New Wine Tariffs on France and Germany Take Effect

Fond of Bordeaux? Big fan of Côtes du Rhône? You might want to stock up. New tariffs announced on New Year's Eve by U.S. Trade Representative Robert Lighthizer are likely to drive up prices for many of your favorite French wines.

The new round of tariffs take effect today, January 12. An earlier round of 25% tariffs announced in October 2019, part of an ongoing dispute about government subsidies for airplane manufacturers, affected wines under 14% alcohol from France, Spain and Germany. The new round extends those 25% tariffs to wines from France and Germany that are over 14% alcohol (Spain dodged the bullet this time), as well as those in packaging larger than two liters.

What this means for consumers will likely be higher prices, and, as Ben Aneff, President of the U. S. Wine Trade Alliance says, "It's also going to affect choice. Importers and distributors are really reeling right now."

Alex Michas at Vintus Wines says, "We've worked with our producers to mitigate the earlier increases, but that means we make less money selling these wines. And that just compounds the issues that everyone is facing this year—we lost 40 percent of our restaurant business in 2020, and that was actually better than I expected."

For an example of how regular wine buyers might be affected by the new round of tariffs, he points to Guigal Crozes-Hermitage, a Rhône red that is one of the more popular wines in the Vintus portfolio. "Before the tariffs, that wine would be about $25. Now, it's $33 to $34."

It's effectively impossible for importers like Vintus to absorb the costs of these tariffs, especially because, in this instance, the announcement was made with no warning and with no exception for on-the-water goods. "These aren't the kind of goods that can be air-shipped," Michas says. Because tariffs are assessed at the port of entry, and have to be paid in full at that moment, the financial blow hits the American importer rather than the winery that made the wine. Vintus had $7.5 million worth of wine in transit when the new tariffs were announced. "We were expecting to pay $1.3 million in tariffs on that," Michas says. "This new announcement will cause us to pay an additional $540,000. Which is just a monumental, total loss."

It's worth noting that before the Trump administration's first round of tariffs were enacted, an importer's costs on a similar amount of wine would have been less than $200,000. It's also worth noting, again, that the situation wine businesses find themselves in stems from an ongoing dispute between the U.S. and the E.U. regarding subsidies paid to Airbus and Boeing, in some cases for planes that aren't even manufactured anymore. Michas says, "Two billion of the original 7.5 billion dollar award by the WTO against the E.U. was for the A380. How are we being asked to lose business for funding for a plane that isn't even made anymore?"

Aneff concurs: "No reasonable person can argue that putting tariffs on wine is a way to change E.U. policies on Airbus products. You know what would? Putting higher tariffs on Airbus products."

Financial expert Monica Mehta of Seventh Capital, who appears regularly on CNBC, Fox Business, CNN and other networks, says this about the situation: "Tariffs can be very effective, and trade policy certainly does impact the movement of industry and money around the world. Unfortunately, what's happening with these wine tariffs is that they're singling out a lot of very small companies in defense of Boeing, a company that has a market cap of 120 billion dollars. The U.S. is the largest wine market in the world, so when you look at it that way, it's definitely having an effect on producers in France and Germany. But in defending Boeing, the U.S. government is crushing tiny companies with maybe 10 million dollars in revenue."

Not only that, but the repercussions extend to the already battered restaurant industry as well. Amy Racine, beverage director for the JF Restaurants group, which owns nine restaurants scattered throughout New York City, Los Angeles, and Long Island, points out that "at our restaurant The Loyal, we were typically 50/50 if not 60/40 revenue from beverage. Plus, right now we're barely marking anything up as we try to survive in the middle of Covid. But to take one example, our entry level, by-the-glass Sancerre used to be around $12 wholesale per bottle. Now it's $20. That's a big hit. Sancerre is a bread-and-butter wine; people go to it all the time. But not at that price."

Alice Waters, the acclaimed chef, restaurateur, and author, sums it up succinctly: "These tariffs not only hurt U.S. wine merchants, but all of us restaurateurs, at a time that's extremely difficult. I also can't help but think about our friends in Europe, the small, organic, family producers in France, Germany and Spain, whose businesses are deeply impacted. None of us have anything to do with this trade war, but we're the ones who bear the brunt of it. The fact that the new President could change this on his first day in office is extremely important, and it gives me hope for the future."

In fact, nearly everyone in the U.S. who works with European wine is hoping the Biden administration will reverse the tariffs. Mehta sounds a cautionary note, though: "I don't think it's going to change that much with Biden, because there are major shifts going on with consumers, too. With the decline in travel, you're seeing a shift in the ways people buy wine, a shift in tastes; it's a market that's in movement at the moment. And globally, we are moving towards this place of protectionism, and it's not just Trump. You see it with Brexit, and you're seeing it in India, with Modi. This unrest, this feeling that the future isn't going to be as good as my parents had it, has been making people more protectionist. That combination of protectionism and a generational shift in the way people live their lives means we're not going back to the way things were three years ago, even if these tariffs get lifted."

Mehta may well be right; certainly the events of the past year point that way. Yet Aneff offers a possible road to action, for wine lovers at least. "There's been a groundswell of attention being brought to this issue. We believe the Biden team is looking carefully at it. And people can tell their elected members of Congress to ask the Biden administration to end these tariffs; when constituents speak to their elected representatives, it makes a difference." And the easiest way to do that is simple: just visit stoprestauranttariffs.com and make your preferences known.