President Donald Trump began his term with some startling news: The wall he’d promised to build on the U.S.-Mexican border might be funded by a 20 percent tax on goods imported from Mexico. The proposed border tax would affect everything from the cost of cars and medical instruments to your favorite bottle of tequila and the lime you squeeze into your Margarita.
The latest news out of this White House is that the border tax is dead. However, with Trump doubling down on his threat to cancel the North American Free Trade Agreement, tequila and other Mexican imports could still be affected. Mexico is the second largest supplier of goods to the U.S., and when it comes to the country’s native spirit, Americans are the world’s top consumers, swallowing 16 million cases annually, which represents some 80 percent of all tequila exports.
“NAFTA has been a pretty good deal for U.S. agriculture—and frankly, for Canadian and Mexican agriculture, as well,” says Veronica Nigh, a trade economist at Farm Bureau, a nonprofit advocacy group for the farming industry. While she spends much of her time looking at major crops such as corn and soy, products like wine, beer and tequila—all considered agricultural products under NAFTA—also fall within her purview.
“You saw that reflected in the negotiating objectives set by the U.S. Trade Representative’s Office. For agricultural products, it looked very much like prior agreements, as far as what our goals were: to minimize and eliminate tariffs, to reduce nontariff barriers.”
For other sectors, from automotive to garment manufacturing, the goal of a modified NAFTA is to reduce the U.S. trade deficit, the negative ratio of exported to imported goods.
The first three rounds of negotiations took place over the summer in D.C., Mexico City and Ottawa, and the hope was to have a new agreement in place by early next year. As negotiations edged toward a standstill, a fourth round was added last week. As The New York Times reports, the fear that Trump follows through on his threat to pull out of the agreement altogether may soon become a reality.
Luckily, tequila, mezcal and beer are not directly impacted by NAFTA, so pulling out of the agreement wouldn’t necessarily mean the end of happy hour. Alcoholic products from countries that are members of the World Trade Organization can come into the U.S. tariff-free. Other products related to alcohol production, however, such as barley and hops for beer or the American whiskey and bourbon barrels used to age tequila, can be affected.
“We buy our barrels from the U.S. and Europe, so that’s good for American export producers,” says Douglas French, the founder of Scorpion Mezcal. “So maybe a renegotiation in NAFTA on Mexican producers buying USA-made barrels will lower our import tariffs. That would be nice.”
According to a market analysis report written by Nigh, an average of 74 percent of the barley and 78 percent of the hops imported into Mexico between 1995 and 2016 came from the U.S. Mexico then uses those ingredients to produce beer that it sells back to the U.S.—last year, Americans spent $3.1 billion on Mexican beer (out of $4.8 billion on beer imports overall).
Without NAFTA, the barley and hops would be subject to higher tariffs, potentially raising the cost of Mexican beer, which would ultimately hurt American consumers. Same goes for tequila if barrels, almost all of which come from the U.S., are subject to higher tariffs.
“Tequila should not be lumped into a general segment if there’s any intention of applying new tariffs to products coming into the USA,” says Jose Hermosillo, one of the founders of Casa Noble Tequila. “Products that can only be produced [in their country of] origin, such as tequila and mezcal, should be treated differently since these are not affecting U.S. jobs or industry.”
As Fred Minnick pointed out in a New York Times op-ed column “Will Trump Kill the Bourbon Boom,” when free trade suffers, American industries suffer too. Abandoning the Trans-Pacific Partnership, for example, an agreement that cut tariffs on trade between 12 member nations, could lead certain countries to reduce American imports like bourbon. Under the TPP, Vietnam was expected to increase its whiskey consumption. Without it, bourbon and other spirits are subject to a 45 percent duty.
“The ag sector is focused on finding new opportunities to market our products,” says Nigh. “The way you do that is by forging new trade agreements.” That and working to improve those we already have.