Kentucky bourbon industry caught in the middle as tariff war escalates with Canada

LOUISVILLE, Ky. (WDRB) — As President Donald Trump's 25% tariffs against Canada and Mexico start taking effect, the impact is already being felt in Kentucky.

The tariffs began Tuesday as the President demands those countries do more to stop the flow of fentanyl into the U.S.

Canada has already launched retaliatory tariffs, affecting Kentucky's booming bourbon industry, with reports showing stores in Ottawa are already pulling American spirits off the shelves. Chris Swanger, CEO of Distilled Spirits Council of the U.S., said Canadian stores pulling bourbon is "over the top."

"That's a little bit over the top," Swanger said. "That's almost masochist because the Canadian provinces are going to lose a lot of revenue because of that and probably enrage of a lot of Canadian consumers that love Kentucky bourbon."

Canada imports about $40 million of Kentucky bourbon every year, less than one percent of all bourbon sold, but the tariffs are hitting smaller distillers hard.

"This is an unnecessary trade war with a partner and an ally," Gov. Andy Beshear said.

Victor Yarbrough, CEO of Brough Brothers Bourbon, said they were in the middle of a deal in Canada when the deal was put on pause due to the tariffs.

"We were literally in the midst of that deal, and we were scheduled to be visiting in May, and now we just have to put everything on hold," Yarbrough said.

On Wednesday, President Trump and Prime Minister Justin Trudeau met to discuss the bourbon tariffs, but only the auto industry got a 30-day exemption.

The tariff war goes both ways as Canada sells a lot of spirits in the U.S., including the $2 billion a year Crown Royal brand. The tariff on Crown Royal might cause some American whiskey drinkers to turn to domestic products.

"It is not in Canada's interest to get into a trade dispute with the U.S. for the distilled spirits industry as well, so it's a lose lose situation," Swanger said.

But for Kentucky distillers like the Brough Brothers Bourbon, their strategy is simple, find other markets.

"We currently have a deal in South Africa," Yarbrough said. "We are also working on a few other countries, but I don't want to say because we don't want everyone to follow the trail."

The tariffs come at a time when American whiskeys sales were already falling as of early February, as threats of a trade war heated up.

The bourbon industry pumps $9 billion into the Bluegrass State's economy each year, creating more jobs and attracting more tourists than ever before, according to a study released last year.

Kentucky distillers produce 95% of the global bourbon supply, are responsible for more than 23,000 jobs and $2.2 billion in salaries and benefits, according to the Kentucky Distillers' Association (KDA).

In a statement released Tuesday, the KDA said the return of retaliatory tariffs on American whiskey will have "far-reaching consequences" across the state.

"That means hard-working Americans—corn farmers, truckers, distillery workers, barrel makers, bartenders, servers and the communities and businesses built around Kentucky bourbon will suffer," the statement continued. "As a distinctive product of the United States, bourbon cannot be made anywhere else in the world. It truly is America's only native spirit. Bourbon jobs are American jobs, and we grow bourbon jobs by opening markets across the globe.

"Retaliatory measures against bourbon harm these markets and jeopardize growth for years to come, including the unjust and disproportionate removal of American spirits from retail shelves and prohibition on new purchases of alcohol from American companies.

"Kentucky bourbon brings people together, and we hope it can be a uniting force in this situation. In the meantime, the Kentucky Distillers' Association will continue to remind leaders of the far-reaching impact of our signature spirit and our concern for the loss of American jobs."

The industry, however, still faces another threat on the horizon. A 25% tax on American whiskeys was imposed by the European Union in 2018 in response to U.S. tariffs on imported steel and aluminum.

While those 2018 tariffs have been stopped, there are more to come. WDRB reported in January that on March 31, the E.U.'s 50% retaliatory tariff is set to go in effect if no agreement is reached regarding the steel and aluminum imports.

"It's creating a lot of anxiety for the Kentucky bourbon industry for sure," Swanger said.

Although, there is some good news on the tariff front. India, the largest whiskey market in the world, recently dropped its 150% tariff on American spirits to 100%. President Trump, who overwhelmingly carried Kentucky in the November election, hopes to reach a deal that will lower it further or possibly eliminate the tariff all together.

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