• John McGary, Woodford Sun Staff

Distillers chief: no winners in trade wars

THIS FERMENTATION ROOM at Castle & Key Distillery had six mash vats cooking product in late October of last year with more expected online within months. The plans of Kentucky bourbon and whiskey makers could be disrupted if retaliatory tariffs are imposed by foreign countries as a response to President Trump’s tariffs on steel and aluminum. (Photo by John McGary)

Early and repeatedly during a Sun interview, Eric Gregory, president of Kentucky Distillers Association (KDA), said, “There are no winners in trade wars.”

It’s a sentiment echoed by Kentucky’s congressional delegation, led by Senate Majority Leader Mitch McConnell.

The problem for Gregory, McConnell and company – and those who make and sell Kentucky bourbon – is that someone in a more powerful position apparently has a very different opinion.

“Trade wars are good and easy to win,” President Trump tweeted in March.

Now, Trump’s tariffs on steel and aluminum have prompted retaliatory tariffs aimed at, among other things, one of Kentucky’s signature industries – bourbon whiskey.

(The Sun made multiple calls to Brown-Forman, maker of Woodford Reserve, and Castle and Key Distillery. They weren’t returned, but one of those parties apparently referred the request to Gregory, who said he’s fielding interview requests for multiple distillers around the state.)

“We just happen to have one of the most powerful men in Washington representing us and ... it doesn’t take a rocket scientist to figure out why Kentucky’s being targeted,” Gregory said. “We’re as frustrated as everyone else.”

Tariffs promised or already imposed by China, Mexico, Canada and the European Union will raise the price of bourbon in those countries, which will cause foreign bourbon-lovers to either drink less or switch to a cheaper brand, Gregory said.

Asked what can be done, Gregory cited frequent strategizing sessions with Kentucky’s congressional delegation and others.

In a statement from McConnell’s office, communications director Robert Steurer wrote, “The President wants to open markets and negotiate better treatment for U.S. goods and services, and Senator McConnell supports that goal. He has counseled (the president), however, that we can’t let this turn into a trade war. That would slow the progress we’re making economically as a country and it would be harmful to the Commonwealth. Senator McConnell will continue to discuss these issues with his constituents and with the President.”

A statement from Barr’s office quoted him as saying, “I appreciate the Administration’s intentions in endeavoring to modernize America’s international commercial relationships to promote free, fair and reciprocal trade. But I remain deeply concerned about the serious and unintended consequences of tariffs on Kentucky’s key industries, including auto manufacturing, bourbon, and agriculture. …”

The statement said Barr signed a letter with congressional colleagues expressing concern over a trade war and mentioned his facilitation of a meeting between Vice President Mike Pence and the KDA when Pence came to Versailles in March.

“While I generally oppose tariffs as impediments to free trade, I am hopeful these tariffs, specifically with China, can be used as leverage for greater market access for Kentucky exports,“ Barr wrote.

A few members of Congress have suggested passing legislation to limit the President’s ability to impose tariffs for national security-related reasons like Trump cited. However, McConnell has said he won’t allow a vote on the measure, and Gregory said the KDA isn’t pushing it.

“They have a number of options on the table and we will leave that to them as to what is the most effective way to resolve this issue,” Gregory said.

Gregory and others point out that it’s not just the makers and sellers of bourbon who could be hurt, but also farmers, glass manufacturers, truckers and those in the tourism and hospitality trades.

Gregory said when bourbon took a downturn in the 1970s and 1980s, companies like Brown-Forman, Jim Beam, and Heaven Hill diversified.

“So they bought a Canadian whiskey distillery or a tequila distillery in Mexico or a Scotch Whiskey distillery, so it’s just another reason why we’re part of the global economy,” Gregory said.

That diversification may now pose a greater threat to such companies, he said.

“Let’s say they target Kentucky bourbon and then this escalates and all of a sudden we put a tariff on scotch. Well, for any of our distilleries that own a scotch distillery, that’s punch number two. And then if Mexico gets involved and starts putting a retaliatory tariff on tequila, well, now you’re getting hit three times. It could really snowball and, like I said, there are not winners in trade wars, and so that’s why we’re hoping that we can work this out quickly,” Gregory said.

Gregory said Kentucky shipped $400 to $500 million of distilled spirits overseas in 2017, more than half of it to EU countries, which played a role in the distillery boom of the last five years.

“It’s the reason Brown-Forman is building warehouses in Midway and Maker’s Mark doubled its production. Heaven Hill just increased its production by a third. All this is to meet the growing global thirst for Kentucky bourbon,” Gregory said. “We’re probably one of the best examples of how, in the last generation, free trade works.”

At least some of that growth now seems in jeopardy, though some hold out hope that Trump or the other nations will reverse course and an all-out trade war will be averted.

At the end of the interview, Gregory was asked if he recalled who said trade wars are easy to win.

Gregory said he didn’t, then paused and asked, “Was that Trump?”

Told he was correct, Gregory chuckled, then said again, “We don’t think there are any winners in trade wars. There’s usually unintended consequences.”

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