European Tariffs Threaten the Entire American Wine Industry

Three months ago, the Trump administration imposed 25 percent tariffs on numerous imported European Union (E.U.) goods, including wine, cheese, whisk(e)y, and olive oil. This happened in October, but you may have missed its announcement — a few extra dollars per bottle of Bordeaux doesn’t typically command headlines, especially with other high-profile political events demanding our attention.

Or perhaps you did read of the tariffs, but shrugged them off as yet another Trump trade war, and one that would have little effect on everyday American life. After all, we can always drink American, right?

Wrong. The ongoing dispute, which could escalate imminently, currently threatens every level of America’s wine industry. Though it appears that European products are being targeted, it’s U.S. businesses, taxpaying employees, and even domestic wineries that find themselves in the crossfire. The effects of this trade war — one that has nothing to do with wine — are already being felt, and have the potential to negatively impact the future of America’s wine industry.

Announced by the Office of the U.S. Trade Representative (USTR) on Oct. 2, 2019, the tariffs came in retaliation for subsidies paid by the E.U. to airplane manufacturer Airbus. When these tariffs went into effect on Oct. 18, 2019, a confusing, lengthy list of imported goods, including wine from France, Germany, Spain, and Britain, “other than Tokay (not carbonated), not over 14 percent alcohol, in containers not over 2 liters,” became subject to 25 percent tariffs. (By comparison, the tariffs on European airplanes and aircraft stood at just 10 percent.)

Then, on Dec. 12, 2019, the USTR announced it was considering raising the tariffs to as much as 100 percent, and expanding the list of taxed European products to include all wines. The potential increase could be imposed as early as February 2020.

Initially facing the 25 percent E.U. tariffs, many American wine importers and distributors were able to eat the added cost. They did so in order to honor existing contracts and in the hope of maintaining sales. But with the possibility of those tariffs quadrupling, many of these businesses are coming to terms with the very real possibility that there is no hope — in other words, that their businesses, and the business around them, could soon fail.

Mary Taylor, who imports French, Portuguese, and Italian wines under her eponymous label, believes the USTR’s communication and support have been severely lacking. “When the farmers in the Midwest who got hit hard with [a previous, unrelated] trade war couldn’t export … a lot of them got subsidized,” she says.

“I’m not being offered a subsidy. I’m here asking the USTR: ‘How can you obliterate my profits for 2019 and then threaten my survival in 2020?’ Why aren’t you contacting [importers and distributors] and telling us that there’s going to be a subsidy or some protection?’”

She adds, “You just don’t think that America would screw over small businesses like this.”

Wine Importers Paying the Price

While Taylor was able to cope with the 25 percent tariffs by “cutting expenses to an extreme,” and paying huge sums out of pocket to see orders that were already en route to the U.S. clear customs, if the proposed 100 percent tariffs come into effect, she says, “I’m done.”

Some analysts point to price increases as the easiest short-term solution for importers and distributors. But America’s fragmented three-tier distribution system makes things much more complicated than that.

“A smaller wine import business like mine relies upon the payment terms growers extend to me, which range from 60 to 120 days,” Frederick Corriher, who founded a French wine import company in his own name, explains to VinePair in an email.

Corriher, who is based in Charleston, S.C., in turn gives his wholesale customers 30 to 45 days to pay him back, which theoretically gives him a 15- to 75-day buffer to repay growers. But the tariff payments are due when the wine arrives at port, long before he receives any cash. “Only a mature, cash-heavy business or individual could continue to operate with this altered cash flow timeline,” he writes.

And it’s not just small or nascent businesses that face this risk. On Dec. 30, 2019, Mannie Berk, founder and president of The Rare Wine Co., a wine importer and merchant with more than 30 years in the business, sent a letter to the USTR opposing the wine tariffs. He later published the letter on his company’s website.

“Because the initial tariffs went into effect just 11 days after we learned of them on Oct. 7, many West Coast importers were caught with multiple containers on the ocean, with no way of turning them around,” he writes. “We were among those importers and saw much of our 2019 profits wiped out.”

Berk warned that The Rare Wine Co. is one of a number of importers whose “very existence” is threatened by the proposed tariff increases. He also estimates a potential $28 billion total loss to the U.S. economy, explaining:

“It breaks down this way: sales by U.S. importers $5.5 billion; sales by U.S. wholesalers $7.8 billion; and sales by U.S. retailers and restaurants more than $15 billion. And since only $4.25 billion is returned to Europe in payment for wine, 85 percent stays in the U.S. economy, supporting many thousands of jobs and paying billions in taxes at all levels of government.”

