“Due to ill-advised tariffs on wine, we are witnessing the direct transfer of the American-European wine trade to China and other markets and the only people getting hurt are American business owners and consumers,” according to Harry Root of the U.S. Wine Trade Alliance and Ben Aneff, National Association of Wine Retailers (NAWR).
Current 25% tariffs on European wine and looming threats of increasing those tariffs to 100% stem from a dispute over subsidies the EU provides to Airbus. The EU needs to comply with the WTO rulings, and the US is within its rights to impose fair and effective tariffs to ensure this happens.
However, tariffs on wine are neither effective nor efficient as they do more harm to American owned businesses than they do to Europeans.
“China is a ready and willing customer for European wines not sold to American importers. New numbers from the Global Trade Atlas verify that the 25% tariffs are already speeding the growth of the Chinese market. While case sales of wine from France to the US plummeted by 48% during the first month of 25% tariffs, exports from France to China grew by 35%. China’s purchases of French wines were 118% higher than the US in November,” said Root.
Further, despite the huge drop in French wine exports to the U.S., overall French wine exports actually increased after the tariffs, showing just how ineffective tariffs on wine are in punishing France.
According to Meininger’s Wine Business International, the EU is also releasing government marketing subsidies to build new trade partnerships. Releasing $1.3 billion of their 5 year funding cycle for immediate use; adding $12 million to the EU marketing budget for 2020; and allowing companies to redirect marketing plans without restriction.
Worse still, wine is a finite product. You cannot simply make more without large and long-term investment. Once new trade routes are established for a big chunk of this finite supply, it will be very difficult to bring that supply back, breaking a key tenet of wise tariff practice: don’t cause long term damage for a short-term action.
Once imported into the United States, the wine trade is heavily regulated and taxed. The three-tier system in the US means 3 US owned companies generate revenue, profit, and employment for every single EU grower that produces the wine. These three layers add up quickly. In the first month after the 25% tariff implementation, US imports from France fell $35 million compared to the same month in 2018. If sold in the US, that wine would produce $148 million in profit and taxes right here in America.
The two biggest domestic wine trade organizations and thousands of individual wineries are opposed to these tariffs. The downstream effects of profit loss for distributors, retailers, and restaurants—as well as subsequent business closures–far outweigh any possible short-term increase in sales of domestic wines.
Wine tariffs are inefficient, ineffective, and do disproportionate harm to American businesses. The USTR and the Administration will decide by February 17 whether to expand or contract tariffs arising out of the Airbus dispute. They should immediately cease the tariffs on wine.
“The transfer of a healthy, thriving industry to our biggest trade adversary is too great a price to pay for an ineffective trade action. Future action should target products that will effectively apply pressure to the EU to stop the Airbus subsidies and not disproportionately harm American business,” concluded Root.
As predicted, the US-European wine trade is transferring directly to China, providing our biggest trade adversary, a new domestic commerce platform and unnecessarily depriving a healthy US industry a major portion of its supply chain.
Also as predicted, the current tariffs are ineffective in pressuring the EU to implement the DSB recommendations. French global exports are significantly up in the first month of the tariff action as China and other countries aggressively pursue goods available due to the imposed tariffs.
Tariffs on wine are ineffective against our trade adversaries, and they do disproportionate damage to American companies, especially small and medium sized businesses. The arguments are simple and compelling: (1) the US is replaceable as an importer of European wines, and it is easy for European producers to find other markets; (2) for the US these wines generally cannot be replaced with domestic products; and (3) 75-85% of the selling price of a bottle of wine is profit or taxes taken by American entities.
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