By Yuka Hayashi / Photographs and video by Luke Sharrett for The Wall Street Journal

Tariffs levied by the Trump administration dented U.S. sales of single-malt Scotch for more than a year, so when they were suspended this month Euan Shand and his colleagues drank to the occasion.

"We raised a glass of whisky to celebrate," said Mr. Shand, chairman of liquor merchant Duncan Taylor in Huntly, Scotland, whose brands include the Black Bull scotch that Mr. Shand imbibed to toast the occasion.

There was little to cheer about some 4,000 miles away in Kentucky's Bourbon Belt. U.S. whiskey makers still face 25% tariffs on spirits they export to the U.K. and the European Union. What's more, the EU levies are set to double to 50% in June.

"We are literally frozen," said Amir Peay, owner of James E. Pepper Distillery in Lexington, Ky., who says the tariff hit just as he had started investing heavily to take advantage of what had been rising sales in Europe.

The woes troubling American whiskey makers reflect both the complications of global trade and the penchant by warring sides to target iconic products in disputes. The U.S. placed tariffs on Scotch and French wine, and the Europeans taxed Harley-Davidson motorcycles and American whiskey, although the underlying disputes had nothing to do with those products.

Since taking office in January, the Biden administration has taken steps to ease trade tensions with European allies. In joint announcements with the EU and U.K., it recently agreed to a four-month suspension of tariffs imposed in a dispute over subsidies to commercial aircraft makers Boeing Co. and Airbus SE while the parties seek a resolution.

That lifted tariffs that had taxed, among other products, Scotch whisky and French wine exported to the U.S., and American luggage, produce and vodka exported to Europe.

Even so, the EU and Britain have retained the tariffs on American whiskey, which were imposed separately in retaliation for U.S. tariffs on steel and aluminum imports that remain in place.

American whiskey makers say they are being punished for a fight they didn't start.

"Why drag us into this conflict?" asked Mr. Peay, who had set up a distribution base in Amsterdam and ordered European-sized bottles from an Italian glassmaker before the tariff upended expansion plans.

U.S. whiskey makers could be in for even tougher times ahead. The EU is threatening to raise tariffs on American whiskeys to 50% by June 1 unless the two sides can negotiate a solution. The U.K. is also considering additional measures, a government spokesperson said, adding that it continues to press the U.S. for a resolution.

Tariffs of 50% would be "truly disastrous" for the American whiskey industry, said Lawson Whiting, president and chief executive of Brown-Forman Corp., the U.S.'s largest whiskey maker whose signature product is Jack Daniel's Tennessee sour mash whiskey.

Unencumbered by tariffs, single-malt Scotch and Irish whiskey distilled in Northern Ireland now stand to raise their market share in the U.S., while American whiskey will remain subject to punishing tariffs in Europe, Mr. Whiting said.

"We are the only spirit under these tariffs now," he said. "The American whiskey category shouldn't be holding the burden of the entire trade war."

Europe and the U.K. account for roughly half of U.S. whiskey exports. Before the tariffs, American whiskey makers had been enjoying rising sales. Exports of American bourbon and other whiskeys to Europe (including the U.K.) grew from $527 million in 2010 to $741 million in 2018, when the tariffs were imposed, according to the Census Bureau.

Those exports shrank to $469 million last year, according to the Census Bureau, down 37% from the 2018 peak.

Brown-Forman estimates whiskey represents a quarter of the tariffs collected by the EU in the steel and aluminum dispute, raising export costs by about $250 million annually. Some of these costs were passed on to consumers through higher prices and others were absorbed by exporters, the companies say.

Whiskey makers, with the support of politicians including Senate Republican leader Mitch McConnell of Kentucky, are calling on the Biden administration to reach an agreement with Europe to end the tariffs on their products.

"If you ask me, the whole world could benefit from a little more Kentucky bourbon," Mr. McConnell said Wednesday, before the Senate voted to confirm Katherine Tai as U.S. trade representative.

During her Senate confirmation hearing, Ms. Tai said the U.S. would seek "an effective solution that looks at the whole slew of policy tools to address that larger problem."

But she made no commitment to ending the steel and aluminum tariffs. The U.S. had imposed those on national-security grounds, saying it needed to protect a strategic industry from being undermined by cheap imported steel produced with government subsidies.

"In some ways, this is the way the...system is supposed to work," Ms. Tai said. "You inflict pain on each other's stakeholders to try to motivate each other to come to a resolution."

An EU spokesman in Washington said the coalition is ready to work with the U.S. in "solving bilateral trade irritants that weakened our strategic partnership," but that absent an accord, the doubling of the whiskey tariff will be automatic.

Untangling the steel and aluminum dispute will be harder than resolving the aircraft subsidy battle, said Bill Reinsch, senior adviser at the Center for Strategic and International Studies. Mr. Reinsch said those complications include global overcapacity driven by China and support for tariffs by the powerful U.S. steel industry.

"I don't think they are going to go away easily," he said.

Some U.S. companies including Harley-Davidson Inc. have responded to the EU tariffs by shifting some production overseas. That isn't an option for whiskey makers whose products are rooted to their geography -- bourbon from Kentucky and Jack Daniels from Tennessee.

At James E. Pepper in Kentucky, the uncertainty over the trade fight, particularly the threat of doubling the tariff, is causing havoc in its operations, Mr. Peay said. The company struggles to decide how many bottles to order and labels to print, let alone how many cases of whiskey to ship.

"Twenty-five percent has decimated us," he said. "Fifty percent will literally take us out of the European market."

For Mr. Shand, who enjoys his Scotch with a drop of water, it's a brighter picture. After Duncan Taylor lost more than half of its single malt whisky sales in the U.S. in the past year, Mr. Shand projects a 40% rebound this year.

"We are scaling up," Mr. Shand said. "We are going to have sales ready."

--Anthony DeBarros contributed to this article.

(END) Dow Jones Newswires

03-21-21 0544ET