Trump tariffs bring more questions and fears for businesses

U.S. President Donald Trump's rhetoric about imposing new tariffs on goods from the United States' largest trading partners has fueled months of uncertainty among business owners. Last Saturday, the president followed through on his threats, ordering new 25% tariffs on goods from Mexico and Canada, and raising existing tariffs on goods from China by 10%.

But the moves have not dispelled questions. “Is this a policy for a day, or a political stance, or is this a policy that will last four years?” asked Nicholas Palazzi, founder of Brooklyn-based PM Spirits. He runs a 21-person business that imports and sells wines and spirits, about 20% of which come from Mexico. Trump’s order followed through on months of threats, hitting goods from the U.S.’s three largest trade partners, whose imports account for over 40% of the U.S.’s roughly $3 trillion in annual imports.

Canadian oil and other “energy resources” will face a lower 10% tariff. But the White House has said that, other than that, there will be no exceptions. Trump said the tariffs are aimed at holding Canada and Mexico accountable for their commitments to address illegal immigration and drug trafficking. The measures are set to take effect on Feb. 4, and according to the order, will last “until the crisis is abated.”

If the plans were not unexpected, they could still be a major blow to many businesses, especially those in North America. After decades of free trade under the free trade agreement signed in the 1990s (then known as NAFTA, and updated and renamed USMCA under the Trump administration), the economies of the three countries have become deeply intertwined. Businesses like Palazzi’s, which bring Mexican mezcal into the U.S., are part of this shift. According to the trade group Distilled Spirits Council, consumption of tequila and mezcal has roughly tripled since 2003, with annual growth rates exceeding 7%.

The group says that trade in spirits between the U.S. and Mexico has surged by more than 4,000% since the 1990s. The group issued a statement after the president’s announcement, warning that the tariffs would “severely harm all three countries.” For months, Palazzi has been fielding nervous questions from his Mexican suppliers, who are often small family businesses that may not survive if the tariffs are sustained. He said that if the 25% tariff goes into effect, prices for the mezcal, tequila and rum he imports will go up, and sales will go down. “It’s definitely going to negatively impact the business. But can you really plan? No,” he said. “Our strategy is to just roll with the punches, wait and see, and adapt to whatever craziness is coming.”

Economists say the blow from the tariffs could push the economies of Mexico and Canada into recession. Before the announcement, Dan Kelly, president of the Canadian Federation of Independent Business, described the U.S.’s impending tariffs, and expected retaliatory measures, as “life or death” for many of its members. “We understand that the government has to respond in some way… but at the same time, we urge caution,” he said. He likened import tariffs to chemotherapy: “It poisons its own people in an attempt to fight the disease.”

“This will have an impact everywhere,” said Sophie Avéning, the head of De Grandes Viñedos de Francia in Mexico, noting that many U.S. people own Mexican alcohol brands, while Modelo beer is actually owned by a Belgian company. Trump has dismissed any concerns about collateral damage to the U.S. economy, using tariffs as a tool to address issues unrelated to trade. But analysts warn that the measures will stifle economic growth, raise prices, and lead to job losses — roughly 286,000 jobs, according to estimates by the Tax Foundation, and that’s before retaliatory measures.

People in the alcohol industry say that the sector is already struggling to emerge from the shadow of the pandemic and its aftermath, including inflation, which has led many Americans to cut back on eating and drinking out. Smaller companies, which often have less of a financial cushion and are less able to absorb a sudden 25% jump in costs, will be among the first to feel the hit. “I’m very frustrated,” said Ben Scott, an importer in California, whose nine-person company, Pueblo de Sabor, imports brands like Mal Bien and Lalocura from Mexico. “Beyond people paying a couple of extra dollars for a cocktail, there are huge costs that will impact a lot of people in other ways, which doesn’t sound like a tragedy.”

For years, Fred Sanchez has been working to grow his business, Bad Hombre Importing, a small importer and distributor in California that sells Mexican tequilas like Agua del Sol, and he was recently in talks for deals in New York and Illinois. But as Trump’s tariff rhetoric heated up last year, his potential partners began to hesitate. Now, instead of expanding, he’s considering selling off his liquor stock and possibly closing the company. He said he has little ability to absorb the cost increases, and he doesn’t think there’s room to raise prices in the current economic climate. “A 25% increase is not something we can actually pass on to the consumer,” he said.

Sanchez said he thinks Trump may be using tariffs as a negotiating tactic, and that the levies could be short-lived. Still, for his business, the damage has already been done.