Should We Brace Ourselves for $30 Margaritas? How the Spirits Industry Is Reacting to Tariffs

Tariffs have been dominating headlines as of late and the drinks industry is concerned. That’s because wine and spirits are part of a global supply chain that relies on equipment, ingredients and production that criss-crosses borders. And while President Trump has said that these tariffs—enacted on imports from Mexico, Canada and China—are intended to boost American manufacturing, the reality is much more nuanced. 

In this installment of the Wine Enthusiast Podcast, Spirits Reviewer Kara Newman joins us to discuss her recent story on what “Made in America” really means for spirits (hint: it’s all about “the juice”) and shares the whispers she’s hearing within the private forums and group texts among industry insiders. 

The tariffs come at an interesting time for the drinks industry. Notably because tequila, which must be made in Mexico, is now the second most-popular spirit in the United States, behind vodka.  Additionally, alcohol consumption is declining. It’s a series of events that may lead to higher prices for everyone. 

Listen in on the episode for more.

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Episode Transcript

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio before quoting.

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Diana Budds (01:00): Welcome to this installment of the Wine Enthusiast Podcast. I’m Diana Buds, a senior digital editor at Wine Enthusiast and your host for the episode. 

Today we’re chatting with our intrepid spirits reviewer, Kara Newman, about tariffs and the impact on the spirits industry. This is very much a developing story with a lot of whiplash. 

First, to bring you up to speed, President Trump has been discussing tariffs since the campaign trail in October last year. He said at a press conference in Chicago, “To me the most beautiful word in the dictionary is tariff.” And a month later, he announced plans to levy 25% tariffs on all imports from Canada and Mexico. After taking office, he made good on those promises and announced tariffs. 

In February, retaliation followed. Canada threatened to pull liquor from shelves. Then Trump announced a 30 day stay. But now that period is up and the tariffs went into effect. As predicted, Canadian retailers removed American liquor from shelves. 

The CEO of Jack Daniels said this move was “worse than a tariff” and a “disproportionate response” to levies imposed by the Trump administration. 

As of March 7th, Trump has granted some exemptions to Canadian and Mexican imports, but this uncertainty and instability is sending the spirits industry into a tailspin. Meanwhile, it also betrays the complicated reality of what made in America really means for spirits. Kara is going to walk us through what she’s hearing on the ground.

D.B. (02:20): We have both been closely watching the news as it relates to tariffs from the Trump administration and its effect on the wine of spirits industry. 

A couple of episodes ago we talked about the impact on wine, and now we’re going to be focusing a little bit on spirits. 

So Kara, tell me a little bit about what you’ve been noticing these last couple months? In February, Trump had announced that he wanted to impose tariffs on imports from Canada and Mexico, and China, sort of reviving one of his obsessions from his first term. 

And as you were hearing this, what were your first thoughts about wine and spirits, which are very much an international industry?

Kara Newman (03:06): Well, probably my first thoughts were A) we’ve been through this before, but B) this is not a good thing as we know from going through this before. And it might even be worse this time because we are dealing with our close neighbors, Canada and Mexico, the latter of which makes tequila one of the most popular spirits in the U.S. right now. And I don’t know about you, but I’m not looking forward to the prospect of a $30 margarita just because tequila has become so outrageously expensive.

D.B. (03:35): I know we were sort of getting to the point where there is a lot of really excellent tequila and really excellent mezcal that is everywhere now. And just as that momentum is happening where we’re seeing these tariffs come into play. 

And so you mentioned that this isn’t the first time. What happened the last time that Trump came into the office and was sort of levying these tariffs on imports? How did that affect the spirits industry?

K.N. (04:00): Well, last time what happened, if I remember this correctly, is we had a lot of spirits in Europe that were affected specifically. And Scotch was one of the products that went through the roof. And retaliatory tariffs on American whiskey really hurt the industry here. 

It was right about the time that a lot of craft spirits producers had really just started to get off the ground with exporting in a large meaningful way to other markets around the world. And Europe in particular was very enthusiastic about all kinds of American whiskeys. They really took it hard. I mean, they really took it on the chin. It was not pretty. It took years for the effects to be unwound. They were unwound. I mean, to be completely transparent about that, there is a backtrack, there’s a root back, but it’s a long one. It’s a painful one.

