The European Union carefully selected the products upon which it would impose retaliatory tariffs in its growing trade dispute with the U.S., aiming to maximize the symbolic impact here in the United States. Motorcycles, peanut butter, orange juice, whiskey, and bourbon were all targeted by the EU.

Just as the motorcycle tariff was aimed at Harley-Davidson, the whiskey tariff is targeted at Jack Daniel's, distiller Brown-Forman's (NYSE:BF-A)(NYSE:BF-B) biggest seller and the second-highest-selling whiskey in the world behind Diageo's (NYSE:DEO) Johnnie Walker brand. The EU is imposing a 25% tariff on the spirits, a move that Brown-Forman says will cause it to raise prices by about 10%.

Jack Daniel's family of whiskey

Image source: Jack Daniel's.

Europe is a key market for whiskey

Although the U.S. remains Brown-Forman's biggest market, with 47% of its sales originating here, Europe accounts for 27% of the total. A number of EU member states also accounted for some of the best growth figures Brown-Forman posted last year, with Germany notching a 14% increase in reported sales, and Poland coming in 15% higher.

Less noted is that Mexico also imposed a 25% increase in tariffs on whiskey and other goods, like pork, cheese, and ketchup. Nevertheless, Brown-Forman says it is not raising prices south of the border, because it only recently initiated a price hike there.

Mexico, which accounts for 5% of the distiller's net sales, is another country where Brown-Forman has been seeing sustained growth. Last year, sales rose 15% on a reported basis, primarily on the back of increased Herradura tequila sales, but also because of strong demand for its Jack Daniel's family of spirits. Along with Poland, Mexico is the largest of Brown-Forman's emerging markets.

Although Jack Daniel's has rightfully received most of the attention, it's important to note that Brown-Forman's super-premium Woodford Reserve brand is also subject to the duties because it is bourbon. Woodford Reserve has been experiencing a substantially higher growth rate than its more pedestrian cousin.

Premiumization may preserve profits

Woodford Reserve is the top-selling super-premium American whiskey globally. It saw depletions -- or sales to retailers and distributors -- rise 23% year over year during Brown-Forman's 2018 fiscal year. Underlying net sales (a metric that excludes the impact of acquisitions, dispositions, and changes in distributor inventories, among other things) rose 22% during the same period. No other brand came close (Herradura was up 19% on an underlying basis).

The premiumization of spirits has been a trend in the industry for some time now and is behind Diageo's recent decision to sell $1 billion worth of brands out of its portfolio. It is intent on focusing on its top-shelf brands that account for over three-quarters of total sales.

Europe's retaliatory tariffs are hitting Brown-Forman right where it makes its money: its biggest seller and its fastest-growing spirit.

Europeans will ultimately pay the price for the EU tariffs. However, they have already proven a willingness to pay up for premium American spirits, and the 10% price increase is not so onerous that it would deter too many drinkers from buying these brands. As a result, Brown-Forman may not see as much of an impact on its bottom line as other industries that have been targeted.

Still, just as President Trump's tariff hike on European steel and aluminum means that Americans will be paying higher prices for products that are made with them, the trade war is proving once again that there are few winners in these battles.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.