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

CNBC logo CNBC 6/17/2018 Amanda Macias

Bourbon© Provided by CNBC   In the wake of tit-for-tat tariffs, America's beloved liquid spirit is caught in the crosshairs of Washington's escalating trade battle.

In a collective strategic political punch, China, Mexico, Canada and the European Union have all slapped tariffs on America's booming bourbon industry. The duties came in reaction to the Trump administration's move to impose tariffs on steel and aluminum.

"When they targeted this particular category of spirits, it's clear that it was done with the intention of hitting at the heart of what is so clearly important to the American economy," explained Margie Lehrman, executive director of the American Craft Spirits Association.

"You can't get any closer to home than something that is grown by an American farmer," Lehrman told CNBC, adding the tariffs pose significant threats to the U.S. grain industry as well as distillers.

"Bourbon is truly Americana," said 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," Thomas told CNBC in a prior interview. "So in many ways, this is a symbolic target on American culture because bourbon is so intertwined with who we are."

And nowhere else is bourbon so intimately intertwined than in Kentucky.

America's booming bourbon business

a barrel on a cart© Provided by CNBC

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

There is so much bourbon coming out of the Bluegrass State that there are more barrels of this amber spirit — 6.7 million barrels — than there are Kentucky residents.

Local grain farmers are also beneficiaries of the flourishing industry, since bourbon must be made with a minimum of 51 percent corn.

In an effort to support Kentucky's farm families, distilleries have increased their use of locally grown corn by 65 percent in the last two years, according to the Kentucky Distiller's Association.

What's more, if the bourbon industry continues "its astronomical growth" the economic output will exceed $10 billion by 2020, employ more than 20,000 people and produce $200 million in state tax revenue, notes the Kentucky Distiller's Association.

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

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

Senate Majority Leader Mitch McConnell, R-Ky., sits behind a barrel of Kentucky bourbon.© Provided by CNBC Senate Majority Leader Mitch McConnell, R-Ky., sits behind a barrel of Kentucky bourbon.

"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 in a previous interview.

China and the EU, in particular, have expressed a significant thirst for America's native spirit.

Last year, 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.

Meanwhile, the EU imported $789 million worth of U.S. spirits in 2017. Bourbon, Tennessee whiskey and rye whiskey accounted for 85 percent of the American spirits exported to the EU, according to figures from the American Craft Spirits Association.

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