As global trade policy shifts, Kentucky’s signature industry is pushing to restore export competitiveness and long-term market stability. Leaders like the Kentucky Distillers’ Association (KDA) are working to eliminate tariffs and strengthen U.S. spirits in global markets.
Looking at long-term expansion, Kentucky’s distilled spirits industry has recorded significant and consistent growth each of the past 15 years at a time when manufacturing employment has slowed in Kentucky and declined nationally.
The industry’s total employment has surged 142% since 2010, growing from an annual average of 3,103 direct wages and salary workers to 7,509 in 2024. This growth is also reflected across Kentucky in production, inventories, property tax assessments, and state and local tax revenues according to a 2026 Economic Impact Report from the Kentucky Distillers’ Association.
Despite this robust growth, the industry faces mounting headwinds. Foreign demand, a major driver of past expansion and success, has been curtailed by retaliatory tariffs and other trade policy countermeasures imposed in 2018 and again in 2025. Domestically, the market is shifting due to evolving consumer tastes, changes in generational drinking habits, and new competition for leisure dollars such as legalized recreational cannabis and sports wagering.
After years of strong growth, national sales of distilled spirits declined in 2023 and 2024. These changes are not isolated to distilled spirits. Wine and beer have experienced larger decreases in U.S. sales. While all manufacturers must adjust production due to changes in demand, this is particularly challenging for distillers of aged spirits. They must set current production levels based on expectations of where demand will be multiple years into the future.
With inventories increasing and demand softening, compounded by uncertainty over trade disputes, Kentucky distillers are already taking the necessary steps to realign record barrel inventories. Jim Beam recently announced it would pause operations at its main distillery early in 2026 and several companies have cut back or paused some production shifts. In the more extreme cases, one newly built licensed distiller in Kentucky filed for bankruptcy, while another distiller closed after one year and is in receivership.
This trend is not limited to Kentucky, though. Nationally, production of distilled spirits fell 28% during the first eight months of 2025 compared to the same period in 2024, forcing several smaller distillers in other states to close their doors. Distillers in other countries, including Scotland and Ireland, also are pausing production as global supply outpaces demand.
Kentucky’s distilled spirits industry continues to make a substantial contribution to the state’s economy. Both national whiskey sales and Kentucky distillery employment remain near historic highs despite the aforementioned cutbacks. While distilled spirits employment appears to have plateaued, the most recent data suggests that it remains close to its recent peak.
The volatile nature of trade
“We’re continuing to figure out how to navigate within today’s tariffs environment, and a lot of that is because of the uncertainty in the marketplace,” said KDA President Eric Gregory.
As Kentucky Distilleries’ Association president, Eric Gregory oversees all aspects of the nonprofit association that unites, promotes, protects and elevates the commonwealth’s signature bourbon and distilled spirits industry, including the famous Kentucky Bourbon Trail and Kentucky Bourbon Trail Craft Tour experiences.
“We’re still off the shelves in Canada, which is our top export country. We usually send about $100 million in export value a year to them. And through third quarter last year, I think we were down about 42%,” said Gregory.
Due to retaliatory tariffs and import restrictions across Canada, only Alberta and Saskatchewan — which have privatized retail systems — continue to sell U.S. spirits. The other 11 provinces and territories have removed the products from their shelves.
“Our other top export source, the EU (European Union), was set to return with a 50% tariff in February 2026 that would have just crippled our industry, but they delayed that for six months in hopes they can get a new trade agreement worked out with the White House,” Gregory said. “So, the effect is our exports continue to drop, as they have since 2018 when the tariffs first started, catching us in the crosshairs of all these unrelated trade wars.
“We have not recovered from our high point in of 2018 and early 2019, when we sent a lot of whiskey overseas to try to beat the enactment date of the tariffs. That was a high point for our whiskey export markets with about $550 million. And we’re now down, with the figures for 2025 showing $308 million. We literally just got these EU numbers and we’re still parsing through them.”
Navigating with
a crystal ball
“It’s not just navigating the tariffs and the threat of tariffs, it’s the uncertainty in the global markets,” Gregory continued. “And from a macroeconomic standpoint, there’s the blessing and curse of bourbon production. As you know, we can’t make it overnight so our distillers are planning five, six, 10 years out through market conditions, tariff levels and everything else.
“So, it’s already a bit of a coin toss, using a crystal ball, throwing predictions into a very volatile global trade arena right now. It’s an almost impossible plan. And of course, that’s what differentiates bourbon or any aged spirit, but particularly bourbon.”
