The U.S. Has a Long, Ugly History of Alcohol-Related Tariff Fights. They Don’t End Well.

The tariff chaos of 2018 has come back with a vengeance. 

Soon after taking office in January, President Trump squared up against Mexico and Canada, instating a 25% tariff on our North American Free Trade Agreement (NAFTA) neighbors.

Mexican President Claudia Sheinbaum offered a measured response. Canadians, however, did not take the attack lightly. Government-run liquor stores immediately started pulling American-made products off the shelves, including bourbon and wine.

This month, Europe reentered Trump’s crosshairs, when the administration announced a 25% tariff on steel and aluminum products. Like Canada, E.U. officials fought back, declaring a 50% excise on American whiskey and other products. Reacting to the reaction, Trump’s team proposed a 200% levy on European wine and other spirits.

These tariffs are supposed to buoy the domestic economy, U.S. manufacturing and protect jobs, the administration claims. But will these alcohol-related taxes actually achieve the desired results? 

To answer that question, we decided to look back at the history of liquor tariffs and taxes in the United States to see how they turned out.

The Deadly Ghost of Tariffs Past

The recent tariff war came about from round one of the Trump administration. In 2018, selective tariffs on European wine and spirits ignited retaliatory measures by the E.U.

For American whiskey producers, especially, the effects were devastating. Exports of American whiskey to the European Union tumbled by 27% percent from 2018 to 2019. 

While it was happening, Distilled Spirits Council of the United States (DISCUS) President and CEO Chris Swonger said,“If this trade dispute is not resolved soon, we will more than likely be reporting a similar drag on the U.S. spirits sector, jeopardizing American jobs and our record of solid growth in the U.S. market.”

Looking further back, the consequences of liquor-related levies were even more dire. In fact, 18th-century excise taxes on distilled spirits resulted in violent riots and multiple deaths. 

“There are lots of examples of alcohol tariffs in American history,” says Abigail Hall Blanco, an associate professor of economics at the University of Tampa. “Even the U.S. Tariff Act of 1789 included a tax on imported alcohol, among other goods.”

In 1791, to help pay off the national debt accumulated during the Revolutionary War, a levy on all distilled spirits was passed including not just imported booze but also American-made whiskey.

Cash-poor farmers saw this as a tax on their main crop; their frustration ultimately fueled the infamous Whiskey Rebellion in 1794. After nearly a decade of fighting, the excise tax was repealed in 1802.

Decades later, in 1828, to protect manufacturing in the North, Congress passed a tariff that increased the rates on imports to the United States by as much as 50%—including an additional 15 cents per gallon on foreign-made distilled spirits like rum. 

Southerners were outraged. The so-called “Tariff of Abominations” contributed to the Nullification Crisis and ultimately the Civil War. 

During the Civil War new taxes on American-made booze, in addition to taxes on imported liquor, were reinstated and became a crucial source of revenue for the Union. As the country rebuilt from war, up to 40% of the government’s income came from alcohol taxes. 

Taxes, Tariffs and Prohibition

This changed in 1913 with the 16th Amendment, which granted Congress the power to tax income regardless of source. This major shift in government funding, from excise taxes, like liquor, to income, paved the way for prohibition in 1920. 

However, as the Great Depression took hold and income tax revenues dropped off a cliff, anti-Prohibition activists drove home the point that legal alcohol sales would provide much-needed jobs and tax dollars for the government. 

In 1933, the 21st Amendment ended Prohibition. Soon after “the American government implemented tariffs on foreign alcohol again,” says Blanco. “Tariffs were adjusted in the 1930s and 1940s during the Great Depression and World War II, then remained relatively stable in the 1950s before trade liberalization led to the decrease in tariff rates.”

From Free-Flowing Booze to Gridlock

The first elimination of liquor tariffs came with the 1994 North American Free Trade Agreement between the United States, Canada and Mexico. With it, bourbon, Canadian whisky, tequila, wine and any other alcoholic beverages could crisscross the borders tax free.

A few years later, in 1997, a similar deal was put in place between the U.S. and E.U. As a result American whiskey exports to the European Community quintupled between January 1997 and June 2018 to $757 million annually, according to a DISCUS impact report.

A steady stream of bourbon and Bordeaux flowed freely until 2018, when the Trump administration implemented 25% tariffs on European alcohols as a result of an aerospace manufacturing dispute. 

“The word tariff didn’t even enter our lexicon until 2019,” says Harmon Skurnik, president of Skurnik Wine & Spirits. He represents over 800 global wineries and distilleries and employs over 270 Americans. “We were collateral damage.”

Those tariffs were limited, but still hit American businesses hard.