The presidential inauguration is two weeks away, but the pain is not going away anytime soon for many European winemakers and the American businesses that sell their wines. As a parting gift to them, U.S. Trade Representative Robert Lighthizer announced additional tariffs on New Year's Eve, part of the ongoing fight with the European Union over subsidies to airplane manufacturers.
When Lighthizer imposed 25 percent tariffs in October of 2019 on wines from France, Spain and Germany, he only applied them to wines under 14 percent alcohol. No more. As of next week, French and German wines 14 percent and higher will face 25 percent duties. (Airplane parts will continue to face 15 percent tariffs.)
Trade experts were not surprised by the move. The U.S. first imposed its tariffs after the World Trade Organization (WTO) found that E.U. countries were giving unfair subsidies to Airbus. Last year, the WTO ruled that Washington state tax breaks to Boeing were also unfair. The E.U. responded by imposing $4 billion of its own tariffs on a wide range of American products, including orange juice, ketchup and tractors. (When America wants to hurt Europe, we go after Chablis and Brie; when they want to hurt us, they target ketchup.)
Lighthizer did not appreciate the Europeans responding to our tariffs with their own. "The alleged subsidy to Boeing was repealed seven months ago," Lighthizer responded in a statement. "The E.U. has long proclaimed its commitment to following WTO rules, but today's announcement shows they do so only when convenient to them." So he escalated the fight with more tariffs.
The tariffs and the damage done
Who suffers while this trade war continues? The pain is clear in France. Bottled table wine shipments from France to the U.S. had recorded 10 consecutive years of volume growth prior to 2020, according to Impact Databank, a sister publication of Wine Spectator. But French wine imports fell 37 percent in the first nine months of 2020, according to the U.S. Commerce Department.
Some French winemakers had been spared the pain of the first round, because their wines were 14 percent ABV or higher. But even they felt an impact.
"A large majority of our wines escaped the first wave of tariffs. But we did suffer because the trade started to focus away from French wines and we were less of a priority," said Michel Gassier, whose Domaine Gassier is in France’s Southern Rhône Valley. He found it harder to find space in shipping containers because many fewer wines were being shipped to the U.S. "The new tariffs are a real pain for us since most of the Rhône Valley reds and some of the whites are above 14 percent."
"We can't compensate with other markets because COVID-19 makes everything difficult worldwide," said Louis Barruol, proprietor of Château de St.-Cosme in Gigondas. "For us, the financial pain will be hard—45 percent of my sales are in the U.S."
Where's the end of the tunnel?
Will a new president in the White House change things? Tariff opponents are hopeful, but wary. For one thing, bureaucracy moves slowly. "Most people believe President-elect Biden will want to restore relations with global allies, and a key part of that with the European Union is resolving these trade issues," said Ben Aneff, president of the U.S. Wine Trade Alliance (USWTA) and managing partner at Tribeca Wine Merchants.
Aneff is doubly hopeful because the USWTA knows Biden's nominee for U.S. Trade Representative well. Katherine Tai served as trade counsel for the House Ways and Means Committee in Congress, making her the point person on these tariffs in the House of Representatives. "She is well-versed in the issues that tariffs on wine cause businesses in the United States," said Aneff. "She understands the damage these tariffs do. That said, she's also a pragmatist."
Tai is not expected to be confirmed by the Senate for a month or more. While the tariffs are scheduled for review in mid-February, odds are that much of Biden's trade staff will not be running at full steam by then. Biden would have to make the tariffs a top priority of his first 100 days in office, and there are a few other items on his to-do list right now.
The tariffs won't come up for regular review again until August. The USWTA and other tariff opponents hope to lobby Congress to push for quicker action in the meantime.
Adding insult to injury
No matter how this trade fight is resolved, it has hurt a lot of people. Supporters of these tariffs have argued that punishing European winemakers will force their governments to come to a solution on the airplane issue. That might be true, though I suspect Airbus has a lot more lobbying clout than Château de St.-Cosme. But what of the American businesses impacted—the importers, the restaurants and the stores that are being asked to either raise prices, swallow the additional cost or simply stop carrying certain wines, disappointing their customers?
For the past year, I have believed that they were just bystanders caught in the battle. The White House was willing to hurt their companies in order to win a fight with the E.U. and look tough on trade. There is always collateral damage in trade wars.
But the timing of the latest tariffs makes me question that. Lighthizer announced the move on Dec. 31 and the tariffs take effect Jan. 12. That means that plenty of wine that is already on the water, that importers already paid wineries for, will instantly become 25 percent more expensive when it touches American soil. For example, staff at Vintus, a New York–based importer, say they expect to pay an additional $540,000 in tariffs on wines they ordered before the duties were announced. California importer Valkyrie Selections expects to pay an extra $43,000 they didn't plan for on 2,600 cases of wine en route from France right now.
"The tariffs are bad," said Aneff. "But the worst thing about these tariffs is there was no 'goods on the water' exemption. That only hurts U.S. companies. [The USTR] could have provided an exception for goods in transit. The E.U. provided just such an exception when it passed the Boeing tariffs on goods."
Lighthizer failed to provide an exemption when he passed the original 25 percent tariffs. It inflicted so much damage on importers that a bipartisan group of lawmakers proposed a bill to compensate them for the cost, but it failed to receive a final vote. Now the USTR has done it again.
As Lighthizer finishes his time in office, it's hard not to believe that he and this administration think American companies that make a living importing foreign goods should be singled out and hurt. "They chose to punish U.S. companies during a pandemic and an economic crisis," said Aneff. "I think it's borderline reprehensible."