In November of last year, then president-elect Donald Trump took to his Truth Social platform to promise massive tariffs on goods from Mexico and Canada in retaliation for the “crime and drugs” crossing the borders. He wrote: “On January 20th, as one of my many first executive orders, I will sign all necessary documents to charge Mexico and Canada a 25% tariff on all products coming into the United States and its ridiculous open borders. This tariff will remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country.”
While the 20 January didn’t see the introduction of tariffs, the proposal stands and remains unprecedented within North American trade relations. According to Federal Reserve data, in 2023 Mexico and Canada were the two largest trading partners of the US, accounting for a combined 30% of all goods imported into the country.
If brought in, the tariffs could prove to be catastrophic for mezcal. The rustic agave spirit category has come on in leaps and bounds over the past five years but lacks the maturity, and often exceeds the price point, of tequila. And crucially, its growth relies on the US market. In 2023, mezcal’s regulatory body, COMERCAM, reported 7.8 million litres of mezcal were exported, approximately 7 million litres of which made its way to the US, according to DISCUS. This not only reveals the US as the lion’s share of the export market, it also makes the US larger than even Mexico.
Now, it is worth pointing out that this isn’t Trump’s first threat of tariffs against Mexico. In May 2019, he announced a 5% tariff on all Mexican imports that was set to increase to 10% and then an additional 5% each month until “such time as illegal migrants coming through Mexico, and into our country, stop”.
Ultimately, these tariffs were never brought in, and, at time of writing, Trump didn’t make good on the promise of bringing in the 25% tariff on the first day of his presidency or on the amended deadline of 1 February when it was revealed that the tariffs had been delayed until 4 March following a deal between Trump and Mexican president Claudia Sheinbaum, in which the Mexico leader agreed to reinforce the border between the countries with troops while in return Trump agreed to limit the flow of guns into Mexico.
Any indications that the 47th commander-in-chief had softened his firebrand approach to the presidency in the intervening four years between terms were quickly dispelled when he immediately issued a flurry of executive orders on his return to the Oval Office. Among them were several orders addressing the country’s southern border, including the declaration of a state of emergency – perhaps an early indication that, when it comes to Mexico, Trump intends to back up his bark with bite.
Growth period
The threat of price hikes could hardly come at a more uncertain time for the agave industry. Over the past few years, the category, led by tequila, has had an unheralded period of astronomical growth, but that fervour, while by no means behind us, has tempered.
Towards the end of last year, the Financial Times reported that Mexico is sitting on more than half a billion litres of tequila in inventory as demand for agave spirits has fallen back following the Covid spirits boom.
“The US is the most relevant market for mezcal in the world,” says Iván Saldaña, co-founder of the brand-incubation group Casa Lumbre which launched Montelobos mezcal in 2011.
“There’s a fascination for Mexican spirits that began a few years ago, and mezcal seemed to be able to grow and grow without stopping, but the latest crisis has changed the rate of growth quite a bit. We come from a hangover of overconsumption in spirits and mezcal is not out of the trend of this slowdown that’s impacting the whole industry.”
It’s a trend that has already impacted mezcal. At the category’s peak in 2022, over 14 million litres were produced annually – this fell by 2 million litres in 2023. That figure still stands as the second-highest output in the category’s history, but it does point towards a troubling forecast.
“In 2023, the US imported $4.6bn worth of tequila and $108m worth of mezcal from Mexico,” says Chris Swonger, president and chief executive of the Distilled Spirits Council of the United States. “Import values for the last 10 years are significant – the American consumer has fallen in love with tequila and mezcal. But the US marketplace has been constricted over the last year, partly due to the reset after Covid and inflation challenges, so the impact of tariffs would be significant.”
Beyond economics, the US has also served as a launchpad for the mezcal category into global awareness.
“The US market has indeed been instrumental in the rapid growth of the mezcal category,” says Fabien Re, Del Maguey global brand director. “Its geographic proximity to Mexico has facilitated a significant number of travellers discovering mezcal first-hand and bringing it back home, transforming what was once Mexico's best-kept secret into a popular spirit.”
Despite the swell of popularity the category has enjoyed, mezcal is still very much the interesting little cousin in tequila’s vast shadow and that status as a peripheral figure within a much larger trend may leave the category more vulnerable to price hikes.
“The mezcal category is not the same as it was six or seven years ago,” says Toño Vilches, co-founder of Mexico-based brand incubation group Archipiélago. “Every big company has a mezcal brand now, from Bacardi to Diageo to Campari, and once brands are part of those portfolios, they’re not competing against other mezcals but instead against every big brand owned by those companies. When things are going well, as they have been, everybody can benefit, but when times get tough, these companies need to focus more on the bigger brands that make the most money and forget about the smaller brands.
“That’s a challenge in mezcal because the US is so important and if that changes and the big companies need to focus on their bigger brands, there’s not so much room for mezcal. That’s when the category slows down, not because the consumers don’t want it, but because the people behind brands are focusing on something different.”
Vilches continues: “How badly the category is impacted will depend on its maturity. If we talk about tequila, I think it will be the consumers that will pay the price because when categories are mature enough, they become part of the culture – if prices go up, you’re not necessarily going to not eat avocado, you're not going to stop drinking tequila. But, I think it’s different with mezcal, I don't think it’s a mature enough category to absorb those taxes.
“Some people will keep on drinking it, and maybe every person that drinks it now will keep on drinking it even if it’s more expensive, but I think newcomers will give it a second thought, and a small category like mezcal needs to grow, and these taxes could definitely hurt that.”
Vital route
While increased bottle prices will act as a deterrent to newcomers, the levies may also cut off a vital route to market for many smaller brands.
“The Mexican market is extremely expensive as we have two additional taxes,” says Saldaña. “Value added tax, which in Mexico is 16%, and the IEPS, which is a tax of above 50% that is applied to luxury products. When you add these two to the price that you’re expecting to sell, the final price is really high. This design and structure of taxes is unfair for craft products as it is based on the price point. If your costs are high the price you must sell to the public in order to make a profit becomes immense, while cheap, poor-quality products that have low production costs can keep the price under control and still profit.
“It’s a nonsense because it’s one of the very few exceptions where tax is based on the sale price instead of the alcohol content. So in Mexico, large corporations selling cheap products are given an enormous advantage, while small producers and craft producers are given a headache. So that’s why many small, family-operated mezcal brands decide not to be present in the Mexican market and to only sell to the US.”
And of course, in the world of agave spirits, cross-border business doesn’t just head north. While not without their detractors, celebrity-backed brands like Casamigos have been instrumental in introducing tequila and mezcal to a new audience.
“We can judge or criticise these celebrity brands. I think there are too many, but nevertheless they have helped to put tequila and mezcal on the radar of consumers all over the world,” explains Dario Sanabria, the founder of La Escondida Grand Mezcal.
“The economics played a part in the celebrities who have launched brands, maybe not as much as the companies and more traditional entrepreneurs, but the tariffs will have an impact.
“It might make people look at what could be the next big category instead of launching a tequila or mezcal brand. So celebrities might turn to propelling other categories, maybe RTDs or non-alcoholics or another trend, but there could be less interest in Mexican products.”
Trump’s previous term in office has taught us that, for the next four years, there will rarely be a dull moment. That’s not necessarily good news for businesses, already stretched thin, that have now found themselves in the crossfire of a trade war.
Without the mass audience or historical legacy of other traded goods, mezcal may find that it has become the rowboat in the storm and many of the brands that rely on the US market may have to alter course if they’re to stay afloat.