Any miscalculations of the USTR’s actions are compounded by the fact that the tariffs were meant to bridge a $7.5 billion imbalance the World Trade Organization deemed Airbus gained over U.S. rival Boeing because of E.U. subsidies. In seeking to recoup the $7.5 billion, the U.S. could stand to lose close to four times that amount. Those who will suffer have little, if anything, to do with this conflict.

A Tale of Two Tariffs

In a separate dispute between the U.S. and France, the Trump Administration is also currently considering 100 percent tariffs on French wine, cheese, and other imported goods. Announced on Dec. 3, 2019, these proposed tariffs arose after the USTR concluded a new French tax discriminated against U.S. tech companies, including Facebook and Google. These tariffs are set for review this month.

On July 26, 2019, after France first announced the digital tax, President Trump tweeted: “We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!”

His sentiments, and the subsequent suggestion by multiple media outlets that tariffs on European wines could be beneficial for U.S. wineries, do not reflect the realities of domestic wine producers.

Jason Haas, partner and general manager at Paso Robles winery Tablas Creek Vineyard, published a blog post detailing why 100 percent tariffs would likely have a negative net impact on California wineries such as his.

Haas stated that the success of his business is dependent on the health of the three-tier system, specifically the distributors that operate within that network. “None of the 50-plus distributors that we work with represents exclusively domestic wines; all have a diverse portfolio including wines that will be impacted by the proposed tariffs,” he writes. “Many get the majority of their business from European wines. For those distributors, the proposed tariffs amount to a death sentence.”

With falling sales, Haas predicts that surviving distributors would react by trying to source new wines for their portfolio, as existing producers within their portfolio would not have the means to increase production in the short term.

“If they do look for wines from other parts of the world, they will inevitably be distracted by the massive task of finding these new producers, integrating them into their portfolio, and educating their sales team on their new items,” Haas writes. “That will mean less focus for us, not more.”

Ultimately, importers and distributors that are able to survive any potential tariffs will have to pass some of the burden along the distribution chain to restaurants and retail outlets. Those price increases might not present too much of an issue for locations that offer an array of wines from around the world, but for Europe-centric restaurants and wine shops, which already face a difficult profit-margin balancing act to cover expensive leases and operating costs, times will be tough.

What Wine Businesses and Consumers Can Do

Like Berk, many in the wine industry (including Haas) have written to the USTR to share their insights and opposition to the tariffs. Multiple food and drink media outlets have since followed suit. Consumers, too, are being urged to share their opposition by emailing local representatives and sharing comments on the USTR website, Regulations.gov.

At the time of publishing, the notices pertaining to the French and European wine tariffs have received more than 8,500 comments combined. Commenters include fifth-generation wine importers, professionals with 35 years of wine industry experience, and family breadwinners, one of whom  states, “Simply put, if any new tariffs are implemented on French wines, I will lose my job and I will no longer be able to support my family.”

The deadline for submitting comments about the French wine tariffs is Jan. 6, 2020; and for European wine tariffs, Jan. 13, 2020. While reporting this feature, many wine industry professionals advocated for these efforts. Still, others are afraid it’s too late.

“My fear is that the comments that have been posted are falling on deaf ears because the people who are the real movers and shakers — the people who have lobbying power — most of them don’t know these tariffs even exist,” Carson Demmond, the owner of a wine distribution company based in Atlanta, Ga., says.

For Demmond, the fact that alcohol distribution operates in such a fractured system hinders it from gaining the type of lobbying traction that industries with much larger, national organizations hold.

Meanwhile, Demmond says: “The people who do know [the tariffs] exist are looking through this narrow scope of, ‘Oh, wine prices are going to increase and people are complaining about that?’ When really, it’s not about the wine prices. It’s about job losses. It’s about business closures. It’s about a huge loss in tax revenues at the state and federal level.”

According to figures from the U.S. Bureau of Labor Statistics, the U.S. wine industry currently employs more than 350,000 people across vineyards, wineries, wine and spirit wholesalers, and beer, wine, and liquor stores. This figure does not take into account the numerous workers in adjacent industries, including shipping, logistics, and warehousing; design and marketing firms; advertisers; media outlets, and more. All of these industries are connected through wine and face potentially serious repercussions from the impending tariffs.

Summarizing the American wine industry’s predicament, wine importer Corriher invokes Roman emperor and stoic philosopher Marcus Aurelius: “That which is not good for the bee-hive cannot be good for the bees.”

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