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Whiskey Sour: US Bitter distillers’ prices exceed 25% set to double in June

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Tariffs levied by the Trump administration have hampered U.S. sales of single malt scotch for more than a year, so when they were suspended this month, Euan Shand and his colleagues occasionally drank.

We raised a glass of whiskey to celebrate, said Mr Shand, chairman of liquor dealer Duncan Taylor in Huntly, Scotland, whose brands include the Black Bull scotch Mr Shand soaked to toast. ‘opportunity.

There wasn’t much to celebrate about 4,000 kilometers away in the Kentuckys bourbon belt. American whiskey makers are still subject to 25% tariffs on spirits they export to the UK and the European Union. In addition, EU levies are expected to double to 50% in June.

We’re literally frozen, said Amir Peay, owner of the James E. Pepper Distillery in Lexington, Ky., Who says the tariff hit just as he started investing heavily to take advantage of what had raised prices. sales in Europe.

The woes preoccupying American whiskey makers reflect both the complications of global trade and the inclination of warring parties to target iconic products in disputes. The United States imposed tariffs on Scottish and French wine, and the Europeans taxed Harley-Davidson motorcycles and American whiskey, although the underlying disputes had nothing to do with these products.

Since taking office in January, the Biden administration has taken steps to ease trade tensions with European allies. In joint announcements with the EU and the UK, it recently agreed to a four-month suspension of tariffs imposed in a dispute over subsidies to commercial aircraft manufacturers Boeing Co. and Airbus SE, while the parties seek a resolution.

This lifted tariffs that had taxed, among other products, Scotch whiskey and French wine exported to the United States, as well as American baggage, products and vodka exported to Europe.

The still at the James E. Pepper Distillery.

Fermented rye puree at the James E. Pepper Distillery.

Distiller Cody Giles, left, and Master Distiller Aaron Schorsch working on the bottling line at the James E. Pepper Distillery.

The still at the James E. Pepper Distillery. Sour rye mash ferments at the James E. Pepper Distillery. Distiller Cody Giles, left, and Master Distiller Aaron Schorsch work on the bottling line at the James E. Pepper Distillery in Lexington, Ky.

Despite this, the EU and Britain have retained tariffs on US whiskey, which were imposed separately in retaliation for US tariffs on steel and aluminum imports that remain in place.

American whiskey makers say they’re being punished for a fight they didn’t start.

Why drag us into this conflict? asked Mr Peay, who had set up a distribution base in Amsterdam and ordered European-sized bottles from an Italian glassmaker before tariffs altered expansion plans.

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American whiskey makers could face even more difficult times. The EU is threatening to increase tariffs on US whiskeys to 50% by June 1 unless the two sides can negotiate a solution. The UK is also considering further action, a government spokesperson said, adding that it continues to press the US for a resolution.

Tariffs of 50% would be truly disastrous for the US whiskey industry, said Lawson Whiting, president and CEO of Brown-Forman Corp., the largest whiskey maker in the United States whose flagship product is the Jack Daniels Tennessee sour mash whiskey.

Freed from tariffs, single malt whiskey and Irish whiskey distilled in Northern Ireland are now expected to increase their market share in the United States, while American whiskey will remain subject to punitive tariffs in Europe, Mr. Whiting said. .

We’re the only mind under these tariffs now, he said. The American whiskey category should not bear the brunt of the whole trade war.

Lawson Whiting is President and CEO of Brown-Forman Corp. Photo: Brown-Forman Corporation

Europe and the UK account for about half of US whiskey exports. Before tariffs, American whiskey makers were profiting from higher sales. Exports of American bourbon and other whiskeys to Europe (including the UK) increased from $ 527 million in 2010 to $ 741 million in 2018, when tariffs were imposed, according to the Census Bureau .

Those exports fell to $ 469 million last year, according to the Census Bureau, down 37% from a peak in 2018.

Brown-Forman estimates that whiskey accounts for a quarter of the tariffs collected by the EU in the steel and aluminum dispute, increasing export costs by around $ 250 million a year. Some of these costs were passed on to consumers through higher prices and others were absorbed by exporters, according to the companies.

Whiskey makers, with the backing of politicians including Republican Senate Leader Mitch McConnell of Kentucky, are calling on the Biden administration to reach a deal with Europe to end tariffs on their products.

If you ask me, the whole world could benefit from a little more Kentucky bourbon, McConnell said Wednesday, before the Senate votes to confirm Katherine Tai as the U.S. trade representative.

During her Senate confirmation hearing, Tai said the United States would seek an effective solution that examines the full range of political tools to address this larger problem.

The James E. Pepper Distillery.

But it has not made a commitment to end tariffs on steel and aluminum. The United States had imposed these measures for national security reasons, saying they had to protect a strategic industry from the effects of cheap imported steel produced with government subsidies.

In some ways, that’s how the system is supposed to work, Ms. Tai said. You inflict pain on other stakeholders to try to motivate each other to come to a resolution.

An EU spokesperson in Washington said the coalition was ready to work with the United States to resolve bilateral trade irritants that were weakening our strategic partnership, but that in the absence of an agreement, the doubling of the whiskey price will be automatic.

Unraveling the steel and aluminum dispute will be more difficult than resolving the battle over aircraft subsidies, said Bill Reinsch, senior adviser at the Center for Strategic and International Studies. Mr Reinsch said these complications include China-induced global overcapacity and tariff support by the powerful US steel industry.

I don’t think they’ll go away easily, he said.

Master Distiller Aaron Schorsch, left, and Distiller Cody Giles at the James E. Pepper Distillery.

Some US companies, including Harley-Davidson Inc., have responded to EU tariffs by shifting part of their production overseas. This is not an option for whiskey makers whose products are rooted in their geographic region of Kentucky and Jack Daniels of Tennessee.

At James E. Pepper in Kentucky, uncertainty over the trade struggle, especially the threat to double the tariff, is wreaking havoc on its operations, Peay said. The company struggles to decide how many bottles to order and which labels to print, let alone how many cases of whiskey to ship.

Twenty-five percent decimated us, he said. Fifty percent will literally take us out of the European market.

For Mr. Shand, who takes advantage of his scotch with a drop of water, it is a brighter picture. After Duncan Taylor lost more than half of his sales of single malt whiskey in the United States last year, Shand is forecasting a 40% rebound this year.

We are making progress, Shand said. We’re going to have sales ready.

Copyright 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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