2021 brings familiar problems for wine world
Pandemic, tariffs from Trump presidency still plague the industry even in new year
It’s a new year, and there’s a new administration in Washington, but the American wine industry remains tangled in the same set of thorny problems: COVID-19, government tariffs and climate change.
The most immediately challenging, of course, is the unrelenting pandemic, which has crushed restaurants and other elements of the hospitality industry that are a crucial part of the sales and promotion system for wine. More than a few wineries also rely on their own tasting rooms and restaurants for sales and for building long-term customer bases.
Many of those producers were at least able to pivot to direct-to-consumer and e-commerce operations. They developed relationships through Zoom tastings, and converted their public spaces into headquarters for shipping bottles to distant shoppers.
A recent analysis of direct-to-consumer shipping by wineries found a 27% increase by volume in 2020 over 2019, not surprisingly the largest annual jump by far over the past decade, as locked-down consumers turned to online shopping.
Like the rest of the country, the wine industry must await the mass vaccination of the population before it can return to some semblance of normality.
What will that new world look like? It’s hard to say with any degree of certainty. The failure of governments at all levels to offer sufficient support to restaurants and their employees, while rightly demanding they operate at a fraction of capacity or close entirely, means that the hospitality industry will require years to recover.
Though the pandemic is the greatest obstacle for restaurants and the wine industry, it is far from the only one.
When the coronavirus shutdowns began last March, wine importers, distributors, retailers and restaurants were already reeling from the punitive tariffs the Trump administration imposed the previous October on many European foods and beverages. As a parting gesture, the administration ordered additional tariffs, which took effect Jan. 12, just before Inauguration Day.
The tariffs were part of an American retaliation against the European Union over subsidies the union gives to the European aerospace company Airbus. In 2019, the World Trade Organization ruled that the company had violated global trade rules.
In response, the United States placed a 25% tariff on wines below 14% alcohol from France, Germany, Spain and the United Kingdom, along with various European whiskeys, cheeses, olive oils and other foods. The additional tariffs that took effect in January include wines from France and Germany above 14% alcohol, and other beverages. Sparkling wines have so far been excluded.
The Trump administration has never explained why it targeted wine and food in a dispute over aviation equipment. Indeed, while aircraft parts were also subject to tariffs, they were taxed at a far lower rate, 10-15%, than the 25% on food and drink.
Economists may argue over the efficacy of using tariffs as a tool in international trade, but these particular tariffs have caused more harm to small American businesses than they have to the countries they were intended to penalize.
According to the U.S. Wine Trade Alliance, an organization representing the wine trade, American imports of wines from the four countries affected by the tariffs over the first five months of 2020 dropped by nearly 54% compared with the first five months of 2019.
Data compiled by Gomberg, Fredrikson & Associates, a wine industry analyst, demonstrated that for every dollar’s worth of wine not imported because of the tariffs, consumers spent $4.52 less at U.S. distributors, retailers and restaurants.
It’s difficult to calculate the precise effect of the pandemic on these figures. Many European wine producers hit by the tariffs simply found other markets for their products, said Ben Aneff, managing partner of Tribeca Wine Merchants in New York and president of the trade alliance.
In an additional move that seems thoughtless at best and spiteful at worst, the Trump administration did not exclude goods in either round of tariffs that had already been purchased by American businesses months and, for some, years in advance and were in transit to the United States. That required those businesses to pay the entire duty when the goods passed through customs, with no effect on the foreign businesses the tariffs were supposedly meant to penalize.
“They could have chosen not to punish U.S. businesses for past purchases, and they chose not to,” Aneff said.
“It’s like designing a medicine with all of the side effects and none of the cures.”
The Biden administration has not taken a position on the tariffs.
It has nominated Katherine Tai as the next United States Trade Representative, who is required to review tariffs every six months, with the next review scheduled for this month. It’s not clear whether Tai will be confirmed by the Senate in time, or whether a decision will have to wait until the next review in August.
Biden could lift the tariffs with an executive order, as chefs Kwame Onwuachi and Alice Waters recently urged in an opinion column in The Washington Post. It would be unusual for a president to step in like that, particularly given the other current priorities, but for restaurants in particular, the need is desperate.
“The tariffs do significantly more damage to small U.S. businesses at their most vulnerable points, and, particularly for restaurants, this is their most difficult time,” Aneff said. “That seems really wrongheaded. These are businesses that are struggling as much as any in the U.S. They need to be supported.”
The Trump trade policies likewise walloped U.S. agricultural companies, which lost markets in China and Europe. President Donald Trump paid billions of dollars in subsidies, much of it to big agricultural companies, but no such payments were offered to the restaurant and wine industry.
Trade disputes unrelated to the European Union also cost the U.S. wine industry much of its market in China, which placed retaliatory tariffs on American wines sold there.
“It’s really had a significant effect on our exports in a market that was growing fast,” said Charles Jefferson, a vice president of public policy at Wine Institute, an advocacy group for California wine producers.
He said exports to China dropped 33.9% in 2019, and another 40.8% in 2020.
“We’ve opposed all these tariffs,” Jefferson said. “Wine should not be used as leverage in unrelated disputes.”