Tariff may trigger soaring wine prices
Row over aircraft snares French, German labels
Certain wines from France and Germany may soon become a lot more expensive in the U. S., due to a 25% tariff that took effect Tuesday.
The new fee, announced by the U. S. trade representative two weeks ago, is designed to penalize the European Union as part of an ongoing dispute over aircraft subsidies that’s dragged on for more than 16 years. But according to wine industry leaders, the greatest penalties will be paid by American businesses, not European ones, including Bay Area wine importers and restaurants that have already been struggling to survive during the pandemic.
For every dollar the U. S. spends on a bottle of European wine, American companies — including wine importers, distributors, retailers and restaurants — make $ 4.52, according to Ben Aneff, president of the U. S. Wine Trade Alliance. The tariffs “disproportionately damage business in the U. S.,” he said, “which makes tariffs particularly ineffective in getting the E. U. to change behavior.”
These tariffs apply to French and German wines with 14% or more alcohol by volume, plus certain brandies including Cognac and Armagnac. Champagne and Champagne-method sparkling wine are excluded, though “effervescent” wine, such as petillant naturel, is subject to the fees. Foods, including many cheeses, are also subject to new tariffs, as well as aircraft parts like fuselages.
That means American wine drinkers may have fewer French and German wines to choose from at shops, and the ones that are here may get pricier. An entrylevel Chardonnay from Pascal Clement, a producer in France’s Burgundy region, could rise from $ 30 to $ 44, said its importer Steve Graf, cofounder of Valkyrie Selections in Healdsburg. That increase makes the wine “unsellable,” Graf added. “I don’t think I’m going to be able to continue buying wines from him.”
They are not the only tariffs being levied on European wines. An earlier round, also related to the dispute over aircraft subsidies, added 25% to French, German and Spanish still wines under 14% ABV, plus Irish and Scotch whiskeys and specialty foods.
By introducing the new tariffs, the Office of the U. S. Trade Representative is trying to match the value of recent actions by the E. U., the latest backandforth in the trade wars centered around American aircraft manufacturer Boeing and its European competitor, Airbus. The conflict originated when the U. S. complained to the World Trade Organization that Airbus had received illegal subsidies, giving it a significant economic advantage. Ever since, the World Trade Organization has authorized both the U. S. and the E. U. to levy tariffs against each other’s goods in varying amounts.
The announcement from the U. S. trade representative’s office did not specify why wine, brandy and other food products specifically were targeted in the new action, but said that France and Germany were targeted because those two countries have provided the largest levels of subsidies. The Office of the U. S. Trade Representative did not respond to a request for comment.
It’s inevitable that any country’s tariffs will have some impact on its own companies, especially companies that sell foreign goods. By May, imports of the French wines affected by the 2019 tariffs had dropped by more than 53%, according to data from the U. S. International Trade Commission, which would suggest that the tariffs were having the desired effect of pressuring the French economy.
But Aneff said in the case of wine tariffs, the economic damage to U. S. companies has actually exceeded the damage to the E. U. That’s largely because alcohol sales are regulated by U. S. states, not the federal government, and so there are multiple middlemen — importers, distributors and a retailer or restaurant — that are affected by increased costs.
Moreover, Aneff cited other data from the U. S. International Trade Commission showing that overall French wine exports rose by 2.77% after the 2019 tariff implementation, including a 35% increase in exports to China. In other words, even though U. S. buying slowed, French wineries have been able to find other markets for their products.
Meanwhile, Bay Area businesses braced for the new expense. A $ 43,000 tariff bill will await Valkyrie Selections when its next shipment of 2,800 cases arrives by boat from France next week. While Graf can absorb some of the new cost, it’s inevitable that some portion of that new bill will be passed along to consumers. By the time his newly tariffed French wines hit the retail shelves, he expects prices to be 1525% higher than they currently are.
“Ultimately there’s going to be less choice on the shelf,” said Kate Laughlin, vice president of Novato importer Martine’s Wines. More than 90% of the Martine’s portfolio is comprised of French imports, and she expects some of the more obscure categories — like wines from France’s Jura region — to become nonviable with the new fees. “These are not fungible products,” Laughlin said. “These are very distinct products that we’re dealing in.”
The abrupt timing of this new tariff announcement struck many industry players as particularly unfair. The order came on Dec. 30, giving just two weeks’ advance notice. But container ships can take six weeks to bring wine from Europe to the West Coast, meaning that many importers already had shipments under way and were helpless to avoid the new costs.
“We can’t turn the boat around,” Laughlin said.
“That’s the thing that is fundamentally unfair — we have orders already in motion that are now going to cost us 25% more.”
Billy Weiss, owner of North Berkeley Imports, had just been figuring out how to absorb the effects of the 2019 tariffs when this new round was announced. He said that the earlier tariffs, applied to loweralcohol wines, were not as deleterious as they might have been in another period, since the current vintages from France — 2018 and 2019 — were warmer years and tended to result in higheralcohol wines.
“Most of the ( French) wines we’ve brought in were naturally over 14.1%,” said Weiss, who imports from about 60 French wineries. “So while we’ve had some effect, it was really a small subsection of my business.” That’s about to change; now, all of his French wines will be affected. ( The impact on German wines, which Weiss does not import, will be smaller since fewer German wines exceed 14%.)
Weiss said he had been left with no choice but to raise prices for his customers, including restaurants. “When you have all these restaurants that are going out of business, do we really want to raise the cost of wine for them?”
Leaders of the restaurant industry have spoken out against the tariffs too. “Frustratingly, restaurants have been caught in the crossfire of a much larger trade war,” wrote chefs Alice Waters and Kwame Onwuachi in a Dec. 30 oped in the Washington Post. They argued that, because the tariffs add a significant financial burden to restaurants, their staff risk losing their jobs. As a result, they wrote, “workingclass Americans such as line chefs, dishwashers and wait staff suffer the most.”
Waters and Onwuachi have helped form a group called the Coalition to Stop Restaurant Tariffs, whose goal is to persuade the administration of Presidentelect Joe Biden to eliminate the wine and food tariffs as soon as possible.
That choice may eventually lie with Katherine Tai, Biden’s pick for trade representative, but the timeline on which she might act was unclear. Aneff, of the U. S. Wine Trade Alliance, said the nomination of Tai was a “boon” for the wine industry but still thought it unlikely that a new trade team would be in place by the next specified date for reviewing the tariff schedule, in February. That means the current wine tariffs could be in place for most of 2021.
“That being said, Biden will have the power to make wholesale changes essentially on day one,” Aneff said. He hoped that the Biden administration would be convinced by the simple fact that these wine and food tariffs have, so far, not made the impact on the French economy that the U. S. trade representative had intended.
Weiss of North Berkeley Imports echoed a sentiment shared by many others in the wine industry: Why should small, familyowned wine companies be involved in a fight that’s really between corporate, industrial manufacturers? “This is really a dispute between Airbus and Boeing, not between Napa and Bordeaux,” he said. “And it just means that the choices of Bay Area consumers will be more limited and more expensive.
“It’s important for people to understand,” Weiss continued, “that small businesses are essentially being used as a pawn.”