“The world we live in is changing. The old order is transitioning; welcome to the new reality.”
Whether we are proponents or opponents of the entwined economic, social, technological and political new order of the 21st century, one thing is clear. Each waking day brings new discoveries, economic change and political upheaval around the world.
One of the areas I tend to focus on, perhaps more than others, is the changing world of wine. And recent European Union (EU) political skirmishes have created an uncertain future for the United States wine market over tariffs.
“Who cares about European wines? Buy American,” might seem a reasonable response.
If the prices of Italian, French, Spanish, English and German wines increase significantly, won’t American wines, typically more expensive than a number of European wines, gain a windfall profit? Won’t American wineries benefit from greater profit margins at the expense of their European rivals?
All politics aside (as difficult as that may be in today’s hotbed of opposing ideologies around the globe), the economic impact of the recent wine tariffs imposed and/or threatened by the United States is casting a doomsday spell over a wide swath of the domestic wine industry. From producers, to importers, to distributors, to restaurants, to retail shops and to consumers, the financial impacts threaten the livelihoods of business owners and the wallets of consumers. The magnitude and breadth of the latest round of tariff threats has the potential of causing grievous economic and financial damage to the wine industry in the United States.
The backdrop: In November 2019, the United States imposed 25 percent tariffs on select products, principally wine, exported from select EU countries that historically have been subsidizing Airbus. Affected wines include those under 14 percent alcohol by volume from France, Germany, Spain and the United Kingdom.
The immediate impact: In the first month the 25 percent tariffs were implemented, French sales to the United States fell by 42 percent compared to the prior November.
Fighting for their economic lives, and to preserve their otherwise unsold wines, French producers turned to new markets. French wine sales to China last November surged 35 percent. Wily French winemakers have found a way to deflect the intended punishment of United States tariffs. Is this a portent of a long-term loss of access to French wine in favor of China, our arch-tariff war adversary?
The economic and financial impact of the November drop in French imports was exponential.
It is estimated the ultimate cost up and down the import, distribution and retail chain was as much as $148 million in lost cash profit and taxes. This loss of volume is not readily compensated for by increased sales of United States wines. The supply chain disruption will affect sales by reducing the channels available to American wineries.
In December, the United States tentatively set new tariffs on select goods imported from all 28 EU countries. Unless otherwise withdrawn before a Feb. 17 deadline (after this column was penned), a 100 percent tax will be imposed on all wines, cheeses, olive oil, whiskey and other consumer products.
Enactment of the threatened 100 percent tariffs would further reduce EU imports. Increased costs and reduced imports would cause employee layoffs and even small business closings at each of the layers of American support chains. Restaurants and retail stores would not have American substitutes for a number of their best-selling wines, thereby losing a significant portion of the profit margins that sustain their overall success.
Overall, it is estimated that the wine industry could lose 11,000 to 80,000 jobs as a result of 100 percent tariffs.
The United States has won the World Trade Organization court case, entitling it to $7.5 billion in tariffs from Airbus and EU countries. It would seem reasonable to collect such tariffs to the minimal detriment of the American economy.
Will the current tariff wars have a short-term effect on the domestic wine industry, or will the fallout of these tariffs have a more lasting, permanent impact? The ability to fully assess this seems to change every hour, day, week and month, as battle lines become clearer and conflict resolution more cogent.
Nick Antonaccio is a 40-year Pleasantville resident. For over 25 years he has conducted wine tastings and lectures. Nick is a member of the Wine Media Guild of wine writers. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at email@example.com or on Twitter @sharingwine.