While there are currently no specific retaliatory tariffs on bourbon in the EU, Kentucky’s signature industry remains vulnerable.
“We still have tariffs in India, you know, places like that,” Gregory said. “But when countries are looking to retaliate against U.S. trade policy, we’re kind of a sitting duck because we’re America’s only native spirit. Just like you can only make Scotch in Scotland and you can only make Canadian whiskey in Canada, you can only make bourbon in the United States and we make 95% of it here in Kentucky. So, if European countries are looking for a uniquely American product as an example, we’re an easy target.
“It’s also been pointed out that we’re a state the current president carried by over 30 points and in the past, when the original tariffs were levied in 2018 and 2019, Sen. McConnell was majority leader. I don’t think it took a political science degree to understand that they targeted Kentucky bourbon and Paul Ryan Wisconsin cheese for their retaliatory tariffs,” he said.
“At that time they were sending a message, but right now there are none of the retaliatory tariffs in the EU. The only kind of countermeasure that anybody has taken so far is Canada, by pulling all the American alcohol, not just bourbon, off the shelves.”
Matching the future to evolving demands
The industry faces several challenges that will determine its potential for future growth. In the near term, Kentucky’s distilled spirits industry will have to adjust production levels and inventories to match changing demand for distilled spirits. In the long term, the industry must maintain existing markets and develop new international markets to grow.
Given the heightened level of volatility associated with recent trade policy, making investments in foreign markets has become increasingly uncertain. This could have a cooling effect on potential investments and slow future growth in one of Kentucky’s signature industries.
Looking forward, these challenges could cause distilleries to reduce employment and postpone planned investments over the coming year. It could also result in some distilleries leaving the market. Some of these challenges are likely to be temporary while distilleries bring their inventories and production levels more in line with long-term demand. On a more positive note, the industry is seeing stronger interest among Gen Z consumers and sales of ready-to-drink alcoholic beverages are rising.
“On the positive side, while tourism seems to be down in a lot of places, it’s holding steady on the Kentucky Bourbon Trail,” Gregory said. “It is really helping a lot of distilleries — especially the small distilleries — kind of survive during these challenging times right now.
“Back in 2014, we sent out a group to do a field trip to Napa Valley to see how wine country was handling tourism. Wine has been going downhill for in sales for 20-something years, but people are still crazy to go to Sonoma and Napa to see wine country. And when talking to the wineries out there, they said it’s helping and it’s a backstop. So, if we have a dip in sales, this is what helped us get through. Based on our experience in California, we made the conscious decision to do our own version here in Kentucky. So now, if there ever is a situation where we’re seeing a decline in the bourbon industry, then tourism can help us ride that out.”
Always bourbon season in Kentucky
“We started with the basics by working with the Kentucky legislature to specifically target archaic laws, such as you can’t sell a cocktail at a distillery,” said Gregory. “This made it possible for our distillers to evolve and become more of that Napa Valley-type experience where people just want to keep coming here and keep coming back here.
“Thank goodness we did that. The General Assembly agreed and had the foresight to help us modernize all those Prohibition-era policies. I don’t want to think where we would be in facing all these headwinds if we didn’t have nearly 3 million people coming in from all over the world right now to learn and taste and hopefully become ambassadors of our signature spirit.”
Today Kentucky has 125 licensed distilleries operated by 104 companies in 45 counties, the most since the repeal of Prohibition in 1933.
“We just put a new distillery in Paducah, so we’re about as far west as you can get and we’ll have one in Pikeville coming up soon,” said Gregory. “Northern Kentucky has done a fantastic job of creating its own Bourbon Trail community up there. Just yesterday I met with some gentlemen who are building the story in Manchester, in Clay County. And that thing looks amazing. We’re breaking into southern Kentucky as well with the distillery in Cumberland County.
“There’s a lot of opportunity and people are hungry for tourism in those areas, specifically hungry for bourbon tourism 365 days a year, seven days a week. It is nonstop. Unlike Derby season, Keeneland running, or football season, there’s no single season for bourbon,” he said.
“The local economies see the benefits, because 80% of these visitors are from outside Kentucky and they’re spending the money here. They typically have an average household income of over $100,000 and over half of that number is over $150,000, so again, it’s starting to mirror more of the Napa Valley-type visitor who comes in, stays longer, comes in packs and has money to spend.”
