Whiskey Summit Held In Louisville As Trade War Fears Mount

By Richard Thomas

Last week saw a landmark meeting as the executives from the world’s whisk(e)y trade organizations gathered in a show of unity, calling for the removal of tariffs between longtime trading partners on spirits exports.

Hosted by the Kentucky Distillers Association (KDA), the “W9 Spirit of Collaboration Summit” was held in Louisville on Thursday, July 26th. It brought together KDA President Eric Gregory with the leadership of the Scotch Whisky Association (SWA); Distilled Spirits Council of the U.S. (DISCUS); American Craft Spirits Association (ACSA); Irish Whiskey & Spirits Associations; Japan Spirits & Liqueurs Makers Association; Spirits Canada; and spiritsEUROPE. Although they can’t agree on whether their beverage should be spelled “whisky” or “whiskey,” these trade groups all concur that free trade is good for their businesses and their customers.

Trade Troubles
The European Union and Canada joined several other countries in retaliating against President Trump’s use of a national security exception to import tariffs on imported steel. Bourbon has been a common target for retaliatory tariffs, a move widely perceived as directed against Senate Majority Leader Mitch McConnell (R-KY), the senior senator from Kentucky, where bourbon is an $8.5 billion industry. Although Japan, represented at the W9, has not yet imposed retaliatory tariffs, it began to consider doing so in May.

The SWA helps represent the EU in world whisky only for the time being. When the United Kingdom withdraws from the EU on or before March 2019 (“Brexit”), the SWA will face its own battery of trade issues as its host country ceases to enjoy the common trading position offered by EU membership, that assuming it retains full trading privileges with its lucrative European markets.

The GOP Grumbles (Mostly)
Trump’s trade policies have met with a mixed response from prominent Kentucky Republicans. Although the state’s governor, Matt Bevin, dismissed the tariffs as harmless (a point of view no one in the American Whiskey industry shares), Congressman Andy Barr (R-KY) of Lexington has been pressing his concerns over damage the bourbon industry may suffer with Treasury Secretary Steven Mnuchin and Trump’s economic advisers. Barr has indicated that not just bourbon, but also the state’s automotive industry and its agricultural sector are set to see any potential benefits realized from the 2017 Republican tax cuts wiped out in a trade war.

Senator McConnell has also warned that the tariffs would prove damaging to the economy, although he has been criticized in some circles for not doing so more forcefully. The state’s junior senator, Rand Paul, is also among the critics, warning that a trade war would deal a “major blow” to Kentucky’s economy.

Trade War Already Drawing Blood
All of this is coming during the “Bourbon Boom,” a period that has scene the renaissance of American Whiskey, both with big distillers and a surging “craft whiskey” sector of small and mid-sized companies. Although the boom was born in the domestic market, the industry as a whole has looked to expanding exports as the means to sustain sales growth in the long term.

One need only look at what has already happened in just the first few months of the incipient trade war to see how tariffs of just 10 to 25% have impacted American distillers great and small. The big distillers responded in the short term by stocking up their foreign warehouses before the new taxes were in effect, but brands like Jack Daniel’s are already planning to raise prices. Meanwhile, smaller distillers from Virginia to Washington State have been forced to postpone or abandon plans to expand foreign distribution or seen foreign orders cancelled.