Catoctin Creek’s orders from Europe dried up, and a potential British distributor lost interest. He “ghosted us like a bad girlfriend,” Scott Harris said from the distillery’s red-brick tasting room as a pair of shiny stills chugged away behind a plate-glass window. “He just stopped answering the phone.”
Washington’s trade dispute with Europe may have faded from the headlines in recent months, eclipsed by grander tensions with China, but the fallout continues for many companies around the country that have long targeted Europe as an achievable export market.
Barriers to Europe are especially vexing for small businesses, which often turn to the E.U. as their first export destination. The reliability of the legal system, the prevalence of English speakers and the high level of consumer income make it an easier market for small U.S. firms to navigate, entrepreneurs say.
The E.U.’s 25 percent tariffs have crimped the sales growth of a variety of U.S. exporters, including apparel companies, boat builders and peanut butter makers. Lee Zalben, founder of Peanut Butter & Co., a 15-person firm in Manhattan, said European buyers are canceling or trimming orders, or asking for discounts.
Exports to the European Union make up less than 2 percent of the firm’s revenue, but the company had been targeting Europe for sales growth, “so we’re having to find that growth in other areas,” Zalben said.
Catoctin Creek had been aiming to boost European exports from about 10 percent of its sales in early 2018 to as much as 25 percent to take advantage of the hip profile American whiskey has developed overseas. Instead, exports have fallen to close to zero.
“It’s essentially decimated our European business, and it’s put our expansion on hold,” said Scott Harris, who has instituted a hiring freeze and put off buying new stills and fermentation tanks at the 20-person distillery on Purcellville’s Main Street.
European officials are due to visit Washington next week to continue talks aimed at resolving the trade dispute.
The Office of the U.S. Trade Representative didn’t respond to a request for comment.
Becky Harris, the chief distiller, said the slowdown also affects the company’s suppliers. “One of our [rye] farmers keeps asking when are we going to need more?” she said.
Rivals are similarly discouraged. “We’ve spent a lot of time and money to build up our business [in Europe], and to have it taken away with tariffs is frustrating,” said Paul Hletko, founder of Few Spirits, a gin and whiskey distillery in Evanston, Ill., that employs about 100 people. The company’s export volume fell by about 75 percent last year.
Cleveland Whiskey, an Ohio distiller with 15 employees, has lost about $150,000 in European revenue and has scrapped plans to hire two additional workers, said founder Tom Lix. He expressed frustration with what he sees as a self-inflicted wound. “We started this, so I can’t really blame [Europe],” he said. “We started this, and everything else was retaliatory.”
Exports have become crucial in the whiskey business as the U.S. market grows crowded with craft distillers. When the Harrises co-founded Catoctin Creek in 2010, there were six distilleries in Virginia. Today there are 70 — and more than a thousand nationwide.
The boom has revived an industry that dates back to America’s earliest English settlers, who made whiskey on the banks of Virginia’s James River. George Washington eventually became one of the country’s biggest distillers, producing more than 10,000 gallons of whiskey at Mount Vernon a year.
Whiskey production withered in some parts of the country during Prohibition; when Catoctin Creek opened for business, it was the first legal distillery in Loudoun County since the 1920s.
Scott Harris, an engineer by training, had spent 20 years working in government contracting and wanted a change of pace. Becky Harris, a chemical engineer, was the brains behind the distilling process. “If there is a fruit, vegetable, tuber with starch or sugar in it, you can bet that Becky will try to distill it,” the company’s website says.
The couple got a $250,000 small-business loan and renovated a former Buick dealership from the 1920s.
On a recent morning, a handful of employees filled and labeled bottles for shipping as a new batch of rye mash fermented in a large tank, filling the room with a sweet aroma.
Later, the mixture will be pumped into a pair of German-made stills that will boil it and turn the alcohol into vapor, which will revert to liquid as it cools.
Catoctin Creek did well in the U.S. market, but as competition grew, it found U.S. distributors weren’t as interested in new products, Harris said.
About five years ago, the distillery decided it wanted to crack Europe. It started investing in new bottles and labels that met E.U. standards, hired a European consultant, and began attending an annual trade show in Berlin.
Catoctin Creek eventually found distributors in Germany and Italy, which helped get the company’s whiskey into some high-end cocktail bars, Harris said.
All told, the company has spent about $100,000 on the effort, he said.
Early last year, the Harrises traveled to Britain to meet with a potential distributor and to market their whiskey to top hotel bars. They poured samples for buyers at London’s famous Savoy and Claridge’s hotels and struck a tentative agreement with a distributor in Manchester, Harris said.
Two weeks after they returned to the United States, the White House announced plans to levy tariffs on steel and aluminum imports from the E.U. and elsewhere, calling the imports a threat to domestic production.
The E.U. soon threatened, and then enacted, retaliatory tariffs on a host of U.S. goods. Europe pointedly included products made in the home states of congressional Republican leaders Paul D. Ryan (Wis.) and Mitch McConnell (Ky.), including motorcycles and whiskey, but the tariffs applied to producers nationwide.
In July, President Trump and European Commission President Jean-Claude Juncker declared a truce in the trade war, promising to delay additional tariffs and to start negotiations toward a new trade deal. But they didn’t roll back the tariffs levied earlier.
“We would very much like to lift our rebalancing tariffs but obviously will only be in position to do so as and when the U.S. is in a position to do the same” with its steel and aluminum tariffs, David O’Sullivan, the E.U. ambassador to the United States, said in a phone interview.