The recent decision by President Donald Trump to increase tax on all European wine imports to 100% has sparked outrage across the industry, with many comparing it to Prohibition during the 1920s and 30s.
The new tariffs are a direct response to the European subsidies for Airbus and American importers are asking Washington to cancel the proposal after it was revealed it would impact around $2.4 billion worth of French products that also include cosmetics and cheese as well as wine.
Washington has challenged the French government’s new digital services tax claiming it is specifically aimed at American technology giants and the retaliating import tax increase is seen by many to potentially be the start of further international trade wars. Although the current trade war with China has seen a preliminary trade deal appearing to be finalized.
While America and France have confirmed a two week period to discuss a deal that would suit both nations — with French Finance Minister Bruno Le Maire and US Treasury Secretary Steven Mnuchin agreeing to further talks at the World Economic Forum towards the end of January — the European Union has vowed to back France.
A third of America’s wine industry is from imported wines and warnings have already been issued that the tariffs could devastate the $70 billion wine industry that in turn could affect businesses across the country including restaurants, bars, warehouses and even our own wineries, effectively placing thousands of American jobs at risk.
The recent US Trade Representative (USTR) hearing in Washington saw industry insiders calling for certain products to be excluded from the tariffs, especially considering many businesses are already suffering difficulties thanks to the 25 percent tariffs that were imposed at the end of 2019 on specific German, French and Spanish wines. These tariffs were imposed as part of a different trade dispute regarding European subsidies to many large aircraft makers. The new tariffs proposed by Trump’s administration will cover more products such as sparkling wines.
And with small profit margins on the majority of wines being sold it is virtually impossible for restaurant owners and wine importers to absorb the tariffs meaning prices will have to be increased, hitting the American consumer’s pocket. The National Association of Wine Retailers has already announced they believe that the cost of some bottles of wine could double while others will disappear from our shelves completely as they will become too expensive to continue importing.
Vintage 59 is a small wine import business and partner Michael Daniels commented:
“Any increased tariff burden levied on wines or spirits from the EU… will force our customers to choose different products. Any significant sales losses, even during a short period, will require layoffs. Any extended period of losses could lead to our full-scale collapse.”
There are also major concerns that the tariffs could result in many European wine exporters opting to stay away from America on a more permanent basis which could have dire consequences in the long term as well as the short term.
Passed in July 2019, the French digital tax saw a 3 percent tax imposed on all revenue generated from digital services and has affected corporations that have global revenues of over $1.1 billion and French revenues of nearly $28 million.
An investigation by the USTR claimed that American companies were discriminated against by the tax resulting in Washington threatening retaliatory tariffs on French imports. France disputed this and explained they were struggling to deal with the way in which they should tax technology corporations that conduct business in their country. Other European countries are now considering similar taxes, which could see further disputes with America.
Senior fellow and trade expert at the Peterson Institute for International Economics Gary Hufbauer has stated that the “thresholds and definitions of ‘taxable services’ ensure that US firms are the primary target.” This follows the Computer and Communications Industry Association imploring the US to react to the tax.
Benjamin Aneff is managing partner of Tribeca Wine Merchants and has likened the tariff to Prohibition commenting, “it is without hyperbole that I tell you that the proposed tariffs would be the greatest threat to the wine and spirits industry since Prohibition, in 1919.”
Trump has said that he believes the two countries will “work it out” however he has also disregarded concerns of wine drinkers saying we should replace French wines with products from wineries across America.
Yet even with the potential for higher sales for American wines Californian wineries have also criticized the tariffs, stating that if people cannot buy their favored wine they may choose to buy anything other than American products, in an act of protest to the government. And with many great wines from countries across the world, including South Africa, New Zealand or Chile, there is still a great range to choose from.