American distillers have been rushing to prepare for the possibility of steep tariffs in the European Union as the looming deadline for a 50% tax on American whiskey becomes more of a reality.
To cope, some are ferrying as much product as possible to the EU — one of the industry’s biggest export markets — before the April 1 deadline.
Koval, a Chicago distillery founded in 2008, is ramping up shipments to reassure distributors, keep prices stable and secure shelf space against competitors, said co-founder Sonat Birnecker Hart.
“We’ve been working with our distributors abroad to provide them with a level of understanding that we do want to remain in the market. We’ve also sent more product over to try and weather the storm,” she said.
The whiskey tariff is part of the EU’s retaliatory response to ongoing US trade restrictions on steel and aluminum that started during President Trump’s first term in office. On Thursday morning, Trump threatened to impose a 200% tariff on European wine, Champagne, and other alcoholic beverages unless the EU lifts its 50% tariff on US whiskey, he said in a social media post. “This will be great for the Wine and Champagne businesses in the US,” he added. Though Champagne, by definition, can only come from France’s Champagne region.
American whiskey was previously subject to a 25% tariff, which the EU imposed in 2018 but suspended in late 2021 as part of trade negotiations under President Biden. Since then, American whiskey has been tariff-free in the EU. However, the 50% tariff is set to take effect on April 1 unless the US and EU reach a last-minute agreement before the end of the month.
One strategy distillers can’t take is relocating production elsewhere to avoid tariffs, said Chris Swonger, chief executive officer of Distilled Spirits Council of the United States, the industry’s top lobbying group. Certain spirits, including bourbon, Tennessee whiskey, Cognac and Irish whiskey, have protected designations, which means they can only be made in specific countries or regions.
The EU’s announcement is “deeply disappointing and will severely undercut the successful efforts to rebuild US spirits exports in EU countries,” Swonger said in a statement.
US distiller Brown-Forman Corp, the maker of Jack Daniel’s, is poised to be impacted substantially as the EU accounts for about 20% of net sales, said Bloomberg Intelligence analyst Kenneth Shea. “If imposed, I believe it could materially impact the company’s sales growth and gross margin,” he said.
Brown-Forman said it was hopeful that both the US and the EU would reach an agreement before the tariffs snap into effect next month, Elizabeth Conway, a spokesperson for Brown-Forman, said.
“We are continuing to prepare for different scenarios and are committed to navigating these evolving circumstances to best serve our consumers and stakeholders — just as we have done for the last 155 years,” Conway said.
Many producers are only now recovering from the impact of tariffs that were put in place almost seven years ago. From 2018 through 2021, when the 25% tariff was first leveled by the EU in response to Trump’s duties on steel and aluminum, American whiskey exports to the EU plunged 20%, from $552 million to $440 million, said Marten Lodewijks, president of market research firm IWSR US. The trade war also caused a string of headaches for distillers, including canceled export contracts and halted investment and expansion plans.
Brown-Forman decided to absorb the cost when the tariffs were first imposed, expecting the duties wouldn’t remain in place for more than a few months. That move resulted in annual expenses of $80 million, squeezing profit margins and restraining the company’s hiring and growth plans.
“Brown-Forman’s gross margins were negatively impacted as it chose to essentially pay for the tariffs rather than raise prices in the EU on its affected products, and thereby lose sales and market share,” Bloomberg Intelligence’s Shea said. “It is possible that this could happen again.”
Smaller US distillers are feeling the pressure, too. Brough Brothers, the first African American-owned distillery in Kentucky, opted to withdraw from the EU market in 2020 after grappling with the tariffs. Now, with a potential 50% tariff on the table, the Louisville-based distillery has been looking at other international markets, including India and Brazil, as a backup plan. It’s also considering expanding its imports beyond whiskey – the company’s portfolio already includes rum, gin and vodka.
“A 50% tariff is really steep. If 25% was tough, 50% is almost a non-starter. It will seriously impact our ability to sell in the EU,” Brough Brothers CEO Victor Yarbrough, said.
“If there’s a silver lining, it may be that the UK, which is now outside the EU market, will not retaliate and will continue to work towards a trade deal,” Yarbrough added.
These tariffs could have long-term consequences, disrupting multi-year production plans and pushing price-conscious consumers to switch to other brands or products, said Melissa Gordon, the CEO of MGX Beverage Group, a supply chain and logistics company specializing in the alcoholic beverage industry. And the trickle-down effects could reach far beyond manufacturers.
“Today, distillers employ around 25,000 people in the US and positively impact the business of a much larger world of ingredient, packaging, sales and logistics companies. All are at risk of attrition,” she said.
For the moment though, distillers are busy flooding the European market with rushed shipments. “We are definitely experiencing demand being pulled forward,” Gordon said.