D.B. (04:57): Gotcha. So fast forward to today, and we’re at the point where Trump is elected and at that time, spirits producers are already sort of bracing themselves for the prospect of tariffs, just sort of understanding that that’s what happened the first time around. And it may happen the second time around. 

I was just reading a story in Fast Company about what has been happening, and they had mentioned that some spirits producers in Mexico began to start shipping more inventory. Even last year, a producer called Mezcal Amarás shipped six months of inventory over a four week period. And Suntory also is stockpiling spirits in Europe as a way to sort of blunt the impact of potential tariffs. I’m curious, what have you been hearing about the way the industry has already responded to and will potentially respond to the tariffs?

K.N. (05:53): I mean, when you say industry, I think of a lot of different players within the industry, the producers themselves. Some are panicking and some are just strategizing. 

I read another article similar to yours on tequila producers. I think Camarena Tequila was one that was named. They are expecting to raise their prices. 

Another knock on effect I’m hearing is that, like you said, brands are absolutely stockpiling in the U.S. A Vancouver-based agency called O Bev came out and said that stockpiling has been going on in the U.S.  and even in some cases producers have been importing stainless-steel tanks of liquor, Tequila in particular, to be bottled here. 

And then talking about the bars. Absolutely. I’m hearing about bar managers who are stockpiling Tequila and Scotch. Not so much Canadian whiskey, not yet, but it wouldn’t surprise me depending how long that goes on. 

What’s most disturbing to me is I’ve been also hearing about individual speculators who are stockpiling high-end tequilas and Scotch, some Japanese whiskey, some Cognac. 

I hear stockpiling, but I also think hoarding when I hear something like that, these are people who are planning to sell it at a profit when prices inevitably skyrocket and some products become harder to get. Although I guess worst case scenario, they could just drink it themselves.

D.B. (07:19): Whenever there is a disaster, there are opportunists who sort of want to swoop in and make a profit. And I’m sort of thinking about the toilet paper stockpiling during Covid and sort of imagining these folks living within, I don’t know, cases and cases of mezcal and tequila as they try and make a little bit of money. 

What’s also sort of interesting also about this moment is it’s really calling into question this idea of the provenance of spirits and this idea that the region or location where something is made is very significant to the identity of the spirit itself. 

You had mentioned Canadian whiskey as a brand or Mexican tequila or Kentucky bourbon, and you recently wrote a story for us about the sort of complicated nature of where and how spirits are produced. And it’s not as simple as the label on the bottle. 

Could you sort of walk us through this conundrum on what an American-made spirit even means? Trump has said that part of the reason for tariffs is to encourage production of all sorts of goods stateside. And I’d love to hear a little about just what that actually means.

K.N. (08:41): The upshot is that one, I spoke to producers, they really made it very clear that even the most American—I say this with air quotes—the most American spirit isn’t made in a vacuum. It’s a highly global product, and it’s very naive to say, well, it’s just made in the USA. 

We talked a lot about the supply chain starting with the raw materials. And I think of American whiskey first. I used American single malts as my case study because they’re just something new and exciting and because American is in the name, but it really could apply to anything made in the U.S.. So an American single malt is essentially grain. It’s fermented with yeast and it’s usually barrel aged and proved down with water. Some of them are, some of ’em aren’t. 

But you’re talking about the raw materials like malted barley or rye in some cases. Often that comes from outside of the U.S. There’s nothing in the standards of American single malt that says the ingredients must be grown in America.

And lots of producers will get their rye or barley or whatever the grain is or whatever the raw material is, wherever it is least expensive and most abundant and wherever the quality suits them best. So you may very well have a rye that’s made with a rye whiskey made with Canadian rye. You may very well have an American single malt that’s made with barley that’s been imported or even peated in Scotland. Those absolutely exist and they all might be fermented, possibly with local native yeast. That’s always a possibility. But often the yeast comes from elsewhere.

Right before the pandemic, I had the opportunity to visit the Lallemand yeast factory in Montreal. Not the sexiest thing I could have ever visited, but actually incredibly eye-opening because the yeast that’s made there goes to bakeries all around the world and all around the U.S. and it’s also used to ferment beer and wine and spirits. And it’s in Canada and it’s absolutely going to be an important input into spirits that are fermented here. 

So you go from there, then you go in the supply chain to mashing and fermenting and distilling. And I’ll skip over a lot of the details, but the point is that a lot of the equipment that’s used to do this comes from outside of the U.S.

