Trump to slap tariff on French wine
The trade war gets real! As if tariffs on hundreds of billions of consumer goods made in China weren’t real enough, the latest escalation from the Trump administration has found a new target: French wine.
Late yesterday, word came down that the Trump administration will impose $7.5 billion in tariffs on goods from our European allies. The impetus is subsidies to the plane consortium, Airbus, which is backed by France, Spain, Germany and the UK. Thus the tariffs affect symbolic goods from those countries, including all wine, olive oil, whisky and some camera parts. The long-simmering dispute entered a new phase yesterday as the WTO ruled in favor of the US. Hopefully there will be a negotiated settlement but as announced yesterday, the levy will be imposed on all goods on the list that enter the country as of October 18.
The fourth quarter of the year is by far the biggest quarter for wine sales. Many of the wines that will be sold during that time are already in (climate controlled) warehouses on our shores. But not all. If these tariffs become reality, it remains to be seen how importers of French and Spanish (and German and British) wine will adjust prices in the near term. But, if these tariffs linger, prices for these wines will inevitably rise sharply in the new year. It is worth noting that tariffs are paid by importers, not the producers (although in some instances, importers may request producers share the pain to mitigate price increases but with a tariff this large, there’s not a lot they can do other than see prices on store shelves rise and placements on wine lists decline.)
Wine is highly symbolic of France. Thus, it has been the subject of protests and over time, such as in New Zealand over the Rainbow Warrior or in 2003 over the Iraq war. (See the wines served at Macron’s state dinner.)
France was the biggest supplier of imported wine to the US market, sending $2.1 billion of wine to the US in 2018. Spain was fifth with $383 million, Germany ninth with $103 million, and the UK 14th with $16 million in wine (!). [source]
Clearly, the biggest winners here are domestic wineries, which provide two of over three bottles of wine consumed in America. Italy, the second largest provider of imported wine to the US, is not hit by the tariffs since they do are not a part of the Airbus consortium. As such, they stand to benefit greatly and the Italians, New Zealanders, Chileans and Australians are probably slack-jawed at this opportunity that has been handed to them.
If the tariffs indeed get imposed, how long they remain in place is an open question. So far, Trump has not rolled back any tariffs against China, so it is entirely possible that the only way for the tariffs to be removed is when there is a new occupant of the Oval Office.
On October 3rd, 2019 at 1:16 pm ,Rick Baumgarten wrote:
How do you suppose this will affect futures orders that are in place?
On October 3rd, 2019 at 2:41 pm ,Dr. Vino wrote:
Hi Rick!
Futures orders will be subject to the 25% tariff (if it goes in place and is not rescinded quickly).
As it stands, French wines landing in the US after Oct 18 will be subject to the new levy.
Maybe you could cancel your futures order and redeploy the funds toward collectible French wine already here in the US (e.g. at auction)? Back vintages have the added benefit now of not only being more approachable but also tariff-free.
On October 4th, 2019 at 8:11 am ,Steve wrote:
This is terrible news.
Also, I didn’t know that Italy wasn’t part of Airbus. They’re actually very good at engineering and manufacturing things like pumps and engines. It looks as if their political chaos has inadvertently helped their wine industry, which could now can be said about the US!
On October 4th, 2019 at 11:37 am ,Leslie wrote:
How exactly do the tariffs affect the auction market? If a past vintage passes from an affected EU country will that be subject to tariff? Do auction wines now become more valuable if they are unaffected by the tariffs?
On October 4th, 2019 at 12:16 pm ,Dr. Vino wrote:
Hi Leslie,
Great questions–thank you! They came in while I was doing a follow-up post so I posted my thoughts over there:
https://www.drvino.com/2019/10/04/french-wine-tariffs-questions/
Steve – yes, it is kind of weird that Italy was not part of Airbus but I guess at least Italian vintners are happy about that now!
On October 4th, 2019 at 1:34 pm ,Trevor wrote:
I think a few interesting things will come out of this. First of all, it’s important to note that it is not “all wine” from France, Germany, Spain, and the UK. It is only wines less than or equal to 14% Alc and/or wines in containers less than or equal to 2 Liters. I think we will start to see a lot of labels with 14.1% alcohol listed, since there is virtually no oversight over alcohol labeling. I think we will also see a lot of higher-end wines coming in bag-in-a-box and formats greater than 2 liters. I am certain wine importers are already working on avoiding the tax. 25% is simply too much to swallow. I foresee a lot purchasing wine in bulk to bottle in the US too.
On October 4th, 2019 at 1:44 pm ,Dr. Vino wrote:
Hi Trevor – thanks for the thoughts. Yes, I addressed some of those issues in my post from today:
https://www.drvino.com/2019/10/04/french-wine-tariffs-questions/
Bag-in-box has been a non-starter for so long in this market but maybe this will propel it forward?
Interesting thought that wine could be imported in bulk and then bottled in the US to avoid the tariff. Clearly this is not a strategy for small producers but for bigger brands, it would certainly be one way around it…for on-premises, this is already happening with keg wines.
On October 4th, 2019 at 2:27 pm ,Art Rose wrote:
I don’t believe sparkling wines are included. At least from what I have previously read.
On October 4th, 2019 at 3:40 pm ,Dr. Vino wrote:
Art – correct. And neither are French spirits or handbags!