Tariffs sobering for winemakers
Tit-for-tat trade war is pricing California vintages out of the Chinese market
Adecade ago, basketball legend Yao Ming was such a celebrity in China that he carried the Olympic torch into Tiananmen Square. But these days, not even the 2.29m Yao can fight his way through the USChina trade war.
Yao’s trouble involves wine, his business in California’s Napa Valley. Across California, the state’s signature wine business is getting hit by the titfor-tat tariffs coming out of Washington and Beijing.
China’s latest round of retaliatory tariffs put the combined tax rate on a bottle of American wine at 93 per cent, pushing prices out of reach for much of the Asian country’s growing middle class. Yao Family Wines, started by Yao in 2011, has seen its export business drop by half over the past year, says Tom Hinde, the vineyard’s president and winemaker.
California vintners, who have spent years building relationships with China, are now seeing their work undone by the tariff dispute. “There’s indecisiveness in the outcome, so that puts a pall over the buyers’ enthusiasm,” Hinde says. “We’re hurting ourselves.”
The value of US wine exports to China dropped by 25 per cent in 2018, when the first retaliatory tariffs hit, from 2017, says the San Franciscobased Wine Institute, an advocacy group for California’s wine industry. The state accounts for more than 90 per cent of America’s wine exports.
Vintners worry that years of work cultivating business in China could be ruined if tariffs persist and Chinese wine drinkers come to view American bottles as too expensive. And even if the levies end, business wouldn’t automatically snap back.
“It’s not like we’re selling socks and we’re suddenly back on the shelf,” says Emma Swain, chief executive at St Supery Estate Vineyards and Winery in Napa Valley. “Regaining consumer confidence takes time.”
At M on the Bund, a popular Shanghai restaurant, Swain’s sauvignon blanc before the latest round of tariffs cost the equivalent of US$120 ($179), about US$50 more than a comparable one from New Zealand not subject to the same burden, she says. Now the restaurant is probably selling it at US$220, if it still has it in stock — Swain
People aren’t going to stop drinking wine in China because the US and China have a tariff dispute. California winemaker Tom Hinde
says her orders from China have essentially fallen to zero.
Swain and other winemakers are looking to countries elsewhere in Asia to fill the void. But there, too, they’ve been undercut by Trump. One of his first acts as president was to pull the US out of the Trans-Pacific Partnership. That has lowered the appeal of California wines in Japan, where import duties remain in place, while those on Australian and New Zealand competitors will eventually go away. Australia already exports more wine than the US.
If the trade war with China grinds on, “we’re going to have open other markets around the world,” says Anthony Hsu, chief executive of Maxville Winery in Napa County’s Chiles Valley, where exports have dropped by almost half over the last 10 months. The producer, whose parent is a Chinese company, is now looking to expand its sales in Vietnam and Thailand.
Winemakers have been leaning on their elected representatives to bring them relief. It’s unclear if they’ve had any impact on the teetotaller president, who himself owned a Virginia winery that is now run by his son Eric.
In June Trump said that “California guys” have complained to him that their wines are charged a lot in France while the US levies a lesser burden on French vintages.
He has vowed to do something about it. This month the administration announced it will investigate a French plan on technology companies, a move that has precipitated new tariffs before.
Honore Comfort, vice president of international marketing at the Wine Institute, disagrees that retaliation is the way to go. “We would rather be in free trade agreements,” she says. “Those comments don’t necessarily help us.”
As for Yao, whose most popular offering sells for US$95 and most expensive bottle tops out at US$258, the tariff effects are so extreme that his vineyard may accelerate plans to produce wine in China to avoid the levies. That would be a first for a US winery, according to Hinde.
“People aren’t going to stop drinking wine in China because the US and China have a tariff dispute,” Hinde says.
“It would be nice if we can wrap this thing up and we can all go back to our business as normal.”