Beer and liquor can be recession proofbut they are definitely not tariff-proof.

If President-elect Donald Trump follows through on his proposal to impose a 25% tariff on all products from Canada and Mexico, the result would be a harsh penalty for some of America’s favorite drinks. The country’s number 1 beer brand: Modelo.

Some business owners began stocking popular products, especially tequila, which can only be made in Mexico, and began taking other measures to stave off possible price increases.

But industry leaders and analysts say consumers will still have to pay more in the end.

“A lot of these companies, especially the smaller ones, have no choice but to pass on those costs,” said Dave Williams, president of Bump Williams Consulting, which provides consulting and analysis services to the alcoholic beverage industry.

He added: “The unfortunate reality is this will trickle down.”

The same is probably true for the largest companies in the industry. Constellation BrandsWells Fargo stock analyst Chris Carey wrote that the company, which imports Modelo and Corona beer as well as Casa Noble tequila from Mexico, could see its costs increase by 16 percent under Trump’s proposed tariff and would likely have to raise prices by about 4.5 percent. A memo published on Tuesday.

At this stage, tariffs are technically still rumors, with many warnings and scenarios floating around.

But Williams said if massive tariffs were imposed against two of America’s biggest trading partners, it would be a blow to U.S. industry still recovering from recent trade wars, the pandemic, supply chain disruptions and a global fight against inflation.

“The whole point of negotiations like this is that you need something to start the conversation or get things moving,” he said. “The hope is that this doesn’t turn into a worst-case scenario, but rather a situation where it might be better for everyone to just walk away from this. But you also need to prepare and start thinking about what you’re going to do if this becomes a problem in reality.”

Tequila ‘library’

These regulations are already underway at Meximodo, a popular Mexican restaurant and tequila bar in Metuchen, New Jersey.

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 spirits holds 1,033 bottles.

For a business that deals heavily in tequila and serves authentic cuisine featuring Mexican ingredients, a 25% tariff could be a significant burden. But Meximodo has a relatively large 7,000-square-foot footprint and is one of six restaurants operated by Le Malt Hospitality Group, which has taken steps to limit price increases, TJ Pingitore, Le Malt’s senior vice president for North America, told CNN. he said.

He said Le Malt leans heavily on technology to improve inventory, operations, accounting, ingredient sourcing and portioning efficiency.

“As we get more and more stringent about how much we control, all of this really comes down to the bottom line,” Pingitore said. “So if we end up with a 20% or 30% tariff, the end customer may only experience a tiny fraction of that.”

The company also employs another, less technical, prevention strategy: loading. The Meximodo Organic Blanco Tequila brand will launch in a few weeks.

Le Malt doesn’t know if tariffs will come, “but 25% tariffs will definitely impact our prices coming into New York Harbor,” company founder and CEO Saurabh Abrol told CNN.

Just in case, Abrol and his team tripled the order from 12,000 bottles to 36,000 bottles this week.

“We didn’t want to risk our chances,” he said.

Imports of 10.5 billion dollars and increasing

Earlier this year, Mexico replaced China as the top exporter of products to the United States.

Cars, oil and computer chips Beer and alcohol, which are among the main products imported by the USA from its southern neighbor, have risen rapidly in recent years.

According to International Trade Administration data, in 2023, the United States imported $5.69 billion in beer and $4.81 billion in alcohol from Mexico. When combined, the two categories were the 10th largest imports from Mexico last year, representing a sharp 126% increase from 2017, according to International Trade Administration data.

The United States imported $543 billion in alcohol from Canada last year, including $200 million in whiskey, according to the Distilled Spirits Council of the United States.

But it’s not just increasingly popular imports that are at risk, said Chris Swonger, president and CEO of the Distilled Spirits Council.

“When a tariff is imposed on imported spirits, typically the natural reaction will be for another government to impose a tariff on a like-minded product,” Swonger said.

According to the Distilled Spirits Council, Canada was the second largest export market for American spirits in 2023, while Mexico was the third largest export market.

There are situations when even irrelevant tariffs can lead to negative consequences. Swonger stated that the European Union imposed a 25 percent retaliatory tax on American whiskey in response to the US tariffs on steel and aluminum in 2018.

As a result, whiskey exports to the EU fell by 20% between 2018 and 2021. Following the suspension of retaliatory tariffs, whiskey exports rose to a record high from $440 million to $2.2 billion in 2023, according to the Distilled Spirits Council.

Not fully insulated

Even if certain products are excluded, some tariff implications could impact U.S. beer and spirits businesses, especially small businesses, said Katie Marisic, senior director of federal affairs for the Brewers Association, a trade association for small and independent craft brewers.

“There are over 9,900 small and independent breweries; we directly create 190,000 jobs; (craft beer) is an American-made product,” he told CNN. “It can’t be done anywhere else, but that doesn’t completely insulate us from these tariffs.”

Marisic said costs could skyrocket for key materials such as Canadian malted barley and aluminum sheet.

Trump administration tariffs on steel and aluminum in 2018 caused prices to rise “For the ingredient behind the critical pot of craft beer,” he said.

“Breweries are innovative, but adapting comes with challenges, of course,” he said.

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