Written by
Alder Yarrow
17 Feb 2020

Threat of 100% wine tariff lifted – for now

Alder explains how the US wine business has dodged the 100% tariff bullet but is seriously suffering from the 25% tariff imposed last October.

The US wine industry just received a bittersweet Valentine. On 14 February, the Office of the United States Trade Representative announced the decision to refrain from applying tariffs of up to 100% on wine and hundreds of other EU goods in response to illegal aircraft subsidies in Europe. (For some background, see Inside the US wine tariffs hearing and Alder’s subsequent explanation of the two separate US trade disputes threatening the wine industry.)

The reprieve, buried on page 5 of a notice issued by the USTR on Friday, reads as follows: ‘As of this time, the Trade Representative has decided not to increase the rate of additional duties above the additional 25 percent currently being applied to nonaircraft products.’

With those 28 words, the USTR (led by Robert E Lighthizer, shown above seated in front of President Donald Trump and next to EU representatives) backed away from the single largest threat to the US wine industry since Prohibition. As part of the notification on this subject, the USTR noted the fact that it had received more than 26,000 public comments on the proposed trade action.

The day before the announcement, Harmon Skurnik, owner and partner in Skurnik Wines, a prominent importer in New York, had published an opinion piece in the Washington Post decrying the proposed tariffs and elaborating the danger they posed to the wine industry.

‘We are certainly relieved … but we’re not celebrating’, said Skurnik after the reprieve was announced. ‘Continuing to pay a 25% tax to the US government on the majority of wines we import from the EU can hardly be called a victory. Then, of course, this isn’t going away. The tariffs can be raised again six months from now, and the USTR also made it clear that if the EU retaliates, they reserve the right to increase on a moment’s notice. So, while we can breathe a little easier today, the fight is long from over.’

Recent statistics have shown that the 25% tariffs, which went into force in October 2019, have had an extremely negative effect on the market. Widely reported statistics from Global Trade Atlas, a division of data-analysis firm IHS, show imports of French wine to the US plummeting 48% following the imposition of the 25% tariffs. Much to the dismay of the US wine industry, exports of French wine to China grew 35% that same month.

‘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’, wrote Harry Root of the US Wine Trade Alliance and Ben Aneff of the National Association of Wine Retailers in a press release on 10 February.

That same press release went on to note that French wine exports increased overall in the months following the tariffs, a fact which suggests that if the intent was to punish the French wine industry, the opposite was actually occurring.

‘I’m not celebrating’, wrote Chimene Visser Macnaughton of Wainscott Main Wine & Spirits in The Hamptons region of Long Island, in an email on the subject. ‘I’m not raising a glass of untariffed grower champagne as I stare down the barrel of the 2020 rosé season at retail in a beach town.’ 

Rosé season in the Hamptons is legendary, and unfortunately the vast majority of pink wines sold there and across the rest of the US fall under the current 25% tariff on wines under 14% alcohol from France, Germany and Spain. 

‘Ironically, [rosé] represents 25% of my shop’s annual business’, continued Macnaughton. ‘You read that right. 25% of my yearly sales. So while the first and second tiers [of the US wine distribution business – namely importers and distributors] breathe a sigh of relief that the tariff news isn’t worse, we, their clients in the third tier, wonder what that 25% will actually look like laid atop the season’s most sought-after goods.’

Erik Segelbaum, founder and chief vinnovation officer of SOMLYAY, a hospitality consulting firm, put it more bluntly. ‘While to some, the lack of an increased tariff on EU wines (in both scope and percentage) might sound like a victory, the reality is far from triumph. Right now thousands of American businesses are being stabbed in the gut by 25% tariffs since October. All this means is that they aren’t concurrently being punched in the head. While it’s good that the assault isn’t increasing, it does not remove the existing pain from being repeatedly stabbed in the stomach.’

‘I have spent 20 years building up this business to a point where we have been able to sell the wines that our clients want to buy and we want to sell’, said Daniel Posner, owner of Grapes the Wine Company, a famous New York retailer. ‘I cannot replace $30 beaujolais with a wine from another region. German Riesling is quite unique and we cannot replace $15–20 German Kabinett so easily. While some may say that our clients will not baulk at $100 Vosne-Romanée now costing $125, or $300 Échezeaux now costing $375, that is simply not true. 25% is 25%, and our clients baulk at price increases all of the time, as we all do. Knowing that this decision is in place for what is likely six months, and could conceivably get worse, I have big decisions to make for my business, as well as my family. I employ 14 wonderful workers, and I would hate to have to get rid of any of them because the wine industry is caught up in an aviation dispute, but that is something that I will have to consider as all of this plays out. The wine industry is slowly becoming just a casualty of war.’

I’ve heard from scores of people throughout the US wine industry since Friday’s announcement, and every person I’ve spoken with has leavened their obvious relief to a greater or lesser degree with some form of anxiety or wariness that increasingly starts to feel like shell shock. Posner’s battle metaphor may sadly be more apt than anyone would prefer. 

And, increasingly, it looks like the only way to truly end this war will be to remove the general who started it.

This article originally appeared on JancisRobinson.com. Reprinted with the express permission of Jancis Robinson. Not for distribution.