How will the new US tariff impact the wine market?

The Trump administration has threatened to slap a 25% tariff on French, Spanish, German and UK wines, beginning later this month. If the tariff goes into effect, what are the likely consequences? Jeff Siegel asks the US Administration for guidance and discovers even they aren't sure.

Photo by Sabine Peters on Unsplash
Photo by Sabine Peters on Unsplash

The Trump Administration’s proposed 25% tariff on French, Spanish, German, and British wine in the Airbus subsidies dispute is a confusing jumble, even though the new duties are supposed to take effect in a couple of weeks.

On Thursday, a spokesman for the US Trade Representative, which announced the tariff, wasn’t quite sure how it would be assessed or collected: “For questions on how the increased tariff rate is applied to specific products, we recommend contacting US Customs and Border Protection, which will be implementing the tariffs,” it replied in an email to Meininger’s.

Five key questions

1. How much of the tariff is political and how much is practical?

“I understand about the need to do something, but why were aircraft parts taxed at 10% and wine at 25% if the dispute was about airplanes?” says James Galtieri, whose New York-based Seaview Imports brings in 85,000 cases a year, 40% from France and Spain: Perhaps because Airbus has a US plant in Mobile, Alabama. There is also a sense, after talking to importers and customs consultants, that some of the goods targeted might be part of a larger Trump Administration plan. The president, for instance, has long threatened France with wine tariffs in retaliation for taxing US internet companies.

2. Does the tariff mean the end of $10 to $15 wine from France and Spain (which account for about 25% of US wine imports)?

That depends on who you talk to. Patrick Mata, whose Ole & Obrigado is one of the leading Spanish wine importers in the US, says he may have difficulty staying in business if the tariffs are imposed. He focuses on wines costing $15 and less; the 25% tariff would take most of his margin, he says. Chris Keel, a Dallas-area retailer, was equally blunt: “There’s no way anyone can afford to sell those wines for $10 if they cost 25% more because of the tariff.”

The other difficulty, says Galtieri, is consumer resistance. “That’s why those are the kinds of wines that could fall out of bed completely. Yes, a $1 or $2 prince increase on a $15 wine doesn’t sound like much. But $15 is the sweet spot, and people don’t want to pay more than that. So they’ll likely buy something else, and those wines will disappear from the shelf.”

On the other hand, says Italian wine importer Giulio Galli, it might be possible to work around the tariff’s effects. He compared the 25% tax to the weak dollar a decade ago, when the euro was worth $1.56. European producers and importers made money then, and the smart ones will find a way to make money now, he says.

Some producers may dump wine on the US market regardless of cost, says an executive with a leading Italian wine producer and importer. He asked not to be identified because of the sensitive nature of the situation. “You can’t raise prices and lose market share, for one thing,” he says. “You’ll never get it back when the tariffs end. And then there are the producers who don’t have a choice. That have to move wine because the next vintage is coming and they need to make room for it. They won’t like doing it, but if they’re smart, that’s what they’ll do.”

Expect to see the biggest US retailers like Costco take advantage of this, both with branded wine and with private label wine made by producers who need to get rid of their branded product. In addition, some French and Spanish producers may bottle bulk wine in the US to cut costs.

3. Won’t producers, retailers, importers, and wholesalers work together to mitigate the tariff?

Almost certainly not, said the importers interviewed for this story; to a person, each said neither retailers nor wholesalers will care about the problems caused by the tariff. All they want is their margins. Instead, the onus will fall on producers and importers, says Galtieri. On some wines, but not many, the producer will lower their cost and the importer will cut its margin to keep pre-tariff pricing. 

4.  Why wasn’t Italy, the biggest wine importer to the US, included in the tariffs?

No one is quite sure. Ostensibly, Britain, France, Spain and Germany were the key partners in the airbus subsidies. But taxing UK wine, of which there is almost none, hardly seems like an effective punishment. And key Italian exports like olive oil, some cheeses, and some liqueurs were taxed, which makes the initial reasoning seem even less valid.

5. Will the tariff actually be implemented?

Everyone is proceeding under the assumption it will, though tariff imposition under the Trump administration has been haphazard at best. Duties against Chinese goods have been delayed at least three times in the past six months, and there is a chance that could happen here.

Jeff Siegel
 

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