New tariffs set to take effect on February 4 will impose a 25% duty on shipments from Mexico and Canada, along with a 10% tariff on Canadian oil and various energy resources. These measures come amid escalating concerns regarding illegal immigration and drug trafficking, with U.S. officials asserting that the tariffs aim to hold both countries accountable for their commitments to address these issues. The tariffs are planned to remain in place "until the crisis is alleviated," creating uncertainty for businesses and consumers alike.
As the U.S. government prepares to implement these tariffs, small businesses, particularly those in the spirits industry, are bracing for significant repercussions. The Distilled Spirits Council has warned that these new tariffs will weigh heavily on economic growth, raise prices for consumers, and potentially lead to job losses. Estimates suggest that around 286,000 jobs could be at risk across the three countries affected by these tariffs.
The surge in mezcal and tequila consumption in the U.S. has underscored the growing trade relationship between the U.S. and Mexico. Since 2003, the consumption of tequila and mezcal has roughly tripled, growing at an annual rate of over 7%. Trade in spirits between the U.S. and Mexico has skyrocketed more than 4,000% since the 1990s, highlighting the sector's significance to both economies.
However, the introduction of these tariffs has raised alarm among industry stakeholders. Fred Sanchez, founder of Bad Hombre Importing, expressed concerns over the feasibility of passing such a steep cost onto consumers. He remarked, “25% is just not something that we can realistically pass onto the consumer.” Smaller firms, which typically lack the financial cushion to absorb sudden cost increases, will likely bear the brunt of these disruptions.
Sophie Avernin, director of De Grandes Viñedos de Francia in Mexico, cautioned that the tariffs will have a widespread impact. "It poisons your own people in order to try and fight the disease," she stated, emphasizing the broader implications of these tariffs beyond just immediate financial concerns.
In addition to the direct effects on pricing and consumer behavior, economists warn that these tariffs could push both Mexico and Canada into recession. Dan Kelly, president of the Canadian Federation of Independent Businesses, noted that while he understands the government's need to respond to crises, he urged caution. He stated, “Look, we get that the government has got to respond in some fashion…. But at the same time we urge the government to use caution.”
The fears surrounding these tariffs are compounded by uncertainties about their duration. While some industry leaders speculate that this could be a negotiating tactic by the U.S. government, others are left with limited options for adapting to potential long-term changes. Nicolas Palazzi, founder of PM Spirits, shared his perspective: “Our strategy is roll-with-the-punches, wait and see and adapt to whatever craziness is going to unfold.”
The ripple effects of these tariffs extend beyond just alcohol producers. Many Americans own Mexican alcohol brands, and unexpected price hikes could alter consumer purchasing habits significantly. Ben Scott, a California-based importer, warned that elevated prices would likely lead to decreased sales.
As businesses navigate this uncertain landscape, it is clear that the tariffs will create challenges across all three nations involved. With smaller companies facing particularly steep hurdles, many are left questioning how long they can sustain operations under such adverse conditions.