Thursday, June 16, 2016

Tariff Skullduggery and the American Whiskey Trade

In the original draft of Southern Spirits, I addressed many of the tariff issues that influence the whiskey trade in the 19th century. Ultimately, most of that material was too long and geeky to make it into the finished book, but I still have a fondness in particular for the story of how the "Tariff of Abominations" came about. Here it is: a tale of political folly and miscalculation.

In the early 19th century, British factories were flooding American markets with inexpensive manufactured goods at the same time that the plummeting agricultural prices were damaging the export market for American crops. In 1816, Congress for the first time passed a tariff act that was intended not just to raise revenue for the government but also to protect domestic industry and agriculture from foreign competition.

The most ardent supporters of the measure were from the mid-Atlantic and western states of New York, New Jersey, Pennsylvania, Ohio, and Kentucky, where farmers were feeling the sharpest sting from declining export prices. If the government imposed a tariff on foreign brandy and rum, mid-Atlantic politicians reasoned, it would drive up the price of imported spirits, which would in turn boost sales of cheaper domestically-produced whiskey. That, ultimately, would raise the price of domestic wheat and corn and put more money in the pockets of their farmer constituents.

The tariff passed by a solid majority in 1816 and created substantial Federal budget surpluses in the years that followed. But it remained a hot-button issue for more than a decade and eventually got tangled up up in the bitter political rivalry between Andrew Jackson and John Quincy Adams. The Southern states were firmly pro-Jackson while Adams had the Northern states locked up. The critical swing states of the mid-Atlantic and the West were hotbeds of protectionist sentiment, and the Jackson camp knew they couldn’t let Adams and his allies be the only side that seemed friendly to domestic industry.

So the Jackson men went into their smoked filled rooms and hatched a fiendish plan. They drafted a tariff bill with stiff duties on imported spirits that would please representatives from the mid-Atlantic and Western states. At the same time, the measure placed extraordinarily high duties on imported raw materials like iron, hemp, flax, and wool, which New Englanders needed to supply their factories. These duties were supposed to make the bill as obnoxious as possible to the Yankees, who were already Adams supporters anyway. When it came time for a floor vote, the New Englanders would be compelled to vote against the tariff, which would enrage the Middle and Western states and cause them to throw their votes to Jackson.

It was an ingenious plan, but it backfired in a calamitous fashion. The rabidly anti-tariff Southerners, as expected, voted against the measure, while the Middle and Western states unanimously voted for it. The New Englanders, though, ended up split. About half of them judged the protections against foreign manufactures to be sufficient enough to hold their nose and swallow the bitter pill of raw material duties, and that was enough to tip the scale. Congress ended up passing what became known as the “Tariff of Abominations,” a measure that its own sponsors had no desire to see become law.

The existing duty on molasses was doubled, going from five to ten cents per gallon, and an additional fifteen cents was added on “all imported distilled spirits.” In a provision meant to be particularly obnoxious to New England, the bill eliminated a previous “drawback” that effective taxed imported molasses at a lower rate if it was used to make domestic spirits for export—a naked blow at Yankee rum producers.

The tariff did, indeed, boost the sale of domestic whiskey, which steadily gained market share in the years that followed and squeezed out imported rum and brandy. The duties were softened in later tariff bills, but they had a more lasting effect than just shaping the booze market.  The whole situation so enraged John C. Calhoun of South Carolina that he began articulating his theory of nullification, which declared that any one state had the power to nullify any federal law with which it disagreed. This theory eventually led to the Nullification Crisis and deepened the sectionalist fractures that culminated in the Civil War.

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