Would Lower Tariffs on Exported Wine Change Europeans' Drinking Habits?
Food & Wine Executive Wine Editor Ray Isle weighs in.
It’s rare that we get to delve too deeply into presidential politics and trade policy, but this week the commander-in-chief caught our attention with (what else?) a tweet about wine. In the wake of a visit to France and perceived criticism from that country’s president Emmanuel Macron, President Trump took aim at the trade imbalance between imports and exports of wine between the two countries, claiming that France charges much higher tariffs on U.S. wine than the other way around. He’s right, but he’s also, in a sense, wrong.
The tariffs in question are actually determined by the 28-country European Union operating as a single bloc. So it’s not so much that France itself is being snooty about American bottles. CBS News reports that, according to the Wine Institute, about one-third — $4 billion worth — of the E.U.’s wine exports are sold in the U.S. Oddly enough, about one-third of exported American wine is sent to Europe, but that adds up to only about $550 million. And while it is true that the tariffs on U.S. wine headed over the continent are indeed nearly twice as high, we’re talking $0.11 to $0.29 per bottle versus $0.05 to $0.14 per bottle for imports going the other direction. Bottles, apparently, make all the difference as bulk wine (more on that later) tariffs are, proportionally, basically the reverse.
Regardless of whether wine is the most appropriately balanced product to showcase trade deficits (after all it is highly regionalized and, thereby, somewhat scarce versus, say, wheat or corn), perhaps all this rattling about bottle tariffs is really more about easy targets: beloved wine, and oft-maligned France. (It could also be that the president's surname is slapped on a Virginia-based winery, but that's purely speculation.)
While winemakers might start wringing their hands over rumblings of a trade war, I asked Food & Wine Executive Wine Editor Ray Isle to weigh in on the situation, and whether or not a few cents on the bottle would really change anyone’s drinking habits.
Adam Campbell-Schmitt: Despite the fact that France itself doesn’t set the E.U.’s trade policy, what is the market for American wine like in France and Europe as a whole?
Ray Isle: It's growing, but realistically European wine-producing countries have always primarily consumed their own wines. That's down to the region — if you go to a restaurant in Rioja, you'll mostly see wines from Rioja on the list. Of course, when you have a winemaking history going back several hundred years, that's not entirely surprising.
ACS: How much do these tariffs actually affect the price of a bottle? Are less-expensive wines at greater risk of pricing out customers?
RI: There's no question that tariffs affect the price of a bottle disproportionately to the actual cost of the bottle, since they're applied based on alcohol content — a 13-percent alcohol white wine imported to Europe receives a tariff of 11 cents regardless of whether it's a $5 bottle or a $50 one. But other factors are more important in determining the actual price of a bottle on the shelf, whether it's in the U.S. or Europe. That 11 cent tariff might be about the same cost as the cork in the bottle, for instance (if it's an inexpensive cork).
ACS: What happens to the wine market, domestic and imported, if tariffs on imported wines go up?
RI: My guess would be that if the U.S. raised tariffs on imported wine from Europe — since the tariffs are set by the E.U. — that the burden would largely be born by U.S.-based importers of European wine, in terms of reduced margins. I doubt they'd want to raise prices dramatically as it would affect the actual market placement of the wine(s) in question. But note: I am not an economist.
ACS: What has been the effect on U.S. winemakers with regard to China’s tariff increases?
RI: It's hard to tell so far. Generally, imports of U.S. wine to China have been rising. But the tariff increases — 15 percent in April 2018, and another 10 percent in September — are certainly going to have an effect, if only in terms of competition with other countries that export wine to China, for instance, Australia.
ACS: Apparently, bulk wine is the opposite (U.S.-set tariffs are double that of the E.U.). What is bulk wine and how does that make its way into the market?
RI: Bulk wine is unbranded wine sold in large quantities (e.g. a bag-in-box where the box happens to be a shipping container) to use in inexpensive wines that don't need real provenance — for instance, the many created-from-air brands sold by large-scale wine clubs, private brands in many grocery stores and so on. The fact that the wine is sold in bulk doesn't necessarily mean that it's bad; it just means that someone is buying a thousand gallons, or a hundred thousand gallons, of wine from a regional co-op or winery that overproduced in a given year, slapping a label on it, and selling it. Some of these wines are good, some bad, and many are utterly nondescript.
ACS: What does Europe think of American wine, anyway?
RI: It's hard to say "Europe" generally, since there are countries that are major wine producing countries and some that are not. But generally, there's vastly more respect and awareness of American wine in Europe than there was, say, thirty years ago. Even so, the Bordelaise are always going to drink more Bordeaux than they are Oregon Pinot, and the Tuscans more Chianti than they are Sonoma Zinfandel. And keep in mind that for Americans, about 65 percent of the wine we drink is from the U.S., too. Which isn't really all that surprising, is it?