Hope you like vodka. Trump’s tariffs could change how America drinks

“It’s just another cut in the death by a thousand cuts.” That’s how New Orleans restaurateur Neal Bodenheimer views the looming threat of potential tariffs on Mexican and Canadian goods. Bodenheimer is the managing partner of CureCo, which runs three restaurants in New Orleans and one in Washington, D.C. He’s most concerned, though, about VALS, his neighborhood Mexican restaurant. Tequila and mezcal are on his mind, yes; but he also worries about skyrocketing costs of other essentials, from straws to avocados to transportation costs.

Bodenheimer is already balancing “razor-thin margins,” along with supply chain disruptions and changing consumer preferences. It all adds up to a lot of uncertainty in an already-fraught industry. And he’s not alone. Spirits producers and importers are keeping a watchful eye on the news and scrambling to plan for a future of uncertainty. This week, President Trump announced a 30-day pause on his proposed tariffs for Canada and Mexico, but what will happen beyond that date is unclear.

Impacts of tariffs on businesses and customers

“When you already have slim margins in restaurants and bars, you tap away little by little at the margin, until there’s nothing left,” says Bodenheimer. He’s been through this wringer before, when President Trump imposed a 25% tariff on some European wines in October 2019. Back then, his restaurants and bars adjusted their menus to avoid tariffed goods. Some of his distributors warehoused extra wine, which Bodenheimer says did keep prices down for a few months. “In the end,” though, says Bodenheimer, “restaurants are flow-through businesses. We’re going to have to pay more for the products, and we’re going to charge more” to the consumer.

Another pain point from the 2019 tariffs was fuel surcharges, which Bodenheimer expects to see return. “We’ve seen many fuel surcharges that happen when costs go up and the surcharges never come off,” he says. With Canadian products making up 60% of America’s crude oil imports, even a 10% tariff would likely inch transportation costs upward.

He also expects greater transportation distances if he’s required to source items from outside of Mexico. Sourcing “local,” in Bodenheimer’s case, means shipping produce further than he had before. “It certainly seems like it would make things a little less green,” he says. “I’m closer to Mexico than I am to California.”

Stockpiling in anticipation of tariffs

Also struggling to anticipate the tariffs: spirits producers. The skyrocketing popularity of tequila and mezcal might grind to a halt with the imposition of 25% tariffs, industry insiders warn. As the chief commercial officer for Mezcal Amarás, Mexico’s second-largest mezcal producer, Holden Ching and his team have been in full production mode since late September.

“We do suspect that tariffs will happen at some point this year, which is why we got inventory into the U.S. a bit earlier” than usual, Ching says. Beginning in October 2024, Mezcal Amarás harvested significantly more than its usual amount of agave, then distilling and bottling at a rapid pace. “We really wanted to ramp that up with the ability to ship it into the U.S. prior to any change in hands from a political standpoint,” says Ching. “Instead of one month of inventory over the course of four weeks, we shipped six months of inventory” by the end of 2024.

Ching estimates that Mezcal Amarás’s distributing partner, Suntory Global Spirits, is sitting on about 6 months’ worth of supply in its U.S. warehouses. That, he hopes, will keep prices stable and help retailers cushion the blow with gradual price increases rather than hiking retail costs by 25% immediately. Still, he expects that by the end of the year, if Mexican goods are tariffed at 25%, that cost increase will pass directly to the consumer.

“We definitely don’t want to be the first ones that have to make that move,” but it’s likely inevitable, says Ching. That is in part due to the complex three-tier system of alcohol distribution in the U.S. Producers such as distillers and wineries sell to distributors, who then sell to retailers, either on-premise restaurants and bars or off-premise locations including supermarkets and liquor stores.

“With the three-tier system in the U.S., there’s fairly fixed structures for pricing,” says Ching. “Everybody works on a margin-based system, and so that margin generally doesn’t change from a percentage standpoint. So any front-end cost just filters its way all the way through” to the consumer.

Trading mezcal for bourbon

Ching and Bodenheimer both expect to see changes at the retail and restaurant level as Mexican and Canadian spirits come at a higher premium. Ching is especially worried about the fact that a greater proportion of mezcal’s sales take place in bars and restaurants, as compared to other spirits. “Where you see most other categories at about a 70%-off premise/30%-on premise split,” he says, “mezcal is a little bit closer to 50-50.” This makes its sales more subject to the whims of beverage directors who might decide, faced with a steep increase in costs, to feature different spirits.

“Instead of featuring a mezcal,” he says, restaurant and bar operators might choose to “either feature a tequila that’s cheaper, or they feature another category for the time being.”

Bodenheimer agrees this is likely to be the case, at least in the short term. “If we’re looking at our margins, and our margins are harder to make on agave spirits or Canadian whiskey, we’re going to use them less,” he says. He hopes this might be a boon for the bourbon and American wine and vodka industries. “I think you already see vodka producers are trying really hard to get market share back,” he says, citing the immense popularity of the espresso martini in recent years.

Still, he says, it’s anyone’s guess as to what the next year holds for the drinks business. “It’s so hard to game out what the future looks like,” he says. “If you were an entrepreneur, would you bet your future that these conditions are going to be the same in four years?”

Tariffs on exports too

Looming over all of this is the potential for another massive tariff increase. A 2021 tariff halt from the European Union on American whiskey is slated to snap back into place on March 31, 2025, unless further action is taken. If that happens, American whiskey will suffer a devastating 50% tariff on exports to the EU; currently, the EU is the largest export market for American spirits, accounting for 40% of all American spirits exports. It would take a staggering amount of Old Fashioneds and Manhattans on American bar menus to make up the loss of European consumers.

Unless lasting agreements are reached, both Bodenheimer and Ching expect the American consumer to take the brunt of price increases. “In the end,” says Bodenheimer, “you’re still going to pay more. You may kick the can down the road for a few months, but at some point you need to be prepared for higher prices.”