Local importers hit hard by another round of tariffs
For U.S. importers, especially the small ones, and restaurants that favor supporting boutique French wine producers, the name of Robert Lighthizer will long live in infamy. As phylloxera is to a vine, or cork blight is to a bottled wine, Lighthizer will always be to so many in the American wine trade because of the damaging, possibly devastating decisions he made since being appointed as the U.S. Trade Representative in 2017.
Wine importers and restaurants/wine bars, trying to make ends meet while keeping their people employed in the disastrous economic environment wrought by COVID-19, will receive nothing to offset another 25 percent tariff on French and German wines he imposed on Dec. 31.
“Borderline reprehensible” is how Ben Aneff, the president of the U.S. Wine Trade Alliance, described the levy, which went into effect Jan. 12. “It only punishes U.S. companies during a pandemic and an economic crisis,” he said in an interview with the Wine Spectator.
Let me put two local faces on this story. Jean Philippe-Guy owns French Country Wines in Rice Village. Then there’s Douglas Skopp’s Dionysus Imports, which began as a one-man operation about two decades ago and now has 14 full-time employees. Skopp’s French-centric portfolio is also dominated by small family wineries. Both Guy, following the lead of French Country Wine’s founding owners Phyllis Adatto and Tim Smith, and Skopp have played hugely significant roles in introducing many excellent, off-the-beatenpath wines to Houston’s more curious and adventuresome oenophiles.
Both decried the damage being caused by Lighthizer’s original 25 percent tariffs imposed in the fall of 2019 on wines with under 14 percent alcohol content. The new tax targets wines above 14 percent — a much more damaging hit because most red wines are above that threshold these days.
When I visited with Guy and Skopp in early 2020, the novel coronavirus was barely a blip on America’s radar screen. The looming threat never came up in either conversation. They had no idea what was about to clobber them, nor did I.
With COVID-19 wreaking additional havoc, sales of wines impacted by the original tariff are down 53 percent, Aneff says. So, sure, it has impacted French producers. But it has hurt their American importers, so many of them mom-and-pop operations with fewer than 10 employees, much worse.
The most galling aspect is how Lighthizer refused to apply what Aneff called a “goods on the water” exemption to the tariffs. That means wines already purchased and in route will be taxed when they arrive stateside. Both Skopp and Guy have wines in the same container that was likely being loaded as we spoke last week, bought at prices and in quantities that had made financial sense for them. Well, their cost just spiked 25 percent, and the tax must be paid in full before customs will release the wine.
Guy didn’t have a dollar figure for the additional hit he’s going to take. Skopp said the $5,000 profit on at least one of his pallets will be completed wiped out.
“These were wines that were replenishing stock I already have in Houston,” he explained. “I can’t try to renegotiate a price for the same vintage.”
As if any restaurant, having already been through hell and back — well, hardly back — because of COVID, would have been in a position to entertain same.
“It’s pretty despicable,” Aneff said. “The purpose of a tariff is not to punish businesses in your country for past purchases. It’s to change future behavior (by the foreign entity). By doing what (Lighthizer) did, you get all of economic damage with none of the benefits.”
Because of the pandemic, Skopp’s revenues were down about a third in 2020 from 2019 — despite his having gotten off to an historically robust start in January and February — because he’s not a retailer and he sells more wine to restaurants than he does to shops. He at least received some assistance from his French vintners, who helped him absorb the initial 25 percent hit by lowering their wholesale prices accordingly. But, understandably, they warned him then they couldn’t dig much deeper into their own pockets, or continue to do so forever.
Three examples of the jolts being taken by importers like Guy and Skopp in other parts of the country were provided by a marketing firm representing the Wine Trade Alliance. The large New York wine importer VINTUS expects to pay an additional $540,000 in tariffs on wines purchased before the levies were announced. This after VINTUS’ sales to bars and restaurants dropped 40 percent in 2020. Valkyrie Selections in California has over 2,600 cases of soonto-be tariffed wine in route from France as we speak. The tariffs will cost that company, with a staff of 12, an extra $43,000 for the shipment.
“American (wine-related businesses) average about five employees,” said Aneff, who also serves as the managing partner for Tribeca Wine Merchants in lower Manhattan. “Profit margins are slim under the best of circumstances.”
There could be light at the end of this dark tunnel, though. It’s assumed the incoming Biden administration will prove sympathetic to the cause. The nominee to replace Lighthizer, Katherine Tai, is up to speed on the particulars of the situation, having previously served as trade counsel for the House Ways and Means Committee. But, although the tariffs are scheduled to be reviewed again in midFebruary, her getting confirmed and starting work by then seems unrealistic given the chaos engulfing this transition. So, it’s probably going to be midAugust at the earliest before relief is forthcoming. And mid-August may be too late for some.
“It’s a huge blow to companies like ours,” Guy said. “But we had decent growth last year because people were drinking more wine, so I’m not one of the people who can complain. We’ll find a way to make it work.”