First counter-strike in trade war could target Kentucky

Published: Mar. 26, 2018 at 3:45 PM EDT
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Kentucky's bourbon-makers may soon pay a higher tax to Europe.

Dueling Grounds Distillery owner Marc Dottore can almost taste the sweet burn of success.

Three years in the making, the first barrels of bourbon from his Franklin, Kentucky distillery will be ready later this year. But, a possible new European tax could sour his investment.

"If it dampens that overall business, it's going to be bad for everybody, myself included," he said.

The Trump administration imposed new taxes on foreign aluminum and steel sold in the U.S., and the European Union is considering a retaliatory tax on bourbon. Dottore wouldn't be subject to the tax until he begins exporting, which he plans to do in the future.

But if the European Union does impose a new tariff, he expects to feel the new pain even if he doesn't pay it. He said the market back home would be watered down. "If the big guys can't export, then they're going to keep their product at home," Dottore said, "which means more product on the shelves locally, and less market for us."

So why bourbon? International trade experts said the logic is more political than economic, aimed at creating pain back home for Senate Majority Leader Mitch McConnell (R-KY).

"I'm very concerned about retaliatory action from other countries," said Kentucky's other Senator Rand Paul (R-KY), "and that's one reason why I'm opposed to the tariffs that President Trump is putting forward."

Paul said decreased trade could also mean less business for Kentucky-based shippers DHL and UPS. He said Kentucky exports $20-billion in goods and services, and he sees plenty of trickle-down effects from trade policy. "We're a world-wide economy," Paul emphasized

Georgetown University Professor Michael Czinkota said neither the Americans nor Europeans want to impose new taxes on each other. "It's a shot across the bow," he said of the threats of new taxes.

Czinkota said the tariffs likely represent the first steps to broader trade negotiations, not a war.

"I think it makes sense," he said of the strategy to force the issue, "[it's] not very pretty, but may well work out."

Czinkota expects the trade dispute will be resolved relatively soon, likely before Dottore's bourbon is ready to ready to hit the market.

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