US whiskey makers look to Europe as Trump-era tariffs lifted

Amir Peay had high hopes when he reclaimed the abandoned 140-year-old James E. Pepper Distillery near the heart of Lexington, Ky. After years of planning and renovating, he was finally ready to produce whiskey on site in 2017. But Peay’s hopes were dashed months later as the European Union imposed tariffs on American whiskey.

“We thought we could really grow our business there,” Peay says. “That is, of course, until June 2018, when, out of the blue, American whiskey was embroiled in a trade war.”

But now Peay and whiskey distillers across the United States raise their glasses and set their sights, once again, on Europe. The United States and the European Union announced a trade deal last month that effectively lifts tariffs on US whiskey by 25% from January.

The tariffs, which had been collected amid a growing trade dispute between the Trump administration and the EU over steel and aluminum, also targeted U.S. exports such as motorcycles and denim, and international growth blocked for the nascent American whiskey industry.

Europe is a major importer of US spirits, but distillers saw a 53% drop in US whiskey exports to the UK and a 37% drop to the EU while tariffs were in place, resulting in a loss of revenue of more than $ 300 million, according to the Distilled Spirits Council.

Then COVID-19 exacerbated the pain of small stills as they were forced to close their doors to tours and tastings, and bars and restaurants closed.

“At first when the pandemic hit you know me and us as a business were really, really nervous and scared,” Peay said, adding that the bars and restaurants were near the half of its activity at the time.

The distillery has shifted to retail sales. And with more people drinking at home throughout the pandemic, the company sold a record number of cases of whiskey in 2020, Peay says.

“We had very strong domestic growth,” Peay explains. “But it made us change the way we wanted to allocate stocks to Europe, and it changed what was going to be our growth trajectory in Europe.”

It might be difficult for small artisanal stills to reclaim the space they wasted on European store shelves when tariffs were imposed, now that distributors have adjusted their purchasing strategies.

“Once you leave the shelves, it’s 300 times harder to come back,” says Sonat Birnecker Hart, president of Koval Distillery in Chicago, Illinois.

Hart says Koval has decided to keep its prices stable, essentially by eating the overhead of the tariffs, in order to maintain the existing relationships.

“We had to show them we were there for the long haul,” says Hart.

So when the Biden administration announced that it had reached an agreement with the EU to lift tariffs, Hart saw reason to rejoice.

“We brought out the bourbon cocktails to toast the disappearance of tariffs,” says Hart. “That being said, you know, there is still work to be done.”

Especially when it comes to Great Britain. The UK is no longer part of the EU, thanks to Brexit, and has yet to remove its tariffs on American whiskey.

Still, Amir Peay in Lexington is optimistic that a deal will be made and that demand for American whiskey will increase.

“It’s not a switch. We can’t just flip it and immediately say ‘Let’s go back to what we had’,” he says. “I am not sure of 2022, but I am convinced that 2023 and beyond … It is a very bright future for American whiskey in Europe.”

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