Tequila and Mezcal: A Spirited Growth Story Under Threat

The U.S. spirits industry has been facing a challenging year, with revenues sliding for the first time in over two decades. However, there's a silver lining in the form of tequila and mezcal, the only spirits categories showing sales growth in 2024. But the industry is bracing for a potential storm: a 25% tariff on Mexican spirits could be catastrophic, according to the Distilled Spirits Council of the U.S. (DISCUS).

Tequila and mezcal have been riding a wave of popularity in the U.S., with revenue climbing 2.9% to $6.7 billion in 2024. This growth can be attributed to several factors, including increasing consumer demand, the premiumization trend, and the popularity of these spirits in cocktails. Tequila, in particular, has been a standout performer, with sales outpacing American whiskey for the first time in 2023.

However, the threat of a 25% tariff on Mexican spirits looms large. The Trump administration has delayed imposing tariffs on imports from Mexico, but the uncertainty is weighing heavily on the spirits industry. The tariffs, if implemented, would have a significant impact on the U.S. economy, with potential job losses, wage reductions, tax revenue loss, and decreased economic output.

The three-tier system of alcohol distribution in the U.S. could also be affected by tariffs on Mexican spirits. Increased costs would be passed on to consumers, potentially reducing availability and leading to job losses across the supply chain. The on-premise market, which includes restaurants, bars, and entertainment venues, could be particularly affected, as agave-based spirits make up a significant portion of sales.



Despite the challenges, the spirits industry is not sitting idle. Producers like Mezcal Amarás have been stockpiling inventory in anticipation of tariffs, hoping to keep prices stable and help retailers cushion the blow. However, the complex three-tier system of alcohol distribution in the U.S. means that any front-end cost will eventually filter through to the consumer.

The industry is also engaging with Trump administration officials to advocate for an exemption for spirits from such tariffs. The Distilled Spirits Council of the U.S. (DISCUS) has warned that Trump's proposed tariffs would affect imports of staple beverages like tequila, mezcal, and Canadian whisky, ultimately hurting U.S. consumers and causing job losses in the hospitality sector.

In conclusion, tequila and mezcal have been the bright spots in the U.S. spirits industry, driving growth despite an overall revenue decline. However, the threat of a 25% tariff on Mexican spirits could have catastrophic consequences, affecting the U.S. economy, the three-tier system of alcohol distribution, and consumer preferences. The industry is bracing for the worst, but hope remains that the tariffs can be averted or mitigated.