Trump's proposed tariffs on Mexico could push up the price of Modelo, Corona and tequila
Beer and liquor may be recession-proof, but they're certainly not tariff-proof.
If President-elect Donald Trump follows through with proposals to impose a 25% tariff on all items from Canada and Mexico, the result would be a stiff penalty on some of America's favorite libations, not to mention the No. 1 beer brand in the nation: Modelo.
Some business owners have started stockpiling popular products - specifically tequila, which can be made only in Mexico - and taking other actions to help stave off potential price hikes.
However, industry leaders and analysts say consumers would still have to pay more in the end.
"A lot of those companies, especially the smaller ones, don't have much choice except to pass those costs along," said Dave Williams, president of Bump Williams Consulting, which provides consulting and analytics services to the alcoholic beverage industry.
He added: "The unfortunate reality is that would trickle down."
The same is likely true for even the biggest companies in the business. Constellation Brands, which imports Modelo and Corona beer as well as Casa Noble tequila from Mexico, could see its costs leap 16% under Trump's proposed tariff and would likely have to raise prices by about 4.5%, Chris Carey, a Wells Fargo equity analyst, wrote in a note issued Tuesday.
At this stage, the tariffs are technically still just talk, with plenty of caveats and scenarios strewn about.
But if large tariffs are levied against two of America's top trading partners, it would be a blow to a US industry that's still nursing its hangovers from recent trade wars, a pandemic, supply chain disruptions and a global battle against inflation, Williams said.
"That's the whole point of negotiations like this is you need something to start the conversation or get the ball rolling," he said. "The hope is that it just comes down to not the worst-case scenario but something that everyone can be better walking away from. But, at the same time, you do need to prepare and start thinking about what to do should this become a reality."
A 'library' of tequila
At Meximodo, a popular Mexican restaurant and tequila bar in Metuchen, New Jersey, those arrangements are already underway.
Meximodo, which opened last year, holds the Guinness World Records title for most varieties of agave spirits: Its "library" of tequila, mezcal and agave-based spirit is 1,033 bottles strong.
For a business that trades heavily in tequila and serves up authentic dishes featuring distinctive ingredients from Mexico, a 25% tariff could be a significant burden. But Meximodo has arelatively large footprint at 7,000 square feet and is one of six restaurants operated under Le Malt Hospitality Group, which is taking steps to limit price hikes, TJ Pingitore, Le Malt's senior vice president for North America, told CNN.
Le Malt has leaned heavily into technology to improve the efficiency of inventory, operations, accounting, sourcing ingredients and portioning, he said.
"As we tighten more and more in terms of how much we control, this really all plays in at the bottom-line level," Pingitore said. "So, if we do experience a 20% or 30% type of tariff, the end customer might only experience a very small portion of that."
The company is also implementing another precautionary strategy, one that's less technical: loading up. Its Meximodo Organic Blanco Tequila brand is set to launch in just weeks.
Le Malt doesn't know if the tariffs are coming,"but 25% tariffs will definitely affect our pricing coming into the port of New York," Saurabh Abrol, the company's founder and chief executive, told CNN.
So, just in case, Abrol and his team this week tripled the order from 12,000 to 36,000 bottles.
"We didn't want to take a chance," he said.
$10.5 billion of imports and growing
Earlier this year, Mexico supplanted China as the top exporter of products to the United States.
While cars, oil and computer chips are among the top products imported by the US from its neighbor to the south, beer and alcohol have quickly risen through the ranks in recent years.
In 2023, the US imported $5.69 billion of beer and $4.81 billion of alcohol from Mexico, according to International Trade Administration data. When combined, the two categories were the 10th-biggest import from Mexico last year and mark a sharp 126% increase from 2017, International Trade Administration data shows.
From the Canadian side, the US imported $543 billion of alcohol last year, including $200 million of whiskey, according to the Distilled Spirits Council of the United States.
But it's not just the increasingly popular imports that are at risk, said Chris Swonger, president and CEO of the Distilled Spirits Council.
"When tariffs might be imposed on imported spirits, typically, the natural reaction is the other government will impose a tariff on a like-minded product," Swonger said.
In 2023, Canada ranked as the second-largest export market and Mexico was the third-largest for American spirits, according to the Distilled Spirits Council.
And there are cases where even unrelated tariffs can have negative consequences. Swonger noted how the European Union in 2018 imposed a 25% retaliatory tariff on American whiskey in response to US tariffs on steel and aluminum.
As a result, whiskey exports to the EU sunk 20% between 2018 and 2021. After the retaliatory tariffs were suspended, whiskey exports surgedfrom $440 million to a record high of $2.2 billion in 2023, according to the Distilled Spirits Council.
Not fully insulated
Even if certain products are excluded, some tariff actions could affect US beer and spirits businesses, especially smaller operations, said Katie Marisic, senior director of federal affairs at the Brewers Association, a trade association for small and independent craft brewers.
"There are more than 9,900 small and independent breweries; we create almost 190,000 jobs directly; (craft beer is) an American-made product," she told CNN. "It can't be made anywhere else, but that doesn't fully insulate us from those tariffs."
Costs could suddenly spike for key ingredients such as Canadian malted barley and materials such as sheet aluminum, Marisic said.
In 2018, the Trump administration's tariffs on steel and aluminum did result in prices climbing for the material behind craft beer's critical vessel, she said.
"Breweries are innovative, but of course adaption comes with difficulties," she said.
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