The economics of bourbon

Could President Trump’s proposed tariffs help bourbon drinkers? Maybe! I’m no whiskeyologist, nor am I an economist, but this plays out sensibly in my head. As you may have heard, President Trump imposed tariffs on steel and aluminum. The European Union has threatened retaliation. One good they would impose a tariff on: Kentucky bourbon.

If American bourbon distillers suddenly find themselves uncompetitive in Europe, they might lower prices. This would be good news for domestic bourbon drinkers such as myself. But it’s not quite so simple. Bourbon is not a perishable good. In fact it gets better with age. So distillers who can afford a short term loss of revenue may choose to hold their liquor until the tariff situation is worked out. Then they’d have a product that they might even be able to sell for more than they can now.

Of course, if they’re holding more back and losing money, they’re not going to invest in warehouse expansion. That means they’d need to cut back on production. Since bourbon takes several years to age, a trade war of any non-trivial length could result in bourbon shortages a few years down the line.

But the fact that bourbon takes time to age also means the impact on sales in Europe might not be so dramatic. Certainly some may choose to go with other whiskeys (Scotch is a thing, I hear) or different alcohol altogether. But others who prefer bourbon may continue to buy at the higher price. The time it takes to first build out distilling capacity and then age the whiskey means it’s unlikely that production will meaningfully increase in the short term. But if distillers outside the United States ramp up production, we could be looking at a glut in a few years time.

So if the European Union imposes a tariff on bourbon, it may or may not have an immediate impact. A few years from now, if the tariff lasts, we’ll either have very cheap or very expensive bourbon.

Who knows? Even now, it’s hard to predict. That’s why the sudden popularity of Blanton’s means I can’t get one of my favorite bourbons and it may be a few years before it’s as readily available as it used to be. I’d better stock up on my other favorites now, just in case.

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