How Trump's 30% tariff on European wines could hurt US companies
You might think a proposed 30% tariff on European wines would sit well with people like Bob Dixon, but the award-winning vineyard owner in southeast Arizona isn't brimming with enthusiasm.
Rather than salivating at the prospect for reduced foreign competition, he cites rising costs for bottles, barrels and winemaking equipment from new tariffs. He worries that corks, which are grown in countries including Portugal and Spain, could become more expensive.
Nor does he see much potential for international market expansion for domestic growers if the Trump Administration makes good on a threat to impose taxes on wines and various other exports from the European Union starting Aug. 1.
"Any tariff could have an impact on our bottom line," said Dixon, co-owner with his wife Jules of 1764 Vineyards, located in the higher-elevation hill country southeast of Tucson. "Wineries here are not running on large margins."
Others involved in the domestic wine industry say the tariff hike could destabilize the long-entrenched wine import, distribution and retailing system that has endured since the early days of the Depression, while not providing much export potential for American wineries.
In addition, consumers likely will face higher prices, they warn.
"There's no way middlemen will absorb all of that," said Benjamin Aneff, president of the U.S. Wine Trade Alliance, about a possible 30% tariff. "Wine prices will skyrocket," he predicted, and the range of choices available to consumers "will collapse."
Steve Chucri, president and CEO of the Arizona Restaurant Association, expects that higher costs from tariffs would be shared by suppliers, retailers and customers. "You can't pass it all on to consumers —they'll push back," he said.
Wine prices haven't escalated much recently, with restaurant wine tabs up 2.9% over the 12 months through June, not much different from the overall inflation rate of 2.7%, reported the federal Bureau of Labor Statistics in its latest report. Prices for wine consumed at home rose a mere 0.9% over that span.
But a 30% tariff hike could alter that scenario, industry advocates warn.
Why tariffs would matter
Tariffs are sales taxes paid by importers based on the value of an item as it enters the country. Importers pay tariffs, and they're collected by U.S. customs officials.
"The burden of paying tariffs can be allocated between the importer and the foreign supplier by contract . . . but the legal obligation is placed on the importer," according to a guide by law firm Farella, Braun & Martel. "Because wine importers are often operating on razor-thin margins, even the threat that tariffs will be increased often forces scheduled shipments to be canceled."
Dixon at 1764 Vineyards cites the potential for price hikes on winemaking equipment such as that made in Italy, France and Croatia. On a $10,000 piece of machinery, even a 10% or 20% tariff could make a noticeable impact, he said. Other winemaking equipment and supplies that he buys come from countries including Mexico and China, where tariff increases have shown up already, he added.
Trump's April 2 executive order, since delayed, called for the imposition of tariffs on a range of goods. The White House tariff policy has been motivated by a focus on fixing trade imbalances, addressing the "hollowing out" of the U.S. manufacturing base, disarming potential threats to national security, shoring up vulnerable supply chains and prodding reluctant trade partners to negotiate.
But Aneff argues that the global trade in wine is fair. "We can buy the products we want, and any E.U. business can buy wines from the U.S." he said. "No problem."
If anything, a prolonged trade dispute could hurt the ability of American producers to sell to foreign nations. U.S. wineries "need growing export markets," Aneff said, noting that the domestic industry is young compared to its European rivals. "We need open markets for export."
Trump in recent weeks announced several newly negotiated trade agreements, including a 15% tariff on Japanese imports and deals with Indonesia, Vietnam and the Philippines. The United Kingdom earlier inked a trade pact. His vow to slap 30% tariffs on imports from the E.U. could be a negotiating tactic, but many in the wine industry are worried nevertheless.
Pushing back on the tariff threat
Several industry groups have been vocal in speaking out against tariffs on European wines. The U.S. Wine Trade Alliance, Napa Valley Vintners, the Wine Institute, WineAmerica, Wine & Spirits Wholesalers of America and the National Association of Wine Retailers submitted a joint letter urging the Administration to remove wine from the tariff list and return to the negotiating table.
The tariff increase, they say, would cripple tens of thousands of small businesses around the U.S., including an estimated 4,000 or so wine importers and distributors, 50,000 wine retailers and in excess of 350,000 restaurants. Even American wine producers could suffer, as they rely on the same distribution network that handles imported wines. Access to stores and restaurants could be imperiled.
Wine sales are especially important for restaurants, providing higher profit margins than on most other food and drink offerings, Aneff said.
Chucri of the Arizona Restaurant Association said two tariff-related topics have stood out lately in discussions with members: prices for imported produce and those for alcoholic beverages, including wine. The latter tends to be a relatively big money-maker for many businesses in the industry.
"You have certain loss leaders on menu items in every restaurant," Chucri said. "You make up for it with cocktails, wines and beer."
European wines form the backbone of the alcohol-distribution system. When wine tariffs were imposed from 2019 to 2021 importers, distributors and retailers lost $4.52 for every $1 in revenue losses suffered by exporting nations, according to Aneff.
Headwinds facing the wine industry
The potential for wine tariffs might even exceed the 30% number on which critics are focused.
"The new 30% tariffs would be on top of the existing 20% reciprocal tariffs already in place, placing a total of 50% in tariffs on all E.U. products imported into the United States," reported the Wine Industry Advisor, an industry publication.
Opponents of E.U. wine tariffs claim the threat is making a tough economic climate worse, with several companies in the industry announcing layoffs in recent weeks, though not necessarily blaming tariffs. These included 1,756 job cuts announced in July in California at Republic National Distributing Co.
Trade friction over tariffs with Canada, an important wine-export market for American producers, has added to the industry's woes.
Aneff said imported European wine drives nearly $19 billion in annual economic activity in the U.S., with the bulk of that retained here by importers, distributors, retailers and restaurants, with just $5.3 billion flowing back to Europe.
The E.U. has called the proposed 30% tariff unacceptable and has vowed retaliation. Major wine-producing countries such as Italy, Spain, France, Germany, Portugal, Greece and Austria are among the bloc's 27 member nations.
Potential to destabilize the wine distribution system
The wine industry operates within a "three-tier" system, which originated around the time the 21st Amendment to the Constitution was passed in 1933, ending Prohibition and allowing states to regulate alcohol sales. With this system, most states oversee a landscape of checks and balances that allow for the delivery of safe-to-consume alcoholic beverages and an efficient means of collecting taxes on them.
"The three-tier system has been an effective method of alcohol regulation and distribution in the United States since the end of Prohibition," said the National Alcohol Beverage Control Association in a commentary. "The structure creates important public health safeguards while streamlining the tax revenue process. Products made unlawfully have a difficult time making it to the marketplace."
Wine advocates fear the system could be weakened if tariffs drive a slump in European wine imports, which account for most of the revenue.
"Domestic growers don't want tariffs on wine," said Aneff of the U.S. Wine Trade Alliance. "Domestic producers need a healthy distribution system for access to market."
Reach the writer at russ.wiles@arizonarepublic.com.