Mexico Chose Whiskey to Make A Point

México is fighting the México-U.S. Trade War intelligently by making sure the American worker understands how Trump’s attacks on Mexican trade will hurt them directly. When México imposed the 25% retaliatory tariff on whiskey, it strategically targeted the Republicans and Tennessee workers to make the point that Donald Trump’s trade sanctions will hurt American workers.

Whiskey is legally known as bourbon whiskey for international trade agreements. Under the law, Tennessee whiskey is required to be produced in the state of Tennessee. The protection allowing Tennessee to limit production to the state only, is the result of NAFTA. It is Tennessee’s top ten export product. According to the Distilled Spirits Council, in 2017, the whiskey market was worth about $3.4 billion in revenues.

Jack Daniels exports 65% of the whiskey it produces each year. Five percent of its exports go to México. Although the total exports to México may seem small, the EU is one of the largest markets for whiskey and they have also issued retaliatory tariffs. Additionally, according to Bloomberg, the Mexican market has been increasing at about 15% annually.

México did not choose whiskey because of its volume but because it is sending a message. The message is American jobs are at stake of the Republicans do not wind Trump down.

According to the Distilled Spirits of America, in 2016, about 745,026 jobs are directly tied to whiskey. In Kentucky, liquor production uses 70% of the whiskey-related jobs. The economics of whiskey trickles down to other jobs, like office workers, tour guides and drivers, among others.

As whiskey production in Kentucky continues to grow, the related jobs will increase as well. In 2001, there were 2,945 jobs with an annual average income of $53,190. By 2015, the jobs had increased to 4,123 with an average income of $95,089. [1] Today, almost 800,000 jobs in Kentucky depend on whiskey production.

Those are direct jobs. Once you add the ancillary jobs, such as truck drivers, marketing, administration and technology support, the retaliatory tariffs will take a toll on Kentucky’s job market. If the domestic market could absorb the whiskey production, there would be no need for exports to other countries.

Thus, as demand for the whiskey drops from México, and from the rest of the countries that are retaliating, the local prices on whiskey will drop resulting in excess inventory. That may seem like a God-send to the U.S. whiskey drinkers, but loss of jobs and pressure on the distilleries will impact Tennessee. Local governments will suffer reduced revenue streams from taxes and unemployment will rise, along with taxes to make up the shortfall. This would add further pressure to the people of Kentucky.

México’s retaliatory tariffs will hurt about 52 distilleries. The economic impact on jobs will affect between 15,000 and 17,500 jobs in Kentucky, just from whiskey retaliatory tariffs. The Kentucky Economic Development Cabinet “estimates that 95% of the world’s bourbon supply is made in Kentucky. [1]

In addition to the 25% tariffs imposed by México on whiskey, México also targeted apples (20%), cheese (25%), potatoes (20%) and steel (25%) for a total of $3 billion in trade. The retaliatory tariffs are focused on Republican-controlled states and are designed to make the American worker understand that the trade war will have serious ramifications for American workers, in addition to the Mexican labor. It is targeted to the Republican congress, which can force Trump to back off. For example, the steel retaliatory tariffs are targeted at Mike Pence’s state, Indiana. Marco Rubio of Florida was also targeted, among others. México put the GOP congress on notice that it must control Trump, or the American workers will suffer as a result.

Donald Trump is playing with the lives of American workers. Is this what Make America Great Again was supposed to be? The American workers are about to find out.

Footnote:
1. Kelly, John, Berry Kornstein, Ryan Marshall; “The Economic and Fiscal Impacts of the Distilling Industry in Kentucky”; Urban Studies Institute, University of Louisville, prepared for the Kentucky Distiller’s Association, January 2017

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