This story was updated Dec. 13.
As European vintners struggle to maintain sales in U.S. markets with a 25 percent tariff in place on many wines, they face a new potential hurdle. The Office of the U.S. Trade Representative (USTR) has announced that it is considering new, higher tariffs on European foods, including all wines (both still and sparkling, regardless of alcohol level). Those tariffs, which would be imposed early next year, could be as high as 100 percent.
Until now, most consumers were not feeling the impact of the 25 percent tariffs, as importers and vintners swallowed the cost in hope of maintaining sales. That won't be possible with the new, higher tariffs.
"I'm freaking out. And I don't normally freak out," said one wine importer who asked not to be identified. "We were planning to hire new people. That could be shelved and we could potentially have to consider layoffs."
The proposed tariffs are the latest salvo in the U.S. government's fight with the European Union over support for airplane manufacturers Airbus and Boeing. On Oct. 2, the World Trade Organization (WTO) gave the U.S. the green light to impose duties on $7.5 billion worth of European goods after the E.U. was found guilty of unfair subsidies to Airbus. The following day, the Trump administration announced 25 percent tariffs on a wide range of European products, including wine, cheese, olive oil, single-malt Scotch and cashmere sweaters, which went into effect Oct. 18.
The tariffs covered all wines from France, Spain, Germany and the U.K., except for sparkling wines, wines over 14 percent alcohol and large-format bottles. Containers of wine were on the ocean when the tariffs were announced, and when they arrived after Oct 18, they effectively became 25 percent more expensive the moment they touched U.S. soil.
On Dec. 1, the WTO Appellate Body rejected an E.U. appeal claiming it no longer provided subsidies to Airbus. The USTR responded by ratcheting up the pressure. "In light of today's report and the lack of progress in efforts to resolve this dispute, the United States is initiating a process to assess increasing the tariff rates and subjecting additional E.U. products to the tariffs," the office said in a statement.
Yesterday it posted the measures under consideration—100 percent tariffs on a wide range of food and other products from all E.U. nations, including cheese, meats, olive oil, yogurt, whiskey, brandy and wine. Unlike the previous round of tariffs, which focused only on wines from the four nations that subsidized Airbus, these tariffs would hit wines from every E.U. nation and would include sparkling wines, dessert wines, wine in large-format bottles, and wines at all alcohol levels, not just those under 14 percent. (These tariffs are unrelated to the 100 percent tariffs on French sparkling wine that President Trump has threatened in response to France's tax on large digital companies.)
Read all of Wine Spectator's ongoing coverage of the trade wars and wine tariffs:
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The reaction from many in the industry was shock. "Italy has always had a strong relationship with the U.S.A.," said Pietro Ratti, proprietor of Barolo's Renato Ratti. "We have been thankful for all your country has done for us, since World War II and then with the Marshall Plan. Today Italian wines are not damaging or competing with U.S. wines in the market. A 100 percent tariff makes no sense at all."
"The level of 100 percent in my opinion will be really devastating as all the European wines will lose most of their market in the U.S.," said Renzo Cotarella, president of Antinori. "At this level of tariffs, an effective solution is practically impossible to find."
Impossible to counter
There's no guarantee the new tariffs will go into effect. The final duties might be lower or cover fewer products. U.S. and E.U. officials have been meeting to negotiate a solution to the airplane fight, though there has been little sign of progress. The USTR is accepting public comments on the proposed tariffs until Jan. 13.
The impact if they do go into effect could be devastating to wineries, importers, restaurants, retailers and, ultimately, consumers. "If this comes to fruition, it's going to be extremely detrimental to those categories of wine," said Sandra LeDrew, COO of Terlato Wine Group, which imports Chapoutier and Piper-Heidsieck.
After the first round of tariffs, most wineries, importers and retailers had tried two strategies. Many swallowed part or all of the additional 25 percent cost, shielding consumers from increased prices in hope of maintaining market share. "On that first round, we partnered with the Terlato family and the Chapoutier family [to swallow the costs], because it was very important to not pass along price increases to the consumer during the holiday season," said LeDrew.
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"With the current level, some importers only raised prices slightly. We've held prices or raised them slightly," said David Kenney, vice president of the small import firm Uncorked. "I don't think consumers have seen any impact yet."
Others put shipments to the U.S. on hold. Both strategies hinged on the tariffs being short-lived. "People were just going to hold where they were until the end of the year," said Kenney. "A lot of people thought things would work out by the end of the year. They could deal with it for a quarter. Now people are realizing it's not going to just be a quarter."
A 100 percent tariff, if implemented, would be much worse. Prices would rise, even though winemakers know they will lose customers. "A 100 percent tax is a whole other story," said Jean-Louis Carbonnier, who handles U.S. communications for Château Palmer. "It makes wine cost prohibitive. The price would be so daunting to consumers that they would change their purchasing."
Importers pay the tariffs as the wines clear customs. "Small and medium sized importers don’t have the cash to pay the tax," said Carbonnier. "Importers pay their suppliers over a 60 to 90 day period. But they have to pay the tariffs when the wine clears customs. For these importers, business is fragile. They just don’t have the cash to pay the tax up front."
It's up to wineries and importers to decide how much of the cost they pass along. And then retailers and restaurants have to make the same choice. "Prices on restaurant wine lists could be astronomical" said LeDrew.
But with a 100 percent tariff, no one in the industry can swallow the cost. Consumers will have to pay. "The people most hurt will be the consumers", said LeDrew. And that raises the fear that people will find alternatives to European wines and perhaps all wine, at a time when there is more competition from other drinks. "When will those consumers come back? Will they come back?"
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