You could hear Champagne spit-takes from across the Atlantic. The Trump administration announced this week that a French tax on large technology firms “discriminates against U.S. companies, is inconsistent with prevailing principles of international tax policy and is unusually burdensome for affected U.S. companies.” In response, the Office of the U.S. Trade Representative recommended that the administration impose a 100 percent tariff on French sparkling wines. The tariffs won’t be finalized until early next year, but will potentially target French cheese, handbags, china and enameled cookware as well.
In the escalating trade wars around the globe, wine is collateral damage. It's getting hard to keep count of how many times wine has been an innocent target. French producers of sparkling wines thought they had dodged a bullet after the administration’s last round of tariffs. Back in October, the U.S. implemented 25 percent tariffs on all still wines from France, Spain, Germany and the U.K. that contain less than 14 percent alcohol, part of a clash with the European Union over subsidies to Airbus.
The impact of those tariffs was immediate. Beaujolais producers who had already planned sales campaigns for their 2019 Nouveaus were forced to scramble. The team at Georges Duboeuf decided to swallow a third of the cost of the tariff while their importer swallowed another third. Louis Latour cancelled its Nouveau shipments to the U.S.
In Bordeaux, négociants report that they are postponing shipment of many wines to the U.S. Consumers and retailers already paid for these wines as futures, but either they or the importers would have to pay 25 percent more when the wine arrives on our shores.
Meanwhile, China has increased tariffs on American wines to nearly 100 percent, part of its trade battle with the U.S. over farm products and technology parts. American wineries were already playing catch-up with France, Australia and Chile to build a presence in this crucial young wine market; now they’re competing with a severe disad-vantage.
While it’s hard to keep up with all these various spats, they all have one thing in common: The actual fight has nothing to do with wine.
How do tariffs work?
A tariff is a tax on an imported good. When the product, let’s say a wheel of Parmigiano-Reggiano cheese or a bottle of rosé from Provence, arrives in the U.S., the importer must pay the tariff.
Traditionally, tariffs served two purposes: They raised revenues for governments, and they protected local industry. So if you wanted, say, the Virginia rosé industry to grow, you’d raise tariffs on Provençal pink.
Read all of Wine Spectator's ongoing coverage of the trade wars and wine tariffs:
- Your Favorite Old World Wine Is About to Get Much More Expensive
- Trade War Roils European Wine Industry
- Trump Administration Considers 100 Percent Tariffs on All European Wines
- Who Suffers from Tariffs on Wine? You Do
- The New War Against Wine: An Open Letter from Marvin R. Shanken
- What Would 100 Percent Tariffs Mean for You?
- Wine Lovers’ Outrage: Tariffs on European Wine Are Worth Fighting
- American Restaurants Brace for Potentially Devastating Wine Tariffs
- Wine vs. Big Tech in Government Hearings over Tariffs on French Bubbly
Tariffs largely fell out of fashion in the latter half of the 20th century as global trade flourished. Economists blamed tariff wars during the 1930s for exacerbating the Great Depression. In 1929, the U.S. passed the Smoot-Hawley Tariff act, named for Statler and Waldorf impersonators Senator Reed Smoot and Congressman Willis Hawley, hiking tariffs on 20,000 different products in an effort to protect American farmers. Problem was, all the other major economies of the world responded with their own tariffs, until soon no one was trading with anyone. It was a game of schoolyard football where everyone took their ball and went home because no one could agree on who would be quarterback.
How did wine end up the victim here?
Today, tariffs function largely as economic sanctions. The U.S. has been complaining for years that E.U. nations are subsidizing Airbus, giving it an unfair advantage over Boeing. Four E.U. countries were giving Airbus rather generous loans to help it develop new airplanes. The E.U. argued that Boeing received similar help with generous Defense Department contracts and Washington state tax breaks.
The World Trade Organization ruled that both sides had provided unfair subsidies, though only the U.S. has been allowed to impose tariffs so far. (The E.U. will get its chance in March: It’s considering tariffs on ketchup.)
But in today’s global economy, it can be dangerous to target some goods with tariffs. Airbus has a factory in Alabama and uses a lot of American parts in its planes. Boeing buys tail parts from Italy and door parts from France. So the White House ended up imposing 10 percent tariffs on European airplanes, but 25 percent tariffs on wines, Italian olive oil, Greek yogurt and single-malt Scotches. When the administration passed tariffs on European steel and aluminum in 2017, the E.U. responded with tariffs on Bourbon.
Wine is a local product and a symbolic one, particularly in France. French vignerons have been known to lead tractor protests through the streets and empty tanker trucks of foreign wine onto the road when times are tough. In today’s trade wars, you hit ’em where it hurts. Tariffs end up being an international game of chicken. Who will swerve first?
But who pays in the meantime?
The French government does not pay the tariffs. You do.
Wineries and importers are swallowing as much of the cost as they can for now, because they don't want to lose American customers. But they cannot do that for long. Prices will rise.
While American wine producers may benefit in the short term from foreign competitors having to raise prices, studies have found that tariffs often spur domestic competitors to raise prices too. They can charge more and remain competitive, so why wouldn't they?
You'll also suffer from less choice. Several importers I spoke with have placed holds on wines they were planning on importing. It makes no sense to add new wines to their portfolio when pricing is unattractive.
U.S. and E.U. officials are hinting that they may negotiate a settlement, an agreement on what constitutes unfair support for domestic airplane industries. China and the U.S. have been in talks over their trade fight for some time. As for sparkling wine and tech taxes, well, that fight has only just begun. Trade barriers are complex and multifaceted—I don't mean to oversimplify them. But as a wine consumer, you need to know that trade wars will hurt you. You're just an easy target.