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Trade Wars are Bad Policy and Bad for Kentucky Bourbon

July 23, 2018

This week, representatives from the whisky industry around the world will meet in one place - Louisville. This meeting should be exciting and alarming for the people of Kentucky. On one hand it further drives home the idea that Kentucky is the whisky capital of the world - 95 percent of the world's bourbon is produced in Kentucky and the industry is only growing. The meeting, unfortunately, is also a cause for concern. In recent weeks, retaliatory tariffs placed on American spirits threaten what has become not only a staple industry of Kentucky, but an economic powerhouse. 

 

According to the Kentucky Distillers' Association the bourbon industry is a $8.5 billion dollar industry in Kentucky. This generates around 17,500 jobs with an annual payroll of $800 million. Not only is bourbon one of the highlights of our state, it provides for incredible economic gains. The Distillers' Association facts sheet shows that the production and consumption of the spirit produced more than $800 million in taxes. To put this growth in perspective, the state of Kentucky is making more barrels of bourbon than ever before, more than a barrel per person in the commonwealth.  For all the good that is happening in the bourbon world, a trade war would work against everything the bourbon industry has accomplished both at home and abroad in recent years.

 

The last 20 years have seen tremendous growth in exports for American distilled spirits and specifically American whisky. According to the Distilled Spirits Council, distilled spirits have seen an increase in exports of 185 percent in the last two decades. In 1997 distilled spirits exports totaled $575 million, in 2017 that number jumped all the way up to $1.64 billion. Of that, American whisky accounted for 78.8 percent of the increase. American whisky itself saw a 289 percent increase in exports over the same time period. 

 Tariffs and trade wars have throughout history been a international game of chicken. Milton Friedman described the often "invisible" effects of tariffs on the international economy. Though steel tariffs may save a job in America, the retaliation and auxiliary effects hurt other industries in unseen ways. A tariff for one industry is a tax against another industry. 

 

Breaking into the international market was not so easy for bourbon companies and now representatives from several different bourbon companies are unsure what effect the trade war and tariffs could have on their international business. Only a few days ago, the EU and Japan agreed to remove tariffs that would affect Japanese Whisky and Scotch, leaving Kentucky bourbon the loser, still. This leaves Kentucky bourbon companies remaining at a pause over what will happen, or how long this trade war will go on for. 


Christine LoCascio, the Distilled Spirits Council’s senior vice president for international trade said that tariffs threaten to “seriously impede” what has become a “great American success story."

 

For smaller distilleries the impact could be even greater. Owner of the James E. Pepper Distiller, Amir Peay said that a 25 percent tariff on American spirits will "have a big impact on a business like mine." According to the US Chamber of Commerce, nearly $180 million dollars of whisky exports from Kentucky alone will be affected by new tariffs. 

 

Distilleries all across Kentucky that have increased international sales in the last few years fear what the tariffs could do to their growth and investment. The second hand effects to bottling companies, farmers and distributes could be just as detrimental. The Distilled Spirits Council estimates that the American spirit industry directly and indirectly affects 1.5 million employees.  

 

Simply put, trade wars are bad policy and bad for Kentucky. International free trade is best way to support all American businesses, including Kentucky bourbon. 

 

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