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Kentucky Distilleries Are Making More Bourbon Than They Have in Almost 50 Years. But the Trump Trade War Has Them Worried

Kentucky’s whiskey industry is in rude health, with the state’s inventory of aging bourbon—almost two barrels for every person in the state—at its highest level since 46 years ago.

However, the Kentucky Distillers’ Association (KDA) said in an annual report Thursday that the state’s distillers were concerned about the impact of retaliatory tariffs against the U.S. The report’s tally of barrels was calculated before those tariffs took effect, raising the cost of U.S. bourbon in the EU, Mexico and Canada.

“We are still working to understand the actual impact of those tariffs, and remain hopeful that it’s a short-term issue that will be resolved soon,” said KDA president Eric Gregory in a statement.

The KDA report refers to data from the start of 2018. It showed annual production last year cleared 1.7 million barrels for only the second time since 1968, reaching a record tax-assessed value of $3 billion. The value was up on 2016 by $456 million, and production was up by 129,000 barrels.

According to the KDA, Kentucky distillers are set to benefit from new laws that allow visitors to ship souvenir bottles home to other states. Attendance at “Bourbon Trail” distillers is up 314% over the last decade, and U.S. whiskey is currently very popular overseas, in places such as China, India and Europe.

“If you take the concern about the trade war off the table, and barring any other unforeseen obstacles, we’re on an incredible trajectory to break historical records in the next few years,” Gregory told the Associated Press.

In response to steel and aluminum tariffs from the U.S., the EU and Mexico slapped a 25% duty on U.S. whiskey, while Canada opted for 10%. The retaliatory tariffs were highly targeted, as Kentucky is part of President Trump’s heartland, and also the home of Republican Senate majority leader Mitch McConnell.

The effect could be a dent in bourbon’s campaign to tempt drinkers away from scotch whisky.

The owner of the James E. Pepper bourbon brand complained a couple months ago that the EU tariffs meant the European price of one of his bottles would likely rise from €35 ($40.60) to €45 ($52.20,) while Jack Daniel’s maker Brown-Forman (BF-B) also predicted price rises.