The Counterintuitive Economics of Tariffs: How a 2018 Trade War Put Cheaper Whiskey on Most American Shelves — But Not in Kentucky or Tennessee
When the Trump administration lit the fuse on a global trade war in 2018, the conventional wisdom inside the spirits industry was that everyone would lose. Retaliatory tariffs were coming, export revenues would crater, and American distillers would be left holding barrels of aged whiskey with nowhere to send them. That narrative wasn't wrong exactly — but a landmark new study reveals it was dangerously incomplete. For millions of American whiskey drinkers outside of the industry's heartland, those same retaliatory tariffs quietly put money back in their pockets at the register. The exception? If you happened to live in Kentucky or Tennessee, you likely paid more.
A new study finds that one side effect of Trump-era trade wars has been cheaper whiskey in much of the United States — but not Kentucky or Tennessee. The findings, published in one of the most rigorous academic journals in the field, upend the simple story that tariffs are either good or bad for a category of American producers. The reality, as it turns out, is far more granular, far more strategic, and in some ways far more illuminating about how distillers actually behave when the rules of international commerce suddenly shift beneath their feet.
The Study: Eleven Million Whiskey Sales Under a Microscope
The paper, titled "Domestic Product Market Impacts of Politically Motivated Foreign Tariffs," is published in the journal The Accounting Review. Its authors are Carlyle S. Burd of North Carolina State University and Victor (Duke) Ferguson of the University of Kentucky. The collaboration itself carries a certain irony — one of the authors is stationed in a state whose whiskey drinkers, according to the research, were on the losing end of the pricing equation.
Carly Burd, an assistant professor of accounting at North Carolina State University's Poole College of Management, explained the motivation: "Whiskey constituted the vast majority of U.S. liquor exports prior to 2018, and we wanted to examine how U.S. whiskey producers responded to a sudden decrease in foreign sales."
The scale of the data collection is what gives the study its credibility and heft. The researchers collected sales data from 8,674 stores over the course of the 2018 calendar year, examined the cost of 2,514 unique whiskey products — all measured at the standard 750-milliliter volume — and ultimately had data on 11.4 million sales of whiskey products. That is not a survey or a sample of convenience. That is as close to a comprehensive market picture as academic research can produce.
The researchers specifically examined how much the cost of U.S. whiskeys changed before and after the introduction of export tariffs and compared it to the cost of imported whiskeys over the same time period. That comparison is methodologically crucial — it separates the signal from the noise, isolating the impact of the retaliatory tariffs from broader market movements that were affecting all spirits simultaneously.
What the Trade War Actually Looked Like from the Distillery's Perspective
To understand the pricing behavior the study uncovered, it helps to revisit exactly how the trade war unfolded for American whiskey producers in 2018. In 2018, the Trump administration imposed a series of tariffs, kicking off a trade war with many prominent trading partners. In response, Mexico, the European Union, Canada, and China imposed substantial tariffs on whiskey produced in the U.S. These weren't modest friction costs. The EU slapped a 25 percent tariff on American spirits, and the effects were almost immediately visible in export data.
American whiskey distillers watched more than $300 million in export revenues evaporate in the two years since becoming entangled in a trade dispute with the EU. Exports of American whiskey — mostly bourbon, Tennessee whiskey, and rye whiskey — to the EU fell 33 percent after the EU imposed its retaliatory tariff on June 22, 2018. That is a staggering collapse in what had been an incredibly robust export market. From 1997 through June 2018, American whiskey exports to the EU surged from $143 million to more than $750 million — a growth story two decades in the making, wiped out in a matter of months by political brinkmanship that had nothing to do with spirits.
Suddenly, distilleries across Kentucky and Tennessee were sitting on product they had been planning to export. The question became urgent: what do you do with barrels and bottles you can no longer profitably send overseas?
The Pricing Paradox: Lower Everywhere Except Where It's Made
The answer, according to the NC State and University of Kentucky research, was to redirect supply into the domestic market — and to adjust prices strategically depending on where that product was being sold and who was buying it. The results of that strategy are striking.
Using a difference-in-differences design, the researchers found that, on average, U.S. whiskey producers decreased U.S. product prices and increased domestic sales volume following the export tariffs. That is the broad finding, and it's the one that benefits most American drinkers. Cheaper whiskey on the shelves in Florida, Texas, New York, California, Illinois — most of the country, in other words, quietly got a price break it probably never noticed or connected to international trade policy.
But then there were Kentucky and Tennessee. The researchers found evidence of strategic pricing, as producers increased prices of locally produced products in primary production states — Kentucky and Tennessee — and more significantly decreased prices in states where whiskey consumption is less popular. This is not a small footnote. It is a window into sophisticated, market-by-market pricing strategy that the industry had been quietly executing while the headlines focused on export losses.
