Boozy Trade Wars

There’s been a lot of talk about tariffs recently, including some about how steel and aluminum tariffs might affect the price of your beer. Of course, despite generally being regarded as terrible economic policy, tariffs have been making regular appearances in geopolitical games for centuries, and alcohol has gotten caught in the fray many times.  Today, two examples of those damn global elites using hooch for cannon fodder.

Crushin’ a few: now more expensive thanks to tariffs

1. Molasses gets a quick break

Molasses was a vital commodity in colonial America.[i] It would get shipped up from the Caribbean, turned into Rum in New England, and sent across the ocean to Europe. The French Caribbean colonies had an edge on the market, with fertile land that let them produce high-quality sugar and sell it cheaper than the British islands nearby. Those British producers were, you might guess, none too thrilled that the British colony to the north preferred French molasses, and in 1733 they talked the Motherland into slapping a tariff on non-British sweet stuff, instantly jacking up the price. The move did not pan out for the Brits, as rampant smuggling and bribing quickly became the norm. Thirty years later they tried to fix that problem with the Sugar Act of 1764, which beefed up enforcement, but that also did not go as planned. It was one more log on the fire that soon grew into the American Revolution.
Of course, once our founding fathers won said revolution, they realized that they needed money, both to pay back debts and to run a government. The best way to do that, without ticking off your anti-tax constituents? Tariffs, of course! The so-called “Hamilton tariff” of 1789 became just about the first act of our new government. The law set tariffs that went as high as 50% for a few goods, and 5% for most, but molasses was an exception, clocking in at a measly 2.5%. It wouldn’t stay that way for long, though, as increasing money pressures led to four tariff hikes in the next eleven years. By 1800, it was sitting at 10%.[ii]

Tariffs: Revolution-worthy, but also very helpful for funding a government.

2. The Canada/US beer wars

The late 80s/early 90s were a watershed time for Canadian/US economic relations, but apparently Ontario didn’t get that message.[iii] Unlike US states, Canadian provinces have a lot of independence when it comes to international trade and protecting native industries, and Canadian provinces were using that power to the detriment of American breweries. In May 1990, right in between the 1989 US-Canada Free Trade Pact and 1994’s NAFTA, two of those breweries asked the US Trade Representative to file a claim with GATT (the precursor to the WTO), claiming that Canadian provincial policies on what beer could be sold, where it could be sold, and for how much it could be sold, was discriminatory towards foreign companies. Ontario, home of Molson and Labatt, was the primary offender. Negotiations failed and the US asked GATT to form a panel to examine their charges. In response, Canada dug up some charges of its own against the US, and soon there were dueling panels, both of which found merit in the complaints and issued finger-wagging decisions against the countries. Canada proposed plans to rectify the issues the panel found, but the US rejected them. In July ‘92, after Ontario decided to double its tax on aluminum cans (which many US breweries used, while the Canadians used bottles), the US upped the ante by placing a 50% tariff on beer exported from Ontario. Ontario responded with tariffs of its own on several US breweries, and the back-and-forth needling went on for another year before President Clinton and Prime Minister Kim Campbell got together, with Clinton then ordering the Trade Representative to Figure This Out. It took another year, with Quebec entering the fray as well, but eventually they got it all ironed out, NAFTA passed, and Canada and the US never had a trade dispute again. Right?

Protectionism, eh?

[i] Sources for this section are: “The Federalist Era: 1789-1801,” by John C Miller (Harper & Brothers Publishing, 1960); “The Encyclopedia of Tariffs and Trade in U.S. History,” Cynthia Clarke Northrup and Elaine C Prange Turney, eds. (Greenwood Publishing Group, 2003); and Encyclopedia Britannica articles on the colonial laws.

[ii] For comparison, today the rate is 35 cents per liter. A quick search tells me that molasses might cost around a dollar a liter (if you’re ordering quite a lot of it), so that’s 35%. But if it comes from a country with which we have a free trade agreement, there’s no tariff at all.

[iii] Sources for this section include this industry trade summary (appendix B), this WaPo article, and a short paragraph in this book

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