How did champagne dodge the tariff bullet?
For those looking to explain the oddities of the recent tariffs on French wine, a clue may have come last week in Texas.
But first, those oddities. It is not really going out on a limb to say that this administration has a haphazard, govern-by-tweet style of policymaking. So it should not be a surprise that there were some head-scratchers in the wines affected by tariffs. since not all of the $2.1 billion of wines that the US imported from France last year were included. Notably omitted from the list was the high-value category of champagne (sparkling wines were all exempted). Cognac and French spirits were not affected, another large, high-value. (And neither were French handbags or fashion–by contrast, cashmere sweaters from Scotland were hit). And wines over 14% alcohol were not affected. And those in “containers” of over two liters. And Italian wines were exempted since Italy is not a part of Airbus–yet parmigiano reggiano was hit with a 25% tariff? Hmmm…
For a possible clue for explaining some of those loopholes, we take you to Johnson County, Texas
on Thursday of last week. There, in between a fundraiser and a rally, President Trump attended a ribbon-cutting ceremony at a new 100,000-sf facility for making handbags. Louis Vuitton handbags. And beside him was the LVMH founder and chairman, Bernard Arnault. And next to him Ivanka Trump.
The NYT sent fashion columnist Vanessa Friedman to the event and her article has some great color, including Trump saying in his remarks that Louis Vuitton (pronounced “VOO-ton”) was “a name I know very well. It cost me a lot of money over the years.” The article also asks what was LVMH getting out of it, balancing “the immediate brand equity risks” with “political rewards if Mr. Trump wins a second term.” The article points out that Bernard Arnault visited Trump after the 2016 election at Trump Tower.
In his remarks in Texas, Arnault said: “I am not here to judge his type of politics. I have no political role. I am a business person. I try to tell him what I think for the success of the economy and the country, and the success of what we are doing.”
One importer asked about it suggested that champagnes already had to pay a higher excise tax so floated that as a reason for their avoiding the tariff hammer.
So maybe we have some clues to the exclusion of sparkling wine and cognac. And we can raise a glass to the fact they were not affected. But we are still left to ponder the 14.1% alcohol exemption and who had a hand in that. Maybe Robert Parker?!?
On October 27th, 2019 at 10:34 am ,David Hayes wrote:
Wines over 14% are already subject to a higher duty rate. Same reason for exclusion as Sparkling. So do large format packaging.
On October 28th, 2019 at 7:15 am ,Dr. Vino wrote:
Hi David,
Thanks for the comment! If only it were that straightforward, there would be some policy logic to it.
Alas, the excise tax on wine was modified with the big tax overhaul in 2017. As you can see on this table, in 2017 and before, the 14.1% line did indicate a higher excise tax. No longer: it is now 16% to see a big jump in tax rates (again, not exactly clear why this happened).
https://www.ttb.gov/what-we-do/taxes-and-filing/tax-rates
On October 28th, 2019 at 4:10 pm ,David Gaier wrote:
It’s by now a cliché, but I’ve heard for years that what business people detest most is uncertainty. And in this case, uncertainty is compounded by a complete lack of a strategy and what a resolution would require. Finally, punishing wine exports of companies whose countries are part of the Airbus consortium is simply bereft of logic.
On October 28th, 2019 at 4:14 pm ,Terry wrote:
Thank goodness for that. I was worried we’d have to lay in a supply before the tariffs hit . . . .
On October 29th, 2019 at 1:04 pm ,David Hayes wrote:
Yes, the tax was reduced on over 14% but it still subject to a higher duty. It is must less $ per liter than the tax but still in place.