy of Tennessee, which exports more whiskey than any other state.

On Wednesday, the parent company of Jack Daniel’s Tennessee Whiskey said prices will increase by about 10 percent in the European Union over the next couple of months because of the 28-nation bloc’s new tariffs.

Frank Coleman, senior vice president of the Distilled Spirits Council, said that the industry has never been down this road before, so it’s hard to know what might happen.

“We’re collateral damage in somebody else’s fight,” Coleman said. “We want everyone to get people back to the table to talking again,” he said.

Overall exports of American whiskeys, including bourbon rose to $1.13 billion in 2017, up from $290 million in 1997.

Sales have risen sharply in the 22 years since tariffs on distilled spirits were eliminated between the U.S. and EU. 

Last year, total exports to the EU were valued at $789 million, up almost four times from the $155 million in 1994, before the tariffs were eliminated according to the Distilled Spirits Council.

U.S. whiskey is now exported from small, medium and large distillers located across 37 states.

The Distilled Spirits Council wrote a letter this month to Commerce Secretary Wilbur Ross expressing its “extreme concern” about the retaliatory efforts by Canada, the EU and other nations that would affect the industry.

Overall, U.S. exports worth about $759 million, representing 46 percent of global U.S. spirits exports and 65 percent of global U.S. whiskey exports, are the target of retaliatory tariffs, the council said.

“However, the imposition of tariffs on these products by our major trading partners threatens to seriously impede the export progress that has benefited our sector and created jobs across the country,” the letter warned. 

In addition to major U.S. trading partners, Turkey has imposed a 70 percent tariff on U.S. distilled spirits, which include Tennessee whiskey, rye whiskey and bourbon.

China, one of the world’s fastest growing markets for U.S. whiskey, wants to slap a 25 percent tariff on whiskey imports. U.S. spirits exports to China have grown by about 1,200 percent from $959,000 in 2001 when China joined the WTO, to $12.8 million in 2017, with $8.9 million of that being whiskey.