This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: A new study finds that one side effect of Trump-era trade wars has been cheaper whiskey in much of the United States. But if you live in whiskey hubs Kentucky or Tennessee, your prices actually went up.
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. "Distilled spirits are an interesting sector because consumers have significant preferences, which can influence pricing on a market-to-market basis," says Carly Burd, co-author of a paper on the work and an assistant professor of accounting at North Carolina State University's Poole College of Management.
"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." For this study, the researchers collected sales data from 8,674 stores over the course of the 2018 calendar year. The researchers looked at the cost of 2,514 unique whiskey products—all of which measured 750 milliliters (25 fluid ounces) in volume. Ultimately, the researchers had data on 11.4 million sales of whiskey products.
The researchers looked at how much the cost of U.S. whiskeys changed before and after the introduction of export tariffs and compared it with the cost of imported whiskeys over the same time period. The imported whiskeys served as a control group because they were not subject to U.S. tariffs in 2018. "Overall, U.S. whiskey producers responded to export tariffs by decreasing the cost of whiskey in order to increase domestic sales," says Burd.
"However, there were significant exceptions. "For example, producers actually increased the price of locally produced whiskeys in Kentucky and Tennessee. Those two states produce the vast majority of whiskey sold in the U.S., and our theory is that consumers purchasing whiskey in those states were willing to pay a premium for locally produced products." 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.
"One important factor here is that whiskey has to be aged, so producers are unable to rapidly increase or decrease supply," says Burd. That means whiskey producers couldn't respond to decreased exports in 2018 by quickly scaling back production. This is likely a big reason producers opted to pursue a dynamic pricing model.
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