Don’t Care About Tariffs on European Wines? How About the Value of Your House?

Many Americans believe tariffs on wine will stick it to the French, but the evidence shows the pain will be much closer to home

Don’t Care About Tariffs on European Wines? How About the Value of Your House?
Restaurant closures will be an inevitable result of increased tariffs on European wines. (iStock/Lisa George)
Feb 13, 2020

You’re surely aware by now of the 25 percent tariffs that have been imposed on some wines from France, Spain and Germany since this past October, and that 100 percent tariffs on all wines from the European Union are on the table.

And if you’re like a lot of Americans, you’re celebrating that.

“Buy American!” commented many of our readers on social media.

“We have better wines in America. France can go stick it,” wrote another.

“I don't care about French winemakers. I care about my country, America. If you care more about a foreign country than you do your own, you are a traitor.”

Strong words! I’m not quite on board with equating Old World wine appreciation with a capital offense, but I’ll agree that the United States makes incredible wines, and I can understand why you might think that tariffs on European wines would help American wineries. That makes sense, right? Not to mention the fact that the World Trade Organization decreed that the U.S. is entitled to recoup $7.5 billion from the European Union for the E.U.’s illegal subsidization of European aircraft manufacturer Airbus. Case closed!

But … what if Americans are the ones making most of the profit off of European wines sold in the U.S.? If that’s true (it is), then tariffs would end up shooting our own economy in the foot. And the importers and retailers who depend on sales of European wines will be just the first dominoes to fall.

The restaurant industry operates with notoriously thin margins, with alcohol sales frequently making the difference between success and failure; European sparkling wines like Prosecco and crémant do particularly heavy lifting. So some struggling restaurants go out of business. That’s … um, OK, right? And we’re still sticking it to the French!

But real-estate investments are driven by speculation on a neighborhood’s future desirability. And nothing builds interest in a neighborhood like great local restaurants, so … if the restaurant industry dries up, what does that mean for property values? Not to mention the banks who’ve extended loans to all those developers? Prognosis negative!

Maybe you’re still skeptical. Could tariffs on wine really be the Dante’s descent into a mundane, Champagne-less world of chain restaurants and burst real-estate bubbles that I just made them out to be?

Last week I sat in on a meeting of the recently formed U.S. Wine Trade Alliance, which represents wine wholesalers, importers and retailers, as well as some restaurant trade members. They met in offices on New York’s 5th Avenue, facing Trump Tower. The symbolism was obvious, but the message was non-partisan: Tariffs on wine are bad for America, regardless of which side of the aisle you’re on.

Check out all of Wine Spectator's ongoing coverage of trade wars, wine tariffs and how they impact consumers.

"We're usually friendly competitors, but we need to come together as brothers in arms against the most serious existential threat of our lifetime: 100 percent tariffs on European wines," said Harmon Skurnik of importer and distributor Skurnik Wines. Also present were Zachys president Jeff Zacharia, Grapes the Wine Company owner Daniel Posner and Charleston, S.C.’s Grassroots Wine owner Harry Root, who has spent much of the past several months bringing their message to Capitol Hill.

Root shared some of the statistics he’s been trying to put in front of lawmakers.

The three-tier system in the United States requires that wine pass from a U.S. importer and distributor to a U.S. retailer or restaurant before it ends up in your glass. Because of that, according to multiple importers, for every $100 of European wine sold in the U.S., $75 to $85 ends up in the hands of an American business. Essentially, in the global wine rummage sale, we’re the “pickers” getting rich off Europe’s wine treasure glut.

But let’s say you don’t care about the 47,000 U.S. retailers and 6,500 importers and distributors of European wines that could face a potential loss of 78,000 American jobs as a result of these tariffs. Can’t we just buy American wine?

Actually, no. Case in point: The United States annually consumes more than 5 million cases of Prosecco alone. There simply isn’t a comparable domestic sparkling wine source at Prosecco’s price point to replace those bottles. It’s true that Americans will spend their money on something else, but it won’t be wine. And that’s one of the reasons the United States’ leading winery trade organizations, including California’s Wine Institute and the Oregon Winegrowers Association, oppose these tariffs.

But, but … we’re still sticking it to the French, right? Not even! French exports to the U.S. have fallen since the tariffs were implemented, to be sure, and French vignerons have been lobbying for government assistance. (Who could blame them?)

But there are other markets. Root reports that after the 25 percent tariffs had been implemented, he was hoping to get a discount from the Provence growers’ co-op that makes his proprietary rosé. Instead, they told him the price had gone up by 10 percent, and that their cancelled orders from the U.S. had been sold to the Asian market within 48 hours.

”While case sales of wine from France to the U.S. plummeted by 48 percent during the first month of 25 percent tariffs, exports from France to China grew by 35 percent,” Root said in a press release issued by the Wine Trade Alliance. “China's purchases of French wines were 118 percent higher than the U.S. in November." According to Global Trade Atlas, overall French wine exports increased after the tariffs were implemented.

Maybe you already believe that U.S. tariffs on European wine are self-defeating (as most tariffs throughout U.S. history have proven to be; see “Smoot-Hawley”), but you’re holding out hope for a change in administration this election year? Don’t hold your breath.

These tariffs are not about President Donald Trump’s agenda. The WTO has declared that the United States is entitled to $7.5 billion in annual tariffs from the European Union until such time as the E.U. stops illegally subsidizing Airbus, and the E.U. hasn’t given any indication that it’s going to stop. Republican or Democrat, no Commander in Chief should turn down $7.5 billion in reparations; our goal should be to collect those tariffs in a way that won’t harm American economic interests.

Opinion Trade War Tariffs Legal and Legislative Issues Taxes France United States

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