Alexander Hamilton did not stop with the creation of the Bank of the United States. His next initiative was to encourage industrialization and a higher degree of national self-sufficiency. In his December 1791 Report on Manufacturers, Hamilton proposed the passage of protective tariffs to spur domestic production. Further, he called for the reduction of duties on goods carried by American ships.
Thomas Jefferson, and his newest political ally, James Madison, opposed efforts to encourage protectionist economic policy. They feared the policies would weaken competition and create industries that were dependent on government aid. Tariffs would lead to higher prices and decrease innovation. Congress refused to approve high new tariffs. However, Hamilton did push legislature through Congress to set higher import duties on goods not imported on American ships. At Hamilton's behest, Congress also approved subsidies for a number of floundering New England fisheries.
Along with building political opposition to Federalist policy, there was some degree of public outcry. One element of Hamilton's policy had been the establishment of an excise tax on domestically produced whiskey. Americans, who consumed an average of six gallons of hard liquor per person each year, did not take kindly to this tax, which amounted to 25 percent of the retail value of Whiskey. Nowhere was the effect of this tax felt more than in western Pennsylvania, where whiskey was distilled and transported east. The excise tax was enforced most stringently and cruelly in western Pennsylvania, as opposed to most other areas of the country where it was more or less ignored. Additionally, anyone charged with tax evasion was sent to trial in federal court, which meant small family farmers had to travel hundreds of miles to Philadelphia, to be tried by men who knew little of their situation.
Popular opposition to the Whiskey tax mounted, and episodes of violence against tax collectors broke out in many areas of western Pennsylvania. Large-scale resistance began in late July 1794 in what became known as the Whiskey Rebellion. During a short period of time, over a hundred men attacked a US Marshall, the chief revenue officer for Allegheny County saw his house and stables burned to the ground, and organized, militant farmers threatened to form a separate country. President George Washington responded swiftly, calling 13,000 militiamen from Mid-Atlantic States to march with him to western Pennsylvania. Washington led the march into Pennsylvania himself, crushing the rebellion convincingly and returning order to the land. However, Washington was shaken by the experience of the rebellion. The whiskey tax was reduced and trials for tax evasion became the jurisdiction of federal courts as a result of the public outcry, even before full-fledged rebellion began.
Hamilton's efforts to pass protectionist policies magnified the already growing gap between his supporters and opponents. The proposal was yet another attempt to gain the loyalty of wealthy and powerful industrial merchants and traders, at the expense of the population at large. Hamilton proved widely successful in his effort to amass political support by appealing to economic self-interest, establishing strongholds of Federalists in New England, New Jersey, and South Carolina, all of which benefited from his economic policies. Manufacturers and merchants in these areas were able to raise prices and better compete with European goods in a protected market. However, not all Americans welcomed price increases.
However, significant opposition to the Federalists rose throughout most of the South and West. Most southern and western inhabitants benefited little from Hamilton's economic initiatives, and if anything, were hurt by the rise in prices that resulted from efforts at protectionism. They saw Hamilton's policies as catering to the wealthy businessmen of the northeast (which they did), and felt that they were neglected and abused by national financial policy. This coalition of southern and western opponents to the economic policy of the national government, which increasingly included citizens of Mid-Atlantic states, presented an increasing obstacle to Federalist control of the government.