Retaliatory whiskey tariffs cut U.S. prices almost everywhere except Kentucky and Tennessee

When Mexico, the European Union, Canada and China put substantial tariffs on U.S.-made whiskey in response to the Trump administration's 2018 tariffs, the domestic price effect was not uniform: prices fell across most of the country and rose in Kentucky and Tennessee ^[1][2][8][9]. For anyone modelling tariff exposure, that is the useful finding, because it says an export shock gets redistributed across domestic geography rather than passed through evenly.

The study, by Carlyle Burd of North Carolina State University's Poole College of Management and co-authors, is published in The Accounting Review ^[16][17]. It uses sales data from 8,674 stores across the 2018 calendar year, covering 2,514 unique whiskey products, all of them 750 millilitre bottles, and 11.4 million individual sales ^[4][5][6] - on average roughly 1,300 recorded transactions per store over the year ^[18]. The design compares the price path of U.S. whiskeys before and after the export tariffs against imported whiskeys over the same window, with imports as the control because they were not subject to U.S. tariffs in 2018 ^[7].

The headline result, in Burd's description, is that U.S. producers cut prices to push domestic sales after foreign demand was taxed ^[8]. The exception was local product in Kentucky and Tennessee, the two states that make the vast majority of whiskey sold in the U.S., where prices went up ^[9][10]. Burd's stated explanation is a theory rather than a measurement: that buyers in those states were willing to pay a premium for locally produced bottles ^[11]. More generally, the paper reports prices flat or slightly higher in states that already had significant whiskey demand, and lower everywhere else ^[12].

The mechanism is a supply constraint that operators in any aged-inventory business will recognise. Whiskey has to be aged, so producers cannot rapidly raise or lower supply ^[13]. They could not answer a 2018 export loss by quickly cutting production, which Burd says is likely a major reason they turned to dynamic pricing instead ^[14]. Continued trade policy uncertainty probably reinforced that, since price changes are faster and more reversible than supply-chain changes ^[15]. Burd also frames spirits as a sector where consumer preferences are strong enough to support market-by-market pricing ^[20], and notes whiskey was the vast majority of U.S. liquor exports before 2018 ^[3].

Two limits are worth holding. The release states directions, not magnitudes: it does not report how large the price cuts or the Kentucky and Tennessee increases were ^[19]. And the window is a single calendar year, with imported whiskey as the counterfactual ^[4][7], so the estimate rests on imports behaving as U.S. whiskey would have absent the tariffs.

What to watch: whether the same split shows up in later tariff rounds, since a firm that discovers it can raise prices in its home region while discounting elsewhere has a template it will reuse. Watch, too, for the same pattern in other goods with long production lags and strong regional identity, where pricing is the only fast lever ^[13][15].