Last week, the Office of the United States Trade Representative (USTR) published a list of imported goods that could be subject to tariffs of up to 100% in 2020. Items include still and sparkling wine, Scotch, cheese, olive oil, leather goods and more.
Taxes on European wine and cheese may sound like a niche issue, but analysts believe these tariffs could have far-reaching consequences. Warehouse stockers, delivery truck drivers, retailers and hospitality professionals will see an immediate financial impact. American consumers will also feel the pinch on everything from grocery bills to anniversary dinners, and our national wine industry and culture could be dramatically altered.
“This affects arguably every household in the United States,” says Dominick Purnomo, wine director/owner of dp An American Brasserie and Yono’s, both in Albany, NY. “For the couple who spends $20 a week on two bottles [of wine at a grocery store], all of a sudden it’s $40. That hurts. That’s a night out or dance lessons for the kids.”
Restaurants, in particular, have the potential to suffer as people dine out less while accommodating overextended budgets. After all, the tariffs will affect everything from fine fromage to that $5 wedge of President Brie at your local Kroger or Stop & Shop.
Beverage professionals are reeling. The newly proposed tariffs arrive on the heels of a 25% hike the administration levied in October 2019 on French, Spanish and German wines and spirits.
“I and most of the other importers I know spent weeks on the phone negotiating with winemakers to keep working with us,” wrote importer Jenny Lefcourt in a New York Times opinion piece entitled The Insanity of Trump’s Wine Tariffs. “Many of them wanted to walk away from the United States market; after all, these days demand from Asia is huge.”
One of the reasons beverage professionals like Lefcourt and Purnomo are so frustrated is these tariffs are not really about wine at all. Goods like wine, cheese and olive oil are being leveraged in two ongoing trade disputes. One is over aircraft manufacturing subsidies between European Airbus and U.S.-based Boeing. The other is regarding technology taxes France recently levied against U.S. companies like Amazon, Facebook and Google.
“Changing the wine tariffs for certain imported wines may be seen as a way to coerce other countries or unions like Europe in the way they subsidise their economies,” wrote Pascaline Lepeltier, MS MOF, on Instagram on January 5. “Maybe it will have an impact on them… Who knows? But what I can say is that the very first consequences will happen here in America, and way quicker and faster that we think.”
Those consequences include a very harsh bottom line. Mannie Berk, founder and president of California-based importer The Rare Wine Co., composed a letter to U.S. Trade Representative Robert Lighthizer itemizing the impact these tariffs will have on wine and wine-adjacent economies.
“The value of imported European wine to the U.S. economy is substantial: over $28 billion,” wrote Berk. By Berk’s calculations, only $4.25 billion of that makes its way back to Europe by way of payment for wine. “Eighty-five percent stays in the U.S. economy, supporting many thousands of jobs and paying billions in taxes at all levels of government.”
In other words, losing European wine could cost many Americans their jobs.
Those seeking silver linings suggest tariffs on imported goods could give domestic wineries a financial boost. Many California winemakers, however, say it will actually hurt their business. According to the Wine Institute, an association of 1,000 wine professionals in California, Europe is California’s biggest export market, responsible for $469 billion in 2018. If the USTR does implement the maximum 100% tariffs on European wines, U.S. winemakers worry the European Union will retaliate with similarly devastating levies on their wines.
Additionally, due to the three-tier system, domestic wine is sold from producers to consumers via distributors, most of whom handle both U.S. and imported wine. This too presents a problem for U.S. wineries, California winemakers say. If U.S. distributors lose their money-making European clients, they will likely downsize operations and scramble to find replacements.
“In my experience, distributors react to the loss of a major supplier (a similar impact to these tariffs) by attempting to source new wines for their portfolio, rather than by selling more wine from their existing suppliers, many of whom are unable to increase production in the short term…. That will mean less focus for us, not more,” writes Jason Haas, partner and general manager of California’s Tablas Creek Vineyard.
There are other, more ephemeral concerns as well. Cutting U.S. winemakers and consumers off from their European counterparts threatens the innovation and cultural exchange that has turned U.S. wine into a multibillion-dollar industry. With climates changing and technologies advancing, community and cooperation within the wine industry is more important than ever.
If you’re eager to voice your thoughts on the proposed tariffs, the USTR is accepting comments via digital form through January 13, 2020.