The researchers' theory is that consumers purchasing whiskey in those states were willing to pay a premium for locally produced products. Think about what that means in practice. A consumer in Louisville picking up a bottle of locally distilled bourbon is, in the eyes of the distillery's pricing algorithm, a categorically different customer than a consumer in suburban Minneapolis picking up the same bottle. The Louisville buyer has a strong regional identity tied to the product, a proximity to the production culture, and a demonstrated willingness to pay more precisely because the whiskey is from here. Producers understood that and priced accordingly.
On average, whiskey prices either didn't change or went up slightly in states where there was already significant demand for whiskey products, and went down everywhere else. The geography of whiskey enthusiasm in the United States, it turns out, is also a map of where the industry chose to hold the line on price.
The Aging Constraint: Why Producers Couldn't Just Cut Supply
There is another dimension to this story that distinguishes whiskey from almost any other consumer product category and makes the pricing response even more logical. A potato chip manufacturer facing a sudden loss of export contracts can simply cut production. A whiskey distillery cannot.
"One important factor here is that whiskey has to be aged, so producers are unable to rapidly increase or decrease supply," Burd explains. That means whiskey producers couldn't respond to decreased exports in 2018 by quickly scaling back production. Bourbon, by legal definition, must be aged in new charred oak barrels. Standard bourbons spend a minimum of two years in the barrel; many prestige expressions age for four, six, eight, or more than twenty years. When the EU tariffs hit in June 2018, the whiskey sitting in those rickhouses had been aging since 2016, 2015, 2014 — long before anyone was thinking about steel-and-aluminum trade disputes.
This production constraint is likely a big reason producers opted to pursue a dynamic pricing model. Continued trade policy uncertainty has also likely played a role in discouraging supply-chain responses, since pricing responses are faster and more flexible. In a world where tariff conditions could change with a tweet — as they routinely did during this period — the most agile tool available to a distillery is price adjustment. You cannot stop a barrel from aging, but you can absolutely reprice the bottle it eventually becomes.
The Advertising Angle: A Quieter Adjustment
The pricing shift was not the only adaptation the study uncovered. There was a secondary finding that reveals additional strategic sophistication among American whiskey producers. The researchers showed that U.S. whiskey producers implemented smaller product price decreases in states with greater tariff-related media exposure and reduced advertising spending nationwide — but not in Kentucky and Tennessee.
That detail about advertising deserves unpacking. In states where local media was covering the trade war extensively — where consumers were aware that tariffs were hammering American whiskey exports — producers were less aggressive about passing savings on to the consumer. The hypothesis is straightforward: when a customer already knows your brand is under pressure, you don't need to discount as heavily to maintain their loyalty or attract their purchase. The news cycle was doing some of the marketing work.
Meanwhile, in Kentucky and Tennessee, advertising budgets held steady even as they were trimmed elsewhere. This reinforces the picture of those two states as protected markets — where producers were simultaneously raising prices and sustaining marketing investment, betting on the strength of regional loyalty to absorb both decisions.
A Researcher With Skin in the Game
It is worth spending a moment on the academic lineage that produced this study. Carly Burd is an assistant professor of accounting at North Carolina State University who received her doctorate from Boston University in 2023. Her research focuses on topics in taxation, disclosure, and international trade policy. She studies how tax-related corporate disclosures impact users of financial statement information, and her dissertation applies textual analysis to identify and study disclosures and outcomes related to the Section 301 China tariffs. This is not a researcher who stumbled into whiskey as a novelty. The spirits industry offered an ideal natural experiment: a politically motivated, externally imposed shock to a supply chain that could not respond with production cuts, in a product category with clearly differentiated regional consumer preferences. From a research design standpoint, it was close to ideal.
As Burd herself summarized: "Whiskey is a good case study for understanding the ways in which political tensions, trade disputes, and tax changes can pose significant challenges for domestic producers — and how producers adapt to those challenges." She also noted that the research "illustrates how the impact of trade policy on consumers can vary significantly in different parts of the country."
Historical Context: Whiskey Has Always Been a Trade War Target
The 2018 episode documented in this study is hardly the first time American whiskey has served as a pawn in international trade disputes — and it won't be the last. The spirits category, and bourbon in particular, has a long history of being selected as a retaliatory target precisely because of its cultural and geographic specificity. Bourbon can legally only be made in the United States. Targeting it hits a specific region, a specific political constituency, and a product with enormous symbolic weight. That combination makes it irresistible as a pressure point.
Whisky has been a bargaining chip in transatlantic trade disputes for most of a decade. In October 2019, single malt Scotch was hit with a 25% tariff as collateral damage in the Airbus-Boeing subsidies row, a dispute with nothing whatsoever to do with whisky. U.S. exports fell by roughly a third, and the industry put its losses at around £500 million before the tariff was suspended for five years in 2021. The parallel with American whiskey's experience is almost exact — both categories became geopolitical instruments, both suffered sharp export declines, and both eventually found some form of diplomatic resolution.
