What Would 100 Percent Tariffs Mean for You?

Prices would go up, but vintners and industry analysts say the bigger threat is that many European wines would simply disappear from American store shelves

What Would 100 Percent Tariffs Mean for You?
Higher tariffs will mean fewer French wines on American store shelves. (istockphotos)
Jan 7, 2020

It's an unusual witness list for Washington, D.C. Nearly two dozen members of the wine industry, including Barkley Stuart of Southern-Glazer's Wine & Spirits, Zachy's president Jeff Zacharia, Weygandt-Metzler Importing's Peter Weygandt and other wine importers, distributors and retailers, will testify today at a hearing of the Office of the United States Trade Representative (USTR). The topic? How a potential tariff of 100 percent on French sparkling wines would impact their industry. They each have five minutes to speak.

The potential tariffs are designed to punish France for its digital services tax on big tech companies, such as Google, Facebook and Amazon. The USTR and President Donald Trump have called that tax discriminatory against American companies.

Zacharia, who is representing both his family's wine shop and the National Association of Wine Retailers, says his message is simple. "The wine industry is primarily small businesses, operating on very small margins," he told Wine Spectator. "These tariffs will not have the desired effect. They will hurt American companies and kill American jobs."

But the sparkling wine tariff is just one of the trade fights involving European wine and American consumers making news this week. Jan. 13 is the deadline for the public to submit comments to the USTR on the other battle. The Trade Representative is reviewing 25 percent tariffs the office imposed on many wines from France, Spain and Germany in October as part of a battle over European Union subsidies to Airbus.

Read all of Wine Spectator's ongoing coverage of the trade wars and wine tariffs:

As part of the review, the USTR is considering raising the tariffs to 100 percent and extending them to all E.U. wines. That possibility has triggered a panic in the wine industry, from small vintners in European villages to some of the biggest players in American retail and restaurants. Wine stores have been emailing their loyal customers, urging them to contact the USTR and members of Congress. (They've also been suggesting that consumers stock up, before the tariffs take effect.)

How serious is the chance of 100 percent tariffs? And what would they mean for American wine consumers?

Few are willing to gamble

When the initial 25 percent tariffs took effect on Oct. 18, importers and wineries hoped they would be short-lived. But that optimism is fading. Several now say the prospect of 100 percent tariffs has left them resigned to a long, drawn-out trade war.

"A number of producers and importers, like us, took a short-term view [in October]," said Peter Deutsch of Deutsch Family Wine & Spirits, which imports and markets multiple wines from around the world. "Most of us took the bullet and absorbed the tariffs to maintain price continuity, hoping that this issue would resolve itself in a three- to six-month time period."

Read Wine Spectator editor and publisher Marvin R. Shanken's letter, "The New War Against Wine," a call for the wine community to stand up and be heard.

Those 25 percent tariffs came with just two weeks notice. Many importers had wine in shipping containers, crossing the Atlantic, when the duties were announced. That meant many paid the tariffs as soon as the wine cleared customs.

After that experience, few are willing to bet that the Trump administration is bluffing. Many have placed large orders, hoping to stock up on wines before higher tariffs go into effect. Several importers told Wine Spectator that they are paying for air shipment to avoid getting caught at sea again.

Now that those orders have been placed, however, all new purchasing has been stopped. "We have put a freeze on all buying from Europe," said Harmon Skurnik, president of importer Skurnik Wines. "We don't know when the tariffs will go into effect. If the tariffs do go into effect, we're not going to buy those wines because they're going to sit in our warehouses." Several importers have put plans to add new wines to their portfolios on hold.

Higher prices, less wine

If the government imposes 100 percent tariffs, prices will go up. "You'd see significant price increases," said Deutsch. "I think it will be devastating. I don't believe producers and importers will be able to absorb it."

But almost everyone Wine Spectator spoke with said the biggest danger is that consumers will have far fewer wines to choose from. "It's not a matter of a bottle of Veuve Clicquot Yellow Label was $50 and now it will be $100," says Chris Adams, president of New York retailer Sherry-Lehmann. "No. It just won't be here.

"I remember when Chinese consumers got very interested in Lafite Rothschild and prices rose dramatically," said Adams. "Longtime buyers who purchased it every single year laughed and said, 'No, it's not worth it.' It was nothing to do with Lafite."

Skurnik agrees. "It's common to hear that prices will double," he said. "No. The price will not double because many of these wines that Americans love will no longer be available."

Vintners will need to prioritize other nations, just a few years after the United States became the world's No. 1 market. "People who love top Burgundy in the U.S. need to know that if these tariffs go into effect, those wines will go elsewhere," said Mounir Saouma, co-owner of Burgundy négociant Lucien Le Moine. "Wineries will need to look to Canada, Europe and Asia."

Louis Barruol has exported his wines from Château St.-Cosme to the United States for 25 years. He values the relationships he has built with importers, retailers, sommeliers and consumers. "We have developed good markets in the U.S.—we have the loyalty of our consumers and our importers. We are loyal to them," he said. "Developing a market takes time." But he says a 100 percent tariff means he'll have to shift his focus. And he worries that if he sends wine to other foreign markets, it would take years to come back.

"Once you pull a French bottle of wine from a shelf in St. Louis and replace it with a Chilean Cabernet Sauvignon, how does France get it back?" asked Adams.

A smaller American wine industry

An extended trade war would also reshape the U.S. wine industry, particularly importers. Dozens of small importers, many of whom have built specialized portfolios focused on European wine, will face bankruptcy. Several have already announced layoffs.

"The wine industry is a very competitive one and most of the industry works on thin margins," said Nicolo Stianti, co-owner of Castello di Volpaia in Chianti Classico. "Volumes will slow down with a direct impact on the business of U.S. importers, distributors, retailers and restaurants who will pay the initial price."

While some American wineries may benefit from the decreased competition, vintners say the gains won't be worth the damage to the overall wine market. Donald Patz, the owner of Donald Patz Wine Group in Yountville, posted on the USTR comments site that, "Our distributors (small businesses) all import French wines as a necessity to be differentiated in the market and the tariff will be devastating for their companies, which in turn will limit/reduce our sales in the US. You are fighting fire with alcohol."

American vintners also worry they might be next. The Wine Institute, the California wine industry association, has spoken out against the tariffs, arguing that the E.U. could just as easily turn around and target U.S. wines. Europe is California's top export market, bringing in some $469 million in 2018, according to the trade group.

“Instead of putting tariffs on unrelated products, like wine and sparkling wine, the U.S. and EU should increase their efforts to resolve these serious trade-related problems between them so the unrelated trade in wine products are not unintentionally harmed,” Michael Haney, executive director of the Sonoma County Vintners trade group, posted on the USTR comments site.

One of the main factors in the development of the U.S. wine market in the decades since Prohibition has been access to an incredible variety. An extended trade war would damage that. "The saddest part for me would be to see the reduction of the offer to consumers in the store shelves and restaurant lists," said José Luis Ripa, commercial director for Rioja's Lopez de Heredia. "The U.S. could pass from being one of the most sophisticated wine markets in the world today to a rather austere one in a matter of months."

Long-term, the battle could reduce Americans' wine buying. "The downside for the industry as a whole is that it pushes people away from wine consumption," said Stephen Rannekleiv, Rabobank's global sector strategist for beverages. "It probably shifts some people toward spirits. And when prices do come down, do consumers come back? You can get some of them back, but there's always a small percentage that never comes back."

News Legal and Legislative Issues Taxes France Italy Spain United States Trade War Tariffs

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