Editor’s note: Chris Mercer is a UK-based freelance editor and journalist who spent almost four years as digital editor of Decanter.com up to November 2018 and was previously Decanter’s news editor across online and print. Knowing many of our current and former students, will be impacted by the new tariffs that go into effect Friday, October 18, 2019, we asked Mercer to shed some light on what’s happening.
Those European wines that you need for blind tasting practice might be about to rise in price, because of a dispute over subsidies in the aerospace industry—obviously.
Many French, Spanish and German wines entering the US faced a new 25% import tariff as of October 18, 2019. Scotch whisky and the fledgling UK wine industry are also hit by the levy, which experts and trade bodies warn could lead to price rises and less choice.
Why Is This Happening?
It follows a World Trade Organization (WTO) ruling that cleared the US to impose $7.5 billion of tariffs on a wide range of European imports, from wine and cheese to bed sheets.
That’s in retaliation for the EU paying “illegal” subsidies to airplane maker Airbus. President Trump called it a “nice victory” on Twitter, but trade bodies on both sides of the Atlantic reacted with dismay that wine was being used as a pawn.
European and US officials said they want a deal to resolve the situation. Yet relations could also get worse if the WTO grants a pending EU request to impose its own tariffs on US goods, in a parallel dispute over subsidies paid to American firm Boeing.
Not All Wines Are Equal
This could be a good time to study the intricacies of Chianti Classico or get properly acquainted with Greek Assyrtiko, because only French, Spanish, German and UK wines were being hit with the 25% tariff, according to a list published by the US Trade Representative’s Office.
Champagne and other sparkling wines appeared exempt—the list specified “non-carbonated”—while wines above 14% abv were also excused. Cue producers frantically checking bottle labels for alcohol levels.
“We are all worried but we will have to wait to see what happens,” said Edouard Miailhe, owner of Château Siran in the Margaux appellation, at a Bordeaux 2017 vintage tasting for grands crus wines in London.
“I hope it’s a short-term problem,” said Julien Barthe, CEO of Château Beau-Séjour Bécot in Saint-Émilion.
Will Your Favorite Burgundy Pinot Actually Get More Expensive?
No one knows for sure, but history and precedent are not on your side.
“In general, the expectation is that wine producers subject to the tariff pass-on their newly-added cost to importers, and the importers, in turn, pass on the new cost to retailers,” said Jon Nelson, professor emeritus of economics at Pennsylvania State University.
Beyond wine, a team at the London School of Economics analyzed Trump administration trade policies earlier this year and found that higher tariffs on other products had reduced choice and raised prices.
Ignacio Sánchez Recarte, secretary general of European wine trade body, the CEEV, warned affected wineries face “a loss of market share in the US,” which is the largest export market for EU wine, valued at €3.76 billion ($4.19 billion) in 2018.
Yet, retailers and importers may react differently and it depends how long the situation lasts.
“Smaller producers, importers and retailers might absorb some the tariff in order to maintain visible market shares or due to other short-term rigidities such as contracts,” said Nelson, who recently co-authored a paper reviewing studies on excise taxes and prices for the American Association of Wine Economists.
“Some retailers might moderate the price increase due to publicity surrounding the tariffs, but again I don’t expect this to hold in the longer run,” he added.
Existing stock levels could also be important, while some felt that $10 wines will fare worse than $100 wines.
“This is a minimal increase for more expensive wines but a large margin loss on lower cost wines,” said Erik Thompson, director of operations at online auction specialist and trading platform WineBid, also owner of Peloton Imports.
“Therefore, you may see a decrease in the availability of lower-cost exports from France.”
Further academic reading:
American Association of Wine Economics paper by Jon P. Nelson and John R. Moran: “Are alcohol excise taxes overshifted to prices? Systematic review and meta-analysis of empirical evidence from 29 studies.”
LSE Centre for Economic Performance paper on “the impact of the 2018 trade war on US prices and welfare”.
NPR report on tariffs.