Bourbon, America's native spirit, is caught in the cross hairs of Trump's trade war

Key Points
  • China slapped a 25 percent levy on 106 U.S. products, including whiskey.
  • "This is a symbolic target on American culture because bourbon is so intertwined with who we are," said whiskey collector Bill Thomas.
  • In 2017, China imported $12.8 million worth of U.S. spirits and nearly $9 million of this, was whiskey.
Amanda Macias/CNBC

America's beloved liquid spirit is caught in the cross hairs of Washington and Beijing's trade battle.

This week, China threatened to slap a 25 percent levy on 106 U.S. products, including types of whiskey such as bourbon.

"Bourbon is truly Americana," began whiskey collector Bill Thomas, proprietor of Washington D.C.'s Jack Rose Saloon, which is popular for its extensive bourbon selection.

"When you talk about tariffs on steel or aluminum or anything else, bourbon just can't be produced anywhere else than the United States," he said. "So in many ways, this is a symbolic target on American culture because bourbon is so intertwined with who we are."

China's list of tariff targets came less than 24 hours after President Donald Trump unveiled a list of proposed tariffs on Chinese imports involving the robotics, information technology and aerospace industry.

Trump suggested another counterpunch late Thursday to the tune of an additional $100 billion in tariffs against China. In response, a Chinese Ministry of Commerce representative said Friday, that the U.S. "is very arrogant" and that "China is prepared and will not hesitate" to react.

What this means for drinkers and collectors

The bar at Jack Rose Dining Saloon in Washington, DC.
Courtesy of Jack Rose Dining Saloon

Amid this trade war, Jack Rose's Thomas, who boasts a personal whiskey collection of nearly 6,000 bottles, said consumers may see an uptick in prices.

"If distillers decide to increase the price of whiskey and bourbon that is kept domestically, that would be a negative impact for collectors and drinkers," said Thomas, who curates Jack Rose's whiskey collection of nearly 2,700 bottles. "But to be honest with you, for the quality of spirit that bourbon is, it's still very cheap and inexpensive spirit. It's probably overdue for a price increase."

Despite the potential for a higher price point, Thomas believes now may be a good time as any other for aficionados to beef up their whiskey collections.

"As far as rare bottles go, if distilleries effectively stop shipping over those because they aren't as profitable, then that would actually be good for me and those who want greater accessibility to those spirits," he said.

It could be bad news for distillers, though.

In 2017, China imported $12.8 million worth of U.S. spirits. Nearly $9 million of that total was whiskey, according to figures provided by the Distilled Spirits Council, a trade association representing the liquor industry.

"Right now, the U.S. exports about $1.5 billion worth of spirits abroad, and many producers in America are pinning their future growth to exports," explained Reid Mitenbuler, author of "The Bourbon Empire: The Past and Future of America's Whiskey."

Mitenbuler noted that many distilleries have invested in expansion projects in order to boost their supply for lucrative foreign markets.

"Without a market to sell to, they might have problems recovering these investments," Mitenbuler told CNBC.

While distilleries plan their operations 20 years out, in order to account for the time it takes to produce and age their product, Jack Rose's Thomas said that even a small hiccup in the marketplace will be unpleasant for the industry.

'The distilleries aren't going to be happy'

Barrels of Jack Daniel's Tennessee Whiskey age in a warehouse at Jack Daniel's Distillery in Lynchburg, Tennessee.
Luke Sharrett | Bloomberg | Getty Images

Earlier this year, as the Trump administration was considering what action to take on steel and aluminum tariffs, the European Union hinted at retaliating with trade taxes on Kentucky bourbon.

In 2017, the Bluegrass state exported $154 million worth of bourbon to the EU, which is up from $128 million in 2016, according to data from the International Trade Commission.

Amid the proposed tariffs, the Kentucky Distillers' Association issued a statement saying such taxes would "harm consumers through higher prices and more limited product availability, and significantly threaten the distilling renaissance that is creating industry jobs and generating billions in capital investment."

Since the entirety of bourbon production can only occur within the U.S., per a 1964 congressional resolution, a tariff on this spirit is a strategic political punch to Senate Majority Leader Mitch McConnell's home state.

As the birthplace of bourbon, Kentucky produces 95 percent of the world's supply, employs approximately 17,500 workers, and generates a cool $8.5 billion annually.

Senate Majority Leader Mitch McConnell, R-Ky., sits behind a barrel of Kentucky bourbon.
Bill Clark | CQ Roll Call | Getty Images

While the bourbon industry in the humble hills of Kentucky is booming, experts believe that the fresh set of tariffs from China will undoubtedly impede growth.

America's oldest registered distillery, which produces every single drop of Jack Daniel's, is one place to watch amid these new rounds of tariffs. The rustic 1,700-acre operation in sleepy Lynchburg, Tenn., is home to one of the most valuable alcohol brands in the world.

The distillery ships out 15.3 million cases a year, sells to more than 165 countries and attributes 52 percent of its total output overseas.

Jack Daniel's also has an affectionate relationship with the U.S. military, which buys the most barrels of the brand's premium 94-proof single barrel whiskey.

The price tag for an entire barrel of this whiskey, approximately 250 bottles, swings from $9,000 to $12,000 since no two whiskey barrels have the same volume — due to the alcohol that evaporates during maturation, aka "the angel's share."

Liquor conglomerate Brown-Forman, which owns the Jack Daniel's brand as well as Old Forester and Woodford Reserve, names the U.S. as "the most important market." But it has had its eyes on China for quite some time.

The company's annual report sheds light on key facilities in Shanghai and Hong Kong. It described China as an "emerging market." Brown-Forman did not respond to CNBC's request for comment.

"From my conversation with spirits companies, China represents a huge potential market," whiskey expert Mitenbuler told CNBC.

"They would love to crack into it."

As a trade war brews, those days of toasting to friendship and wealth between the world's two largest economies may come to an end.