Has the trade war affected bourbon prices?
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Michael Isenberg asks:
Would a trade war mean cheap bourbon? If the European Union decides to place retaliatory tariffs on U.S. products like bourbon, would the lower demand abroad create an excess supply in the U.S.? Would that mean lower prices for U.S. consumers?
Bourbon, an iconic U.S. product, has become collateral damage in President Donald Trump’s second trade war.
Bourbon has always been on the front lines of any trade war — countries have targeted the product in order to send a message to Kentucky Senator Mitch McConnell, since his state produces so much of it, said Reid Mitenbuler, the author of “Bourbon Empire: The Past and Future of America’s Whiskey.”
“Bourbon was always kind of a casualty, just kind of coincidentally, because of Mitch McConnell’s historic power in the Senate, although he’s kind of taken more of a back seat in recent years,” Mitenbuler said.
The European Union toyed with placing retaliatory tariffs on American spirits earlier this year, eventually deciding to suspend its plans. Canada placed retaliatory tariffs on these drinks but removed them in September. However, most Canadian provinces have removed American spirits from their stores.
“Canada remains the only key trading partner to retaliate against U.S. spirits,” said the Distilled Spirits Council of the United States in a press release.
The ongoing global trade war has meant lower demand abroad, leading to extra supply in the U.S. But prices have remained steady for the most part, experts told Marketplace.
Spirit exports fell 9% year-over-year in the second quarter, with exports to Canada dropping 85%, according to an October report from DISCUS.
A bottle of bourbon can cost anywhere from between $20 to over $100 for more premium products, said Grant Gardner, a professor of agricultural economics at the University of Kentucky.
We are seeing higher supply, but we haven’t seen large drops in prices, Gardner said.
That’s because alcohol is a perishable good, which means you can put it in storage and release it at a slower pace, keeping prices at their current levels, Gardner said.
“I think your long-term hope is that you can just hold onto that product…and you can continue to sell it at a higher price later on,” Gardner said.
But we’re not seeing prices move up as much as they used to as a result, Gardner added.
“It’s not a good thing for the distillery themselves, as they’ve got all this production that they’ve put dollars and dollars into,” Gardner said. “They’ve got a lot of debt stored in those bottles, especially if they’re still continuing to store them. And so I think it does put them in a tight situation.”
The industry had already been in a bind, even without taking into account the trade war, Mitenbuler said. It would be hard to isolate the effects of tariffs on bourbon since there are other factors that can influence the price, he explained.
Millennials and Gen Xers had fueled a boom in the spirits industry over the last 25 years, helping to drive up prices, but they’re drinking less as they’ve gotten older and Gen Z isn’t drinking as much as those generations have, Mitenbuler said.
“So there are already huge surpluses in the industry,” Mitenbuler said.
A lot of whiskey companies had been looking to expand their reach in overseas markets as demand has tapered off in the U.S., Mitenbuler said, adding that the trade war could drive some producers out of business entirely.
“There’s something kind of ironic about this really iconic American product being hurt by policies that purport to be bringing America back or saving America,” Mitenbuler said.
Chris Swonger, president of the Distilled Spirits Council of the United States, told Marketplace that it’s trying to work with the Trump administration to protect spirits against tariffs.
The industry thrives when there are zero tariffs on both sides of the market, he said.