American whiskey got cheaper in much of the country after foreign tariffs cut off overseas sales. But in Kentucky and Tennessee—home to most U.S. distilleries—prices actually rose. The divergence reflects how trade policy can reshape consumer markets in unexpected ways, with local economic and cultural factors amplifying or counteracting broader trends.
Tariffs triggered a pricing split
In 2018, the Trump administration imposed tariffs on steel, aluminum, and other goods, sparking retaliatory measures from Mexico, the European Union, Canada, and China. Those countries targeted U.S. whiskey, which made up the bulk of the country’s liquor exports at the time. The sudden loss of export revenue created a surplus that distillers needed to offload, but the response varied by region.
A new study from North Carolina State University tracked 11.4 million whiskey sales across 8,674 stores in 2018. Researchers analyzed 2,514 different 750-milliliter whiskey products, comparing U.S.-made brands to imported ones, which weren’t hit by the tariffs. The data set included sales from urban liquor chains, rural package stores, and big-box retailers, ensuring a representative sample of consumer behavior. By isolating the price movements of domestic whiskey relative to imported alternatives, the researchers could measure the direct impact of the tariffs without confounding variables like broader inflation or shifts in alcohol consumption trends.
On average, domestic whiskey prices fell in most states. In Kentucky and Tennessee, though, prices climbed. The study’s authors suggest local loyalty played a role—consumers in those states were willing to pay more for whiskey made nearby. The price increases in these states were not uniform; some products saw sharper rises than others.
“Whiskey producers responded to export tariffs by decreasing the cost of whiskey to boost domestic sales,” said Carly Burd, an assistant professor of accounting at NC State and coauthor of the paper. “But there were significant exceptions.” The exceptions, as the study revealed, included Kentucky and Tennessee. States with strong existing demand for whiskey saw little change or slight price increases. Elsewhere, prices dropped.
States with strong existing demand for whiskey saw little change or slight price increases. Elsewhere, prices dropped. The study found that the magnitude of price changes correlated with the density of whiskey drinkers in a given market. In areas where whiskey accounted for less than 10% of liquor sales, prices fell by as much as 8% on average, while in markets where whiskey made up 20% or more of sales, prices either held steady or rose by 1-3%. The findings show how regional preferences can insulate certain markets from broader economic shocks, even when those shocks originate from global trade policy.
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Why distillers couldn’t just make less
Whiskey must age for years before it’s sold, so producers can’t quickly adjust supply. That left them with few options when exports plummeted. Instead of scaling back production, they turned to pricing. The aging requirement, which ranges from two years for straight bourbon to a decade or more for high-end single malts, means that distilleries operate on a timeline that is largely fixed. Barrels already in warehouses cannot be un-aged, and halting production today would create a supply gap years down the line.
“Producers are unable to rapidly increase or decrease supply,” Burd said. “This likely pushed them toward dynamic pricing.” The rigidity of whiskey production contrasts with other industries, such as craft beer or wine, where producers can adjust output within months. Whiskey’s long production cycle also means that distillers must forecast demand years in advance, a challenge compounded by the unpredictability of trade policy. When the 2018 tariffs were imposed, many distilleries were already committed to production schedules set years earlier, leaving them with little recourse but to absorb the financial hit or find new buyers.
Trade policy uncertainty also made long-term supply changes risky. Adjusting prices was faster and easier than reworking production. The Trump administration’s tariffs were implemented abruptly, with little warning, and the duration of the trade war remained unclear throughout 2018. Distillers faced the prospect of tariffs being lifted just as suddenly as they were imposed, which would have left them scrambling to re-enter export markets. Price adjustments could be reversed or fine-tuned as conditions changed.
The study, published in The Accounting Review, was coauthored by Duke Ferguson, an assistant professor at the University of Kentucky. The journal, which focuses on empirical research in accounting and economics, provided a rigorous platform for the findings, which have implications beyond the whiskey industry. The paper’s methodology—using granular sales data to isolate the effects of trade policy—could be applied to other sectors where supply chains are inflexible.
Burd noted that whiskey offers a clear example of how trade disputes ripple through the economy. “It shows how political tensions and tax changes can create real challenges for domestic producers,” she said. “And it highlights how the impact on consumers can vary depending on where they live.” The study’s findings also shed light on the broader economic consequences of protectionist policies. While tariffs are often justified as a means of protecting domestic industries, the whiskey market demonstrates how they can create surpluses that depress prices in some regions while inflating them in others.
For now, the aging process means distillers still can’t react quickly to shifts in demand. That leaves pricing as the most immediate tool—and one that won’t change anytime soon. The whiskey industry’s reliance on dynamic pricing is likely to persist as long as trade policy remains volatile. Without structural changes to how whiskey is produced and sold, the industry will remain vulnerable to the whims of global trade policy.