D.B. (11:21): So we’ve got Canadian yeast, we’ve Canadian grains and now we’re sort of going into the machinery. Where is this machinery coming from?

K.N. (11:33): Now it might be made from the U.S. Vendome is in Kentucky, and that’s one of the largest and best-known producers of stills. 

But you have to take a step back and think about where people come from and where the distilling traditions come from and it is often not from the U.S. So you have a lot of American brandy makers who use French techniques and are happy to import their stills from France. Or same thing for Scotland or Ireland. 

People are very happy to bring in their techniques, reflecting their heritage or heritage that they admire. And often that’s where the stills come from as well. Many of them are imported from Germany or elsewhere.

D.B. (12:23): Gotcha. I mean, I think that understanding that all of these components come from all around the world is quite challenging when you’re imagining the reason for these trade wars. 

And we’re sort of getting to the point now where countries are sort of retaliating against the United States and are sort of levying their own import tariffs. 

And I think that it’ll remain to be seen what happens next, but it sort of looks like things are just going to get a lot more expensive. 

And I’m curious, what do you think might happen at our corner bars? Are we not going to have as many margaritas? Are the margaritas going to be $30 as you say?

K.N. (13:05): It’s absolutely a distinct possibility. I mean, no doubt about that. It just depends on what happens. And I think it also depends who is doing the supplying. 

I mean, are we looking at larger multinationals who have more purchasing power or are we looking at smaller craft distilleries? 

To give you an example, Becky Harris from Catoctin Creek—a medium-sized craft distiller out of Virginia and very successful maker of American whiskeys—observed, I think it was on BlueSky earlier today, that even producers who buy bottles made in America are struggling to get time on their supplier schedules since the large multinationals get preference. 

And ironically, I mean, she might be forced to purchase bottles from Canada even though she prefers to support American manufacturing.

D.B. (13:58): Oh, interesting. Could you explain what that means for folks who aren’t familiar with the structure of the supplier lists?

K.N. (14:07): I mean in terms of the bottling line, I mean that involves the parts and of course the glass of the bottles and the toppers and the labels. 

And I’ll be honest, I wasn’t even aware that much of it comes from Canada. I thought a lot of it came from China and elsewhere. I know a lot of tin comes from Canada to be sure, aluminum and things like that. And that’s going to be a pain point for beer makers and producers of rage and cocktails that come in cans and things like that. 

But if she’s not able to get, for example, what she needs to bottle her whiskey and somebody else gets in there first, that means that her prices are likely to go higher. 

And a larger multinational company might have more over their pricing to sort of smooth out their prices as we go through the next weeks, months, years, whatever happens with the tariffs going forward. 

So you very well might go to your local bar and order the same Old Fashioned, and are you going to order one made with Catoctin Creek that’s going to cost a bit more, or are you going to go with say, I don’t know, Jack Daniels, who maybe has much deeper pockets and wider availability and probably a lower price point as a result because they have that option.

D.B. (15:27): Interesting. So these tariffs are also coming at a time where the hospitality industry and the wine and spirits industry, they’re all under tremendous pressure. I’m wondering if you could walk us through some of the other things that are happening in the drinks world that are already making business challenging. 

I know alcohol consumption levels are declining and everything overall is generally getting more expensive. I heard that citrus crops are not doing so well, and I’d love to hear about some of the other things that are potentially affecting the way that we are drinking right now.

K.N. (16:09): I mean, you sum it up pretty well, but just to dive a little deeper, consumers are absolutely drinking less, which is fine. That’s their prerogative. That’s not really a problem.

D.B. (16:23): I mean, there’s plenty of really exciting mocktails that are also available to make up for that.

K.N. (16:29): Of course, of course. I mean, but there are some substitutions for non alcoholics. 

There are substitutions for cannabis, and I know the producers already are very much concerned that younger generations in particular aren’t as excited about alcohol as previous generations have been. 

So that’s really kind of eaten into sales, and inflation has certainly eaten into revenues, and it’s really kind of a scary time out there for producers and for bars also that have the additional worries about real estate pricing that also impacts whether they can stay afloat and customers have a lot less disposable income in general to work with. 

So you put all of this together and it’s very much a challenging time to be in the hospitality industry or the alcohol industry in general. Yeah, there’s a lot of concern that this latest tariff development really could be even more of a problem and really push things even further. I think we’re going to wind up seeing a lot of businesses unfortunately going under if this goes on for a very long time.

