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How the Suspension of EU Tariffs Is Helping American Wine Importers, Retailers and Restaurants

There's a reprieve in the trade war, at least for the next four months.

Wine Tariffs Photo: courtesy Ferry Plaza Wine Merchant

In October, 2019, when the World Trade Organization ruled that the European Union’s subsidies for Airbus’s development of new planes provided an unfair advantage over Boeing, the Trump administration retaliated by, naturally, slapping tariffs on. . .wine. Well, and a few other European luxury items too. And in turn, the EU targeted some iconic American goods—most painfully, our whiskey. All of this was with the WTO’s blessing, having declared unfair subsidies on both sides. But no products caught in the spat were remotely related to the aerospace industry. Airplane parts would have caught little notice, after all, or inflicted much pain.

The original US tariffs—a hefty 25 percent—applied specifically (and more than somewhat arbitrarily) to wines from France, Spain, Germany and the UK (all guilty of the subsidies) under 14 percent alcohol. In reality, that hit certain regions harder than others, such as Burgundy, whose wines are generally lower in alcohol than, say, Bordeaux’s, and Germany felt the pain because its great whites generally weigh in under 14 percent. The next January, though, the US ratcheted up the row, shoring up the loophole to include a 25 percent tariff on wines of all alcohol levels from Germany and France, and this time around including Cognac and Armagnac.

The collateral damage was immediate. The US International Trade Commission reports that from January to June, 2020, US imports of French wines were down more than 50 percent; Spanish, 60 percent. (A huge impact, as we’re the largest wine market in the world.) And on this side of the Atlantic, importers had to pay the tariffs in full the day the wines entered the US, including “on-the-water” goods, as products in transit are called. It was an enormous outlay, with presumably no good options but to pass on costs through the chain, from importers to distributors, then to retailers and restaurants.

The fact that wine prices didn’t soar in the past year is a testament to the pain European producers and US importers and distributors have absorbed—all at a time when the pandemic has prompted many wine drinkers to trade down on their price points. They have simply eaten a large share of the cost, to avoid passing it on to the end consumer. When I asked Debbie Zachareas—owner and partner of Ferry Plaza Wine Merchant and Mission Bay Wine & Cheese in San Francisco, as well as Napa’s Oxbow Wine & Cheese Merchant—whether the tariff situation has affected her businesses drastically, her answer was, “It has and it hasn’t.” Or in other words, it’s complicated. As Zachareas describes it, with the tariffs looming, importers tried to buy as much as possible. And then they tried to increase prices as little as possible. The larger importers had the resources to float the extra tariff expense. But her heart goes out to the little guys—the small importers with a narrow focus on, say, French wines—for whom bearing the brunt of the cost and minimizing the impact on retailers and consumers was a business-sinking proposition.

2018 Chateau Mouton Rothschild Bordeaux

You might as well stock up on your Chateau Mouton Rothschild now.  Chateau Mouton Rothschild

What a difference a president makes. On Friday, March 5, President Biden and European Commission President Ursula von der Leyden picked up the phone and talked about it. The upshot: a four-month reprieve. The US won’t collect on the EU goods, and vice versa. Zachareas describes the immediate aftermath: “Small companies are now frantically trying to add wines to the shipping container they had in the works.” But even those containers are problematic, with backups in ports and Covid-19-related diversions. Spoiler alert for rosé lovers—those bottles of Provence pink are going to be late this year.

Gabriel Bisio, chairman of the board of directors for the National Association of Beverage Importers, dissects the impact of the tariff suspension going forward. At the lower-price level, he believes we won’t see much difference. Those producers and importers have eaten much of the cost just to maintain shelf space with retailers, and only now will they start to make money on those wines again. In the mid-range, where wine lovers had been forced to look for alternatives to their favorites that were thin on the ground—village-level white Burgundy, for instance (Italian wines, which were never hit, became ready alternatives)—consumers might see a rebound in availability. And at the high end, after current inventory moves (prices won’t drop for what’s already on the shelves), Bisio believes bottle prices in restaurants and shops might start to come down with an influx of new, tariff-free wines.

Zachareas is dubious. In the rare tier of highest-end bottles she maintains, she says, expensive became exorbitant. “What those customers were paying retail became my cost the next year.” For the first time, she offered a 15 percent discount on those wines to soften the blow. “It’s still a crazy increase for them, but it’s not in my control,” she says. And she doesn’t see those prices coming down anytime soon.

But for most consumers, Zachareas believes, the outlook is even. If the tariffs had continued, even the big importers and distributors would have had to increase wholesale prices they had held steady on. Bullet dodged (for now). “And it’s not as though there’s not enough wine in the marketplace,” she says. “You have to understand that we [retailers] typically carry a year’s worth of inventory.” And now it appears the scramble is on to replenish through the chain.

It’s a question of outcome—whether the tariff suspension is truly temporary or becomes permanent. To date, more damage has been done inside the industry than to Old World wine consumers. That would likely change if the tariffs continue. But signs are good that the powers that be will find a way to reconcile the issues in this four-month window—and Bordeaux won’t be a victim of Boeing or Airbus come July.

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