The resolution on Scotch took a particularly dramatic turn in 2026. On April 30, 2026, President Trump announced on Truth Social that all tariffs and restrictions on whisky imports from Scotland were being lifted. The occasion was the state visit of King Charles and Queen Camilla to Washington, and the decision was one the Scotch industry had pursued for more than a year. The announcement carried a certain theatrical flair. Trump wrote on Truth Social: "The King and Queen got me to do something that nobody else was able to do, without hardly even asking."
Scotland's First Minister John Swinney described the outcome as a "zero-for-zero" regime, with Scotch entering the U.S. duty-free and American whiskey entering the UK on the same terms. The bourbon barrel trade that supplies Scottish warehouses is worth roughly £200 million a year, so the traffic genuinely runs both ways. That interconnection — American oak, Scottish spirit — is one reason the whiskey world's trade relationships are never as simple as one country winning and another losing.
The Canadian Front: A More Recent Collapse
While the NC State study focuses on the 2018 trade war, the dynamics it describes have played out again with different trading partners in subsequent years, illustrating just how durable the core findings are. A year after Canadian provinces yanked American whiskey from store shelves in a trade clash triggered by President Trump's tariffs, U.S. spirits exports collapsed by nearly 70%, gutting what had been one of the industry's most important overseas markets.
In 2025, Canada slid from the second-largest destination for American spirits to sixth, as exports declined two-thirds to $89 million. Before the dispute, the market had generated roughly $250 million annually for American distillers. The pattern is identical to 2018: foreign markets close, domestic supply builds, and producers face the same fundamental choice about where to redirect product and how to price it for different American audiences.
The Canadian situation also illustrates the degree to which these trade confrontations create genuine hardship that doesn't sort neatly by winner and loser. Spirits Canada, the country's national spirits trade association, reported that approximately 93% of Canadian spirits exports went to the United States in 2025. It estimates that American demand supports 48% of Canadian spirits production. When that relationship fractures, the damage runs in multiple directions simultaneously.
What This Means for the Enthusiast Buying Bottles Today
For the American whiskey drinker trying to make sense of all this academic and geopolitical complexity from the vantage point of a liquor store shelf, the implications are practical and worth understanding. The NC State study suggests that the price tag on a bottle of domestic whiskey is not simply a function of production cost, brand prestige, and retailer margin. It is also a function of where you are standing when you pick it up.
If you live in Kentucky — say, in Louisville or Lexington, where bourbon tourism is a genuine economic engine and local brand loyalty runs generational — you have been paying a premium that reflects your own enthusiasm for the product. Producers have correctly identified that your attachment to locally made whiskey is a pricing variable, and they have used it accordingly. The bottle on the shelf in a Louisville liquor store was more expensive during the trade war than the same bottle in a state with weaker regional whiskey culture, not because of logistics or taxation, but because of strategic market segmentation.
Conversely, if you live in a state without a strong whiskey-producing identity, you likely benefited from cheaper domestic whiskey during the trade war years without ever knowing why. The surplus that couldn't go to France or Germany had to go somewhere, and it went to your market at a discounted price designed to stimulate volume. That is a real, material benefit — even if it arrived as a side effect of international brinkmanship rather than any deliberate policy aimed at consumer welfare.
Broader Implications: Trade Policy as a Pricing Lever
Perhaps the most significant contribution of the NC State study is what it tells us about corporate pricing behavior in response to trade shocks — a question with implications well beyond the spirits industry. The researchers' setting was the politically motivated tariffs on U.S. whiskey exports levied during the 2018 trade war, which created an exogenous negative foreign demand shock for domestic producers. Using a difference-in-differences design, they showed that on average, U.S. whiskey producers decreased U.S. product prices and increased domestic sales volume following the export tariffs.
The evidence of strategic pricing — with producers increasing prices of locally produced products in primary production states while more significantly decreasing prices in states where whiskey consumption is less popular — demonstrates a level of geographic market sophistication that may surprise those who assume whiskey is priced uniformly across the country. It is not, and the trade war made that reality more visible to researchers who looked carefully enough.
Taken together, the findings provide timely evidence regarding how foreign trade restrictions impact the U.S. product market and consumer outcomes. As tariff regimes continue to shift — with new confrontations between the U.S. and its trading partners emerging regularly — this study offers a template for predicting how other industries with similar supply constraints and strong regional identity might respond. The whiskey industry's behavior in 2018 was not unique to spirits. It was a case study in how producers with long production lead times, inelastic supply, and heterogeneous consumer preferences navigate sudden changes in their export landscape.
The next time a trade war breaks out — and the current environment makes that a near-certainty rather than a remote possibility — pay attention to the price of your favorite bottle. Depending on which state you live in, you might be the beneficiary of someone else's political dispute. Or you might be the one subsidizing the distillery's global strategy without ever leaving home.
