The Bourbon Bubble looks set to burst—for all of the wrong reasons. President’s Trump’s policy’s have pushed the United States (U.S.) to the brink of a trade war and Kentucky whiskey might be the first casualty overseas. The European Union is vowing to target the popular spirit which could mean that the industry will suffer, but domestic prices could be in for a dip.
On Wednesday, EU Commissioner Cecilia Malmström announced that member states are currently reviewing a list of American exports that the EU has marked for tariffs. The tax is intended as a retaliatory response to President Trump’s planned 10% tariff on aluminum imports and a 25% tariff on steel imports.
“Certain types of bourbon are on the list, as are other items such peanut butter, cranberries, orange juice, etc,” said Malmström. “Very soon that list will be public, so you will be able to plan your whisky drinking.”
Keep in mind that 95% of bourbon is produced in Kentucky— the home state of Mitch Mcconnell, the Senate Majority Leader. (Also targeted were oranges from Florida, home of Trump’s Mar-A-Lagao estate.) In Kentucky, the bourbon industry reportedly generates $8.5 billion and employs nearly 17,500 people. Needless to say,
“Any efforts to impose retaliatory tariffs on U.S. spirits exports to the EU will jeopardize this long-standing partnership, harm consumers through higher prices and more limited product availability, and significantly threaten the distilling renaissance that is creating industry jobs and generating billions in capital investment,” said Eric Gregory, President of the Kentucky Distillers Association in a statement.
While the American Whiskey industry is not enthused about the tariff for obvious reasons, the American whiskey drinker might be a little happier. Industry observers predict that the surcharge will lead to less European consumption. In fact, many brands will likely export fewer bottles after reading these tea leaves.
Fewer bottles abroad means more bottles in the United States. Econ 101 dictates that added supply plus static demand results in a price dip. So, one externality could be excellent news for collectors. Unfortunately, the downside is the potential for job loss among the massive chain of American workers that produce barrels, bottles, corn and grains for the mash, and the whiskey itself. Even worse, if the trade war were to continue for a sustained period, economics dictates that ultimately, total supply would drop to compensate for the reduced global demand.
Both the EU and Trump will finalize their plans over the next few weeks.