Tariffs that Canada and the EU recently imposed on American whiskey have led to some wild armchair speculation on whisky chat boards and social media. Will they kill the American whiskey boom? Will other countries rush to fill the gap with new whiskies designed to mimic Bourbon?
The message from some of the multinational whisky companies seems to be that losses in some export markets can likely be made up elsewhere, particularly at home. However, new American distillers just breaking into global markets are vulnerable, particularly if Europe and Canada are key markets.
In theory, tariffs can motivate industries to move production from the targeted countries to the one initially imposing them. By hitting foreign producers with tariffs, the US administration hopes foreign steel and aluminum plants will set up shop in America. Of course this works both ways. When the EU responded with tariffs of its own on American exports, the price of Harley Davidson motorcycles in Europe went up. Shortly thereafter, the legendary American motorcycle manufacturer announced that it would alleviate the EU tariff burden by moving some production abroad. Like Harley Davidson, whisky too has become collateral damage in this trade war.
Whisky though, is one of the few manufactured products that cannot pick up and move when market conditions change. By international agreement, Scotch may be made only in Scotland, Canadian whisky in Canada, and Bourbon in the US. Moreover, whisky production, unlike other manufacturing, is hugely capital intensive because the product cannot be sold until it has aged for some years, and that ageing must occur in the country where it was distilled. Tariffs on American whiskey accomplish two things: decreased sales outside the US and reduced production within. This is a rare example of retaliation working as theory suggests it should.
Tariffs are a major distraction, taking makers' eyes away from moving forward
Since you can’t make Bourbon outside the US, the idea that other countries could pick up the slack by producing their own Bourbon-like whiskies seems somewhat dubious. To begin with, what would they call it? Would the prospect of filling a relatively small, temporary gap in the market, be worth two to five years of product development and support? Would introducing ersatz Bourbon serve to confuse new drinkers just getting a handle on the Scotch, Canadian, or Irish whisky categories?
The growth of the global whisky trade since the introduction of NAFTA and other international trade agreements, has been phenomenal. Whisky producers in all countries benefit from this. So it is no surprise that along with chatboard talk, the tariffs imposed by the US on steel and aluminum have generated significant discussion in official whiskydom too.
For the first time ever, a meeting of whisky trade associations from seven major whisky producing nations was convened in Louisville recently, to discuss responses to the growing trade war. Dubbed 'the W9,' the group agreed that the increasing success of global whisky exports was a prime example of the long-standing benefits of open and fair trade. The group was concerned that current trade issues threaten the growth of an iconic, international industry. To a whisky lover for whom borders simply mean another whisky style to enjoy, this cooperative tone was almost heart-warming . . . except.
From a business perspective, not much is going to happen in a climate of such uncertainty. Not only are tariffs a major distraction, taking whisky makers' eyes away from moving the business forward, if things get grim in Bourbon country, the multinational firms that own some of the largest producers there, will start directing investment dollars elsewhere.
Before the tariffs, major investments in Bourbon production were announced. Will government actions to benefit American steel and aluminum workers now backfire in Bourbon country? One thing's for sure: the people who actually make the American whiskey that so many of us around the world enjoy, are salt-of-the-earth good folk and should not be punished so others might benefit.