Mexico hits Tennessee whiskey with tariffs, distillers urge new trade policy

Jamie McGee | The Tennessean

Show Caption Hide Caption Canada, Mexico, and EU hit with Trump’s steel and aluminum tariffs Now, they’re imposing tariffs of their own.

When Mexico retaliated against the U.S. on trade this week, famous, Tennessee-made whiskey was among products hit, prompting distillers to urge new trade policy from the Trump administration.

The Distilled Spirits Council wrote to U.S. Commerce Secretary Wilbur Ross on Thursday, asking to meet with him to work on a trade solution that would not harm the spirits sector. The letter comes two days after Mexico placed a 25 percent tariff on U.S. whiskey, and as Canada, the European Union and other countries are proposing their own spirits tariffs in response to steel and aluminum tariffs from the Trump administration.

Shares of Brown-Forman, owner of Lynchburg-based Jack Daniel's Distillery, have dropped 8 percent since Tuesday.

"We are extremely concerned about the increasing likelihood that the European Union, Canada, Turkey and/or China will soon begin retaliating against the U.S. distilled spirits products," Distilled Spirits Council Interim CEO Clarkson Hine wrote. "The imposition of tariffs on these products by our major trading partners threatens to seriously impede the export progress that has benefitted our sector and created jobs across the country."

More: Jack Daniel's fears collateral damage from Trump tariff fight

Whiskey is a major driver in Tennessee's economy, with exports valued at $691 million in 2015. Jack Daniel’s sells whiskey to more than 160 countries, with foreign sales accounting for 60 percent of the company’s overall market share. U.S. whiskey exports to Mexico exceeded $13 million in 2017, the council said.

U.S. spirits exported to the markets highlighted by the council, including Mexico, are valued at $759 million a year and the industry employs about 1.5 million people, the council said. Spirit makers, farmers supplying the grains, distributors and packaging companies would each be impacted by retaliation, according to the council.

The European Union has threatened a 25 percent tariff on U.S. whiskey imports which could be imposed as early as June 20. U.S. whiskey exports to the EU were valued at $667 million, according to the council.

Turkey, Canada and China have also proposed tariffs on U.S. spirits. China imported less than $1 million in U.S. spirits in 2001, but that number has since grown to nearly $13 million, marking a 1,200 percent increase, the council said.

More: Tennessee farmers brace for financial impact from China trade war

In an earnings call on Wednesday, Brown-Forman Chief Financial Officer Jane Morreau said the company had increased inventory in countries outside the U.S., where it owns its distribution, to mitigate risk association with tariff retalation. The company produces half of its revenue in the U.S., she said.

"We have been watching the developments very closely as the situation remains fluid, and there is great uncertainty around what retaliatory measures, if any, could be implemented, starting when, at what rate or for how long," said Morreau, according to a transcript.

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Brown-Forman Chief Operating Officer, Lawson Whiting emphasized that the company has dealt with similar dynamics in the past, including foreign exchange swings and rapid excise tax increases.

"All these dynamics that can move pricing around in a pretty quick moment, we've experienced before and we think we'll fight through it again," Whiting said.

Ross said last week that the European Union, Mexico and Canada would not be exempted from the administration 25 percent steel tariffs and 10 percent tariffs on aluminum. Trump had previously announced the tariffs would be directed at China.

Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.