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Trump threatens 25% tariff on Tequila
President-elect Donald Trump said he would issue an executive order to charge Mexico and Canada a 25% tariff on all products coming into the US when he takes office on 20 January.
In a post on his social media platform, Truth Social, Trump said: “Thousands of people are pouring through Mexico and Canada, bringing crime and drugs at levels never seen before.” As such, he said he would “sign all necessary documents to charge Mexico and Canada a 25% tariff on all products coming into the United States, and it’s ridiculous open borders”.
He continued: “This tariff will remain in effect until such time as drugs, in particular Fentanyl, and all illegal aliens stop this invasion of our country. Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price.”
The US imported more than 321 million litres of Tequila from Mexico in 2023, making it the world’s largest importer of the agave spirit.
In addition, Tequila sales overtook those of American whiskey in the US spirits market in 2022, with sales of Tequila totalling US$6.5 billion and whiskey sales trailing behind at $5.3bn, according to the Distilled Spirits Council of the US (Discus).
Meanwhile, Tequila consumption grew from 19.7m nine-litre cases in 2019 to 30.6m nine-litre cases in 2023. According to Discus, Tequila has increased its US volumes by 294%, at an average rate of 7.1% per year since 2003.
A 25% tariff on all imports from Mexico would therefore have a direct effect on the Tequila and mezcal sectors, while it would be the Canadian whisky sector that would suffer predominantly if the US imposed tariffs on its neighbours to the north.
As a tariff is a domestic tax levied on goods as they enter the country, proportional to the value of the import, a bottle of Mexican- or Canadian-made spirit with a value of US$50 would face a US$12.50 charge with the implementation of a 25% tariff.
According to Barclays Investment Bank analysis, drinks giant Diageo’s number one brand in the US is Crown Royal Canadian whisky, while its number one spirits category in the US is Tequila.
As the tariff charge is physically paid for by the domestic company that imports the goods, rather than the foreign company that exports them, analysts at Swiss bank UBS initially estimated that a global tariff rate of between 10% and 20% would generate a 4% hit to Diageo’s earnings before interest and tax if it was fully absorbed.
It is also estimated that 94% of Tequila 1800 owner Cuervo’s US sales would be subject to the tariffs if Trump’s proposal goes ahead.
As tariffs will be applied to the import or transfer price, rather than to the retail price of a product, it was initially predicted that a 10% tariff would lead to a 3-5% price increase on tariffed products, something that companies are expected to pass onto the consumers straight away.
Laurence Whyatt, head of European beverages research at Barclays Investment Bank, said: “They’ll be very clear with any administration and any government that if you increase tariffs on our products, we are going to pass it on to your citizens. This is not to hit us. And in the same way, if any government were to lower tariffs, they would pass it on to their citizens.”
The end of the free-trade agreement between the US, Mexico and Canada?
During Trump’s first administration, he renegotiated the free-trade agreement between the US, Mexico and Canada (USMCA), which was first established in 2020. It had therefore been expected that Mexico and Canada would be exempt from tariffs threatened by the incoming president, however, these tariffs now break the terms of that agreement.
In a joint statement, Canada’s deputy prime minister, Chrystia Freeland, and public safety minister Dominic LeBlanc said Canada and the US have “one of the strongest and closest relationships – particularly when it comes to trade and border security.
“Canada places the highest priority on border security and the integrity of our shared border. Our relationship today is balanced and mutually beneficial, particularly for American workers,” they said.
Earlier this month, Mexico’s economy minister, Marcelo Ebrard, who served as Mexico’s foreign minister during Trump’s first term, suggested that the Mexican government could retaliate with its own tariffs on US imports if the incoming Trump administration slaps tariffs on Mexican exports.
“If you put 25% tariffs on me, I have to react with tariffs,” said Ebrard in an interview with local broadcaster Radio Formula. “If you apply tariffs, we’ll have to apply tariffs. And what does that bring you? A gigantic cost for the North American economy.”
In 2022, Mexico imported US$66m of hard liquor from the US.
More tariffs for China
In an additional post on Truth Social, Trump also hit out at China, blaming the country for the “the massive amounts of drugs, in particular Fentanyl, being sent into the United States”.
He noted “representatives of China told me that they would institute their maximum penalty, that of death, for any drug dealers caught doing this but, unfortunately, they never followed through, and drugs are pouring into our country, mostly through Mexico, at levels never seen before.
“Until such time as they stop, we will be charging China an additional 10% tariff, above any additional tariffs, on all of their many products coming into the United States of America. Thank you for your attention to this matter.”
Following China’s imposition of anti-dumping duties on EU brandies and Cognacs in October – a retaliation to Brussels’ 35% duty rise on China’s electric vehicles – the US could see tariffs imposed on its exports to China in retribution.
Various spirits organisations and bodies weighed in on the Trump presidency following the election on 5 November.
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