Dry Fly Distilling is losing international whiskey sales as a trade war develops between the U.S. and its allies.

The province of Ontario canceled an order for 2,000 cases of whiskey, which would have been sold by retailers through its liquor control board, said Don Poffenroth, co-founder of the Spokane-based distillery.

Dry Fly’s distributor in the European Union isn’t filling orders, either.

Canada and the EU imposed 25 percent tariffs on American-made whiskey in retaliation for President Donald Trump’s decision to slap tariffs on steel and aluminum imports from those countries. China also imposed a whiskey tariff in response to American tariffs on its products.

The added taxes make the cost of U.S whiskey too stiff in those countries.

“This affects every U.S. whiskey producer from Jack Daniels all the way through to little guys like Dry Fly,” said Poffenroth, whose company has 10 employees. “We’re a tiny player in this whole equation, but it’s definitely a localized effect.”

The 11-year-old distillery produces whiskey, gin and vodka. International sales account for about 10 percent of Dry Fly’s business, and Poffenroth figures overseas whiskey sales may be gone for good.

“There is no way they’ll pay a 25 percent tariff,” he said of Canadians. “They already have a value added tax on spirits which makes alcohol in that country very expensive. … There is no way we compete with products made in other places in the world.”

Foreign markets have become a lucrative business for American whiskey makers. Export revenues for bourbon, Tennessee whiskey and rye whiskey products topped $1 billion in 2017, continuing a strong trend in recent years, according to the Distilled Spirits Council.

Four of the five top growth markets by dollar value for American distilled spirits were in Europe – the United Kingdom, Germany, France and Spain. Total U.S. spirits exported to the EU in 2017 were valued at $789 million, the distilled spirits trade group said.

Loss of sales at Dry Fly will result in cutbacks in the company’s grain purchases, which are sourced within 30 miles of the company’s distillery and tasting room in the 1000 block of East Trent Avenue, Poffenroth said.

The trade war could affect the distillery’s expansion plans.

Poffenroth said the company wants to increase its production capacity, but prices for stainless steel tanks made in Europe have shot up 25 percent. Even U.S. manufacturers are charging more for their tanks, he said. For now, Dry Fly’s expansion plans are on hold.

“We’re going to sit on the sidelines and hope it blows over, and hope there is some moderation,” Poffenroth said.

The Associated Press contributed to this report.