DES MOINES — Trade taxes on U.S. whiskey have Iowa distillers reaching for the bottle. They are concerned with retaliatory tariffs on whiskey implemented by the European Union, Canada, Mexico and China.
U.S. whiskey, among many other products, was hit with additional tariffs in response to new U.S. tariffs imposed by President Donald Trump’s administration in an effort to make U.S. steel more competitive and curtail Chinese theft of U.S. intellectual property.
The escalating trade war has caused great concern in Iowa, particularly among hog and soybean farmers. Whiskey producers are similarly uneasy.
“They already have impacted our business,” said Jeff Quint, owner of Cedar Ridge Winery in Swisher.
Cedar Ridge had to reduce the price on recent orders to France and Denmark because of the tariffs, he said.
“We ended up having to discount both of those shipments in order to keep the deal,” Quint said. “When you hear about a tariff you think we’re just going to raise the price in the other country. But it’s not their problem, it’s our problem, especially when you’re trying to start a new relationship with a new distributor in a foreign country.”
“We ate the bulk of it,” Quint added. “So yeah, it’s definitely affecting the bottom line.”
The spirits industry employs 1.5 million workers directly or indirectly, according to the Distilled Spirits Council. Exports worth nearly $760 million have been targeted by retaliatory tariffs, it says. That’s nearly half of U.S. spirits exports and almost two-thirds of U.S. whiskey exports.
“The imposition of tariffs on these products by our major trading partners threatens to seriously impede the export progress that has benefited our sector and created jobs across the country,” the council wrote in a June letter to U.S. commerce secretary Wilbur Ross. “We are extremely concerned about the impact that retaliatory tariffs will have on U.S. distilled spirits producers, as well as their agricultural and supply chain partners.”
Garrett Burchett, co-owner of Mississippi River Distilling in LeClaire, said even for a small whiskey-producing business like his, that does not export a high percentage of product, the tariffs still have a negative impact on the bottom line, especially through uncertainty.
Burchett said China was a market that had been closed off, and distillers took advantage of it opening up again. The Distilled Spirits Council said U.S. spirits exports to China grew from just less than $1 million in 2001 to $12.8 million in 2017.
“Generally what we’ve seen is what’s good for the larger companies usually trickles down to us as well. When they have good trade relationships, it’s easier for us to have good trade relationships as well,” Burchett said.
Mississippi River Distilling had not yet tapped the Chinese market, but has exported to Europe and Australia, he said, adding for smaller distillers, exports typically are large sales at a higher margin.
“So those sales are a real nice shot in the arm. When those are in flux or could go away, then it kind of leaves this question mark out there,” he said. “Certainly it’s not a huge part of our overall business. A lot of our business is more localized. That said, having markets that aren’t accessible anymore or that have larger burdens to them is a big deal.”
Burchett is also concerned with the greater impact tariffs could have on Iowa’s overall economy. He said if the tariffs become a drag on Iowa’s economy, people may start spending less on luxuries.
“If people have less income to go do those fun things like spend a weekend at LeClaire or some of those tourist activities, that would dramatically impact our bottom line,” Burchett said. “It leaves more question marks then I think any of us really want.”
The American Craft Spirits Association, which represents more than 1,700 small spirits producers, said craft spirits exports grew by 8.2 percent in 2017, and exports account for 10 percent of the industry’s annual production.
“Imposed tariffs on American whiskey exports or limiting our market access will dramatically, directly, and negatively affect not just our distillers and their families, who collectively make up a workforce of more than 20,000 employees across the U.S., but the farmers and agricultural partners who supply their grains, the manufacturing industry who has helped support our community as it grows, and the broader hospitality industry,” an association statement said.
Quint said Cedar Ridge, for which exports are roughly 15 to 16 percent of annual business, had planned to explore new trade relationships in China, but has put that plan on hold.
He said the tariffs have not yet impacted his business decisions beyond that, but could if the trade disputes drag on for months.
“We’re taking a wait-and-see approach (with China). Hopefully the negotiation will pay off at some point. But right now it’s rough,” Quint said. “At the end of the year, we’ll take a fresh look at this and if the situation is unchanged or worsened, then yeah, it may cause us to change our plans, including possibly cutting back production a slight amount.”