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Kentucky Bourbon Producer Welcomes Pause in EU Tariff Hike

Kentucky Bourbon Industry Welcomes Pause in EU Tariff Hike
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Kentucky Bourbon Industry Welcomes Pause in EU Tariff Hike

James E. Pepper bourbon is as old as America itself.

"Originally founded during the American Revolution," says its current owner, Amir Peay, who adds that since it was established in 1780, this distinct brand of bourbon made in Kentucky has passed the lips of many prominent Americans. "The favorite brand of Ulysses S. Grant, Andrew Jackson, Henry Clay, and many, many others."

The distillery closed in the 1960s after the Pepper family left the business and sales tanked. But Peay saw an opportunity to relaunch the historic brand in 2008. Today, the spirit is as popular as ever, both at home and abroad.

After spending millions of dollars getting some initial barrels to mature and renovating the distillery, which reopened in 2017, Peay set his sights on increasing the brand's international market share.

"While it only accounted for about 10% of our business in 2017, we saw a lot of opportunity to expand," Peay told VOA. "In fact, we thought we could grow it to about 20% of our business in 2018 and 2019."

To do so, he invested even more, creating a 700-milliliter bottling line targeted for Europe, which the president of the Kentucky Distillers' Association, Eric Gregory, says was a lucrative export market at the time.

"Our exports grew from 2010 to 2017 by 98%," Gregory explained during a recent interview. "Most of that was going to the EU, which was our largest export market. We were averaging between 20% and 30% growth every year to the EU."

Peay says that no trade barriers were on his radar at the time, and he had no reason to think that would change. "In late 2017, there were no tariffs on American whiskey in Europe and most markets around the world."

But his dreams of continued expansion would be shattered by a trade war that erupted during the former Trump administration.

"The United States put tariffs on steel and aluminum products from a number of countries, including (some in) the European Union, and the European Union decided to respond with tariffs on a number of products," he said.

Targeted U.S. products included bourbon, which since 2018 has been subject to a 25% tariff in Europe.

"Crippling," Gregory said. "This is something we never saw coming."

Tariff troubles

About 95% of bourbon is made in Kentucky. The $8 billion industry in the state employs more than 20,000 people.

Global sales dropped by 35% after the tariffs were imposed, sending a shockwave through the industry. And it was set to get worse. EU tariffs were scheduled to double from 25% to 50% June 1, but the increase is on pause as the Biden administration negotiates a broader trade agreement.

"The problem we face right now is, all the whiskey imports coming into the United States are tariff-free for the next four months. Meanwhile, we are facing still 25% on our exports," said Gregory, who hopes negotiations lead to a return to zero tariffs. "For us, it's about getting back to free and fair trade. We just want people to sit down at a table and work this thing out."

Until then, Peay is trying to manage the uncertainty the trade war continues to create for his business, which relies on long-term planning.

"Even during the challenging year with the pandemic, domestically we've had a very strong performance. Internationally, we've been decimated because of the trade war," he told VOA. "The longer it goes on, the more damage it's going to do."

Distilling whiskey, Peay explained, is a lengthy and costly process. Market certainty is critical.

"You don't want send over product — and this is especially true for a small business like mine — that sits in a warehouse and doesn't sell, because that's a lot of money we've tied up in producing that whiskey, and there's no guarantee that's going to sell," he said. "How will we get it back here to the United States? We can't sell it over here (once it's returned), so it's very risky to do that."

An end to the dispute with the EU over steel tariffs that led to the bourbon tariffs isn't clear. Steel groups in the United States support the tariffs, which have helped rekindle a long-languishing industry.

Trade cooperation will be on the agenda during President Joe Biden's first foreign trip, a U.S.-EU summit slated for June in Brussels.

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    Kane Farabaugh

    Kane Farabaugh is the Midwest Correspondent for Voice of America, where since 2008 he has established Voice of America's presence in the heartland of America.