Mexico’s Tequila Exporters Warily Eye US Tariff Deadline

A worker uses a machete to harvest “blue agave” in El Arenal, Jalisco state, Mexico, on Wednesday. Agave takes from six to 12 years to mature before it is harvested and the spiny leaves removed for baking. (AP Photo/Refugio Ruiz)

EL ARENAL, Mexico (AP) — President Trump’s threat to impose punitive tariffs on all Mexican imports could affect millions of jobs in the United States’ southern neighbor — including more than 70,000 of them in the tequila industry.

After decades of building a domestic market for Tequila Cascahuín, Salvador Rosales readied the family business for a plunge into the U.S. export market this year. He made sure he had a stable supply of high-quality blue agave, the succulent whose juice is distilled into tequila, so that once they planted their flag, they wouldn’t disappoint.

Tequila Cascahuín envisioned exporting 350 to 420 cases to the United States this year and building from there. But those plans could be derailed by President Trump’s threat of tariffs starting at 5% and rising higher until he is satisfied Mexico is doing enough to stop the flow of Central Americans through its territory.

“We were just getting into the United States market with prices already impacted by the high price of agave,” Rosales said. “With this increase, our sales are going to decrease.”

Last week Trump shocked Mexico and many members of his own party with a June 10 deadline to impose the unilateral tariffs on all Mexican imports, potentially making avocados, flat-screen TVs, automobiles and other products more expensive for U.S. consumers.

Exporters of tequila, the key ingredient in margaritas, are as worried as anyone about possible slumping revenues and job losses, particularly if tariffs were to reach the 25% ceiling laid out by Trump.

Multiple tequila industry insiders said that some companies had been rushing to export as much as possible ahead of Monday’s tariff deadline. With most of this year’s inventory already in the United States, the biggest impact would be on next year’s supply.

Mexico exported more tequila than ever before in 2018, more than 58.4 million gallons to 120 countries, said Ramón González, director of the Tequila Regulating Council. Eighty-two percent of that — 92 gallons per minute — went to the United States. It was worth $1.4 billion, the Distilled Spirits Council of the United States says.

Consumers are the ones most likely to be hit by the brunt of tariffs as sellers raise prices, though some importers could decide to absorb some of the cost.

One of many “blue agave” fields that line the roadsides in El Arenal, Jalisco state, Mexico, is shown here on Wednesday. Blue agave is the prime material for the production of tequila. The Tequila Regulating Council said the U.S. imported $1.4 billion of tequila last year. (AP Photo/Refugio Ruiz)

If tariffs do lead to a slide in sales, as Rosales and others fear, it could ripple through rural economies.

“It worries us because we could see the volume affected in a very, very big way,” González said. Lower volume would hit agave growers, bottlers and retailers, potentially leading to unemployment in an industry that directly employed 70,000 people in 2018.

“What we really need to be doing now is continuing to create rural jobs … so there isn’t migration, and it seems like all of the measures are leading toward unemployment, migration,” González said. “Instead of attacking it, it stimulates it.”

“It’s not just going to be our Central American or South American brothers” who are driven to migrate, he continued. “It’s going to be Mexicans, too. The fact that people could potentially be left without work in the countryside and in the industry is worrisome for our country.”

Though the North American Free Trade Agreement, enacted under President Bill Clinton, has been credited with economic successes on both sides of the border, it devastated Mexican farmers, who cannot compete with mechanized U.S. agriculture, and drove thousands of rural Mexicans north to the United States.

North of the border, concern goes beyond the prospect of pricier margaritas. The Distilled Spirits Council of the United States fears Mexico will respond with retaliatory tariffs as it did when Trump imposed duties on steel and aluminum imports. At the time, Mexico slapped tariffs on U.S. whiskey, among other things.

“Depending on the level, tariffs on tequila imports from Mexico could result in a loss of $185 million to $859 million in retail sales and the elimination of 2,000 to 9,000 U.S. jobs,” the council said in a statement.

Mexico is the 10th largest market for U.S. distilled spirits exports.

Trump’s announcement came the same day Mexico announced it was beginning the process to ratify a new free trade agreement, demanded by Trump to replace NAFTA. Mexican President Andrés Manuel López Obrador dispatched his foreign affairs minister to Washington the next day to try to head off the tariffs.

At Tequila Cascahuín, exports account for just 20% to 25% of production — but it was a growing part of the business, as the company expanded to the U.S. market.

Last week’s news has left Rosales scratching his head over how migration by Central Americans could indirectly hurt his bottom line.

“It’s a topic totally apart from the industry,” Rosales said, “because we don’t control immigration.”

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