The American whiskey industry, a cornerstone of the U.S. spirits market, is grappling with a challenging landscape. Domestic sales have seen a decline, and looming trade disputes threaten to disrupt the recovery of international markets. According to the Distilled Spirits Council, domestic sales of American whiskeys—encompassing bourbon, Tennessee whiskey, and rye whiskey—dropped by 1.8% in 2024, totaling $5.2 billion in revenue.
Economic Factors Weigh on Domestic Sales
Economic pressures, including persistent inflation and high interest rates, have impacted consumer spending. These challenges have led many Americans to forgo luxury purchases, including premium distilled spirits. The council noted that super-premium spirits, often priced higher, saw declines in revenue and volume as consumers opted for more affordable options.
This dip in domestic sales also reflects a normalization following the pandemic-induced surge in demand for at-home alcohol consumption. As the pandemic subsided, sales patterns shifted back toward pre-pandemic levels, exposing vulnerabilities in the market. Additionally, younger adults appear to be consuming alcohol at lower rates, further complicating recovery efforts.
International Markets at Risk
While domestic sales have slowed, the international market for American whiskeys had been a bright spot—until now. The suspension of a 25% European Union (EU) tariff a few years ago had sparked a robust recovery in whiskey exports. During this suspension, exports surged by 60%, showcasing the strong demand for American spirits in Europe.
However, the impending reimposition of tariffs, set to double to 50%, poses a severe threat to this growth. The Distilled Spirits Council warns that the return of these tariffs could devastate American whiskey producers, especially smaller distilleries. Chris Swonger, the council’s CEO, described the situation as potentially "catastrophic," stating that many producers could lose access to their largest export market, the EU.
Tariff Disputes: A Recurring Challenge
The origins of this trade dispute lie in broader conflicts over steel and aluminum tariffs initiated during former President Donald Trump's administration. In retaliation, the EU imposed counter-tariffs on American whiskey, which caused a 20% drop in exports during Trump's first term. Although the temporary suspension of these tariffs offered relief, the renewed escalation threatens to undo those gains.
Producers in Canada and Mexico, two other significant markets for American whiskey, are also bracing for potential tariff hikes. Canadian authorities have periodically threatened to remove American liquor brands from government-controlled store shelves, though a recent reprieve has temporarily paused these measures.
Impact on Kentucky’s Distilleries
Kentucky, the heart of bourbon production, faces the greatest potential fallout. With 95% of the world’s bourbon supply crafted in the state, the renewed tariff threats could destabilize the region's economy. The Kentucky Distillers’ Association reported that a record 14.3 million barrels of bourbon were aging in warehouses at the start of 2024—a testament to the industry’s scale and significance.
Small and mid-sized distilleries are particularly vulnerable. Brent Goodin, owner of Boundary Oak Distillery in central Kentucky, highlighted the challenges of breaking into international markets amid tariff uncertainties. His craft distillery, which recently expanded its footprint in Lithuania, Poland, and Hungary, risks losing these markets if the 50% tariff is enacted. "That would wipe out the market," Goodin lamented. "That would pretty much kill it."
Broader Industry Trends
Despite these challenges, the spirits industry as a whole remains a dominant force in the U.S. beverage market, maintaining its market share advantage over beer and wine. In 2024, U.S. spirits supplier sales totaled $37.2 billion, with volumes reaching 312.2 million 9-liter cases. However, overall revenues dipped by 1.1%, underscoring the financial headwinds faced by producers.
While vodka sales remained steady at $7.2 billion, tequila and mezcal continued to gain traction, with a 2.9% increase in sales to $6.7 billion. Meanwhile, premixed cocktails experienced explosive growth, with sales surging 16.5% to $3.3 billion. These trends suggest shifting consumer preferences, which could further influence the trajectory of the whiskey market.
Calls for Resolution
Industry leaders are urging policymakers to prioritize resolution of trade disputes. The Distilled Spirits Council emphasized that whiskey producers should not be collateral damage in unrelated trade conflicts. Swonger called for "cooler heads" to prevail, advocating for agreements that protect the industry’s hard-fought gains in global markets.
As American whiskey producers navigate this turbulent environment, the stakes remain high. With international tariffs threatening to stifle export growth and domestic challenges persisting, the industry faces a pivotal moment. Whether through trade negotiations, economic stabilization, or consumer shifts, the path forward will determine the future of this iconic American product.