D.B. (17:46): Gotcha. I mean, yeah, understandably when the margins are already so tight and you do sort of require a little bit of stability in order to have a business model that is accurate. And it seems like everything is just so unstable at the moment, or very unpredictable. 

And I am curious, you mentioned that the tin that goes into ready to drink and canned cocktails, we mentioned some of the ingredients that might go into spirits mentioned the spirits themselves. Are there any other factors that might be worth discussing that are related to some of these price changes?

K.N. (18:32): I think we shouldn’t discount the human factor for sure. Some of the really interesting discussions going on in let’s say private chat rooms or going on at bars, I can’t say any names, but there are definitely some interesting micro stories going on that are being driven by the tariffs. 

For example, there are groups, let’s say, that are states that are close to Canada that get a lot of their business there. For example, in Upper Washington State, a bartender in one of these forums was talking about how ever since the tariffs have kind of come into play over the last month or so, his business has dropped about 30%, which is huge. I mean, that’s not a little, that’s a lot. And that’s a long time because people aren’t willing to come over the border, they’ll just go somewhere else. 

Or another bartender in Canada just sort of saying kind of likely, well, I guess it’s time to take the bourbon off the back bar and add more Canadian whiskey. And you think about that and multiply times however many bartenders might do the same thing. And Canadian whiskey is great, but it’s going to wind up hurting bourbon unfortunately. See if we’ll do that over and over again.

D.B. (19:49): I have friends in Toronto and they’re sort of saying at the grocery store, folks are already looking at the labels more closely and are trying to buy Canadian, and that sort of is these other sort of ripple effects of foreign policy. 

But yeah, it’s sort of just even the choices that folks make at the stores, they might sort of not want to buy American.

Tell me about these forums. I mean, I think that it’s so interesting that folks are having all these side conversations. I’m trying to think if there’s any other little questions here that might be worth discussing, but I wish I could sort of go into those Slack rooms or group chats about what people are thinking.

K.N. (20:35): Yeah, well, I mean that’s the beauty of these rooms and these forums that you can have these conversations without repercussions and without people listening over your shoulder. And I’m not going to give anybody up. I want to still be in that room and hear these conversations.

D.B. (20:52): Totally. That makes sense.

K.N. (20:53): Although really the best ones are the ones that happen in person at the bars.

D.B. (20:58): I can imagine. I mean, have you heard of anybody that is sort of retooling their menus in response to some of these changes?

K.N. (21:07): Not yet, but I guarantee that will happen. Could you imagine if tequila becomes so expensive that it actively hurts your bottom line? 

There’s not a great substitution for tequila. There’s lots of agave being grown elsewhere, and there are some very good non-traditional agave spirits that aren’t being made in Mexico. 

I had a great one from South Africa called Sango, but there’s certainly not even close to enough to make up for tequila made in Mexico for sure. 

And I mean, it’s a product that’s been honed over generations and it can’t be made anywhere else. It’s just, I mean, forget the fact that the government laws say it can’t be made anywhere else and be called tequila. It’s just not going to be the same. 

And we’re not there yet in terms of having production methods that would yield anything close. So I mean, you may see margaritas that are not margaritas. They might be made with something else. Maybe there’s going to be vodka in there instead. Who knows? I don’t think that’s what I would personally want to drink, but I think we’ll see some menu adjustments for sure. If the price increases get too painful to bear

D.B. (22:28): At home I tend to mix mezcal negronis, and part of me was when I saw the news this morning about some of the tariffs heating back up, I was like, maybe I should buy an extra bottle the next time I go to the store.

K.N. (22:45): And while we’re talking margaritas, let’s also think about the limes that come from Mexico and the avocados that go into the guacamole that come on the side. And it’s a lot. It’s potentially quite a lot.

D.B. (23:00): Well, Kara, thank you so much for joining us today to chat about tariffs and spirits. If there is anything else you’d like to add, please let me know. But I think that pretty much covers it.

K.N. (23:15): I just hope we get to talk about a more upbeat topic next time.

D.B. (23:18): Yes, totally.

K.N. (23:19): But I’m glad we had a chance to talk about it. Totally.

D.B. (23:27): Thank you for joining us today. We love hearing from you and appreciate your support. Please rate and review us wherever you listen to podcasts. For more on the latest spirits coverage and news, head to wine enthusiast.com and follow us on Instagram and TikTok.

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