Bourbon Makers In The Red State Of Kentucky Prepare For Tariffs
RACHEL MARTIN, HOST:
It would be understandable if executives in Kentucky's bourbon industry said they need a drink. Bourbon whiskey is the target of tariffs in Europe and elsewhere. Europeans imposed a 25 percent tax as retaliation for President Trump's tariffs on aluminum and steel.
STEVE INSKEEP, HOST:
It's no coincidence that the taxes fall on an industry centered in Kentucky, which voted for President Trump, and is the home of Senate Majority Leader Mitch McConnell. The Republican congressman from bourbon country, Andy Barr, faces a hard fight for re-election, which President Trump supported with a visit on Saturday. We visited the town branch distillery in Lexington, where bourbon is made in a giant copper still. And we met Eric Gregory of the Kentucky Distillers' Association, who described a product rooted in the United States.
ERIC GREGORY: The same reasons why we have the world's greatest horses are the same reasons we have the world's greatest bourbon. Kentucky sits on a limestone shelf. That limestone shelf filters out the water, takes out all the impurities. And it just became the perfect place to make the world's best whiskey.
INSKEEP: How global a business is this?
GREGORY: More and more so now than it ever has been. We export Kentucky bourbon to about 126 countries.
INSKEEP: So at this point, if you looked at a percentage of the industry, is the export market a nice little extra? Or...
GREGORY: No, it's getting to the point where it's more than 50 percent of the bigger players. But in the past 10 years, your - probably your global sales have been outpacing your domestic sales.
INSKEEP: Wow. And just to - just to be clear on that fact, you said for the larger distillers, more than half their market may be overseas.
GREGORY: From distiller to distiller, but yes, I would say their international sales are starting to outpace their domestic sales. In the past 15 to 20 years, the global market's really increased, ever since we started with the free trade agreements in the mid '90s.
INSKEEP: What were the key free trade agreements that made a difference?
GREGORY: Well, NAFTA and the EU agreements.
INSKEEP: So what have people been thinking about here as those free trade agreements have become under threat?
GREGORY: Well, very concerned. A lot of the big players were able to stockpile overseas and kind of hopefully get through a short-term problem. But at the same time, we - you know, you have distillers that are starting to look at what happens if this starts to escalate. And that's a point where we don't want to go.
INSKEEP: When people game that out, what does that look like? Just you profit a little less, or does the market go away in some cases?
GREGORY: Well, we don't like any of the options on the table. This is a 25 percent tax increase - tariffs are taxes, no doubt about it. So you're either going to pass along those costs to your consumer - and hopefully you, you know, have people that you've converted from scotch to remain bourbon drinkers. Or you take fewer profits back, which means less investment back home here in Kentucky. And we don't like that option either. So there are a lot of different ways out of this. And we don't like any of them.
INSKEEP: Stating the obvious, this is a state that voted big for President Trump.
GREGORY: It did.
INSKEEP: It has voted for Republicans a lot.
GREGORY: It has.
INSKEEP: When you have conversations with people, do you run into people who are having conflicted feelings?
GREGORY: I think we all understand that there are no winners in a trade war. And, you know, we're - we didn't ask for this issue. We're kind of caught in the middle of this. So that's where the conflicted feelings are. We don't understand why, you know, we're kind of collateral damage, you know, to be honest with you. But again, I haven't heard much it come up as an issue yet.
INSKEEP: You mean an issue like an election issue.
GREGORY: Yeah, it hasn't really come up. I mean, Congressman Barr has been very helpful to us in the past few months. He set up a meeting with Vice President Pence when he came to Kentucky in the spring.
INSKEEP: How did the vice president respond?
GREGORY: He - you know, being from Indiana, he knows what bourbon means for Kentucky. He...
INSKEEP: We'll note, for the non-geographically-minded, right across the Ohio River...
GREGORY: Right across the river, yes. And he told us he understood exactly that this - what this issue could mean for us. Bourbon is a uniquely American spirit. You can't make it anywhere else. You can make it in the United States, but you can't make it overseas and call it bourbon, thanks to 1964.
INSKEEP: That's a federal law, right?
GREGORY: It is a federal - in 1964, Congress passed a resolution declaring bourbon to be an indigenous spirit to the United States. Unlike, you know, Harley-Davidson, which announced that it could move some production overseas, we can't do that with bourbon. You've got to make it here in America. And if you want sell it, you'd better make it in Kentucky.
INSKEEP: Beginning of next year, you're going to have a problem with exports if this hasn't been...
GREGORY: Yeah, I think that's when you can start to see some real long-term consequences - because one of our greatest fears is that all these scotch drinkers that we've converted over the last few years, suddenly, if they start looking from a price standpoint, if the bourbon is higher in price, maybe they go back to drinking what they were drinking before. You know, we might lose people for our industry. And if we lose them now, then we might lose them for a generation.
INSKEEP: Eric Gregory of the Kentucky Distillers' Association. Transcript provided by NPR, Copyright NPR.