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Fruity with a hint of tariffs: How wine became part of...

Business Maverick

Business Maverick

Fruity with a hint of tariffs: How wine became part of the trade war

KENWOOD, CA - OCTOBER 25: A field worker with Palo Alto Vineyard Management picks Syrah grapes during a harvest operation on October 25, 2017 in Kenwood, California. Over two weeks after deadly wildfires ripped through Sonoma and Napa counties, wineries are continuing to harvest wine grapes after being unable to during the fires. Many vineyards suffered fire and smoke damage and several wineries were destroyed. (Photo by Justin Sullivan/Getty Images)
By Bloomberg
01 Jul 2019 0

In the escalating trade war that threatens the world economy, wine is a minor skirmish at most. But it has its own list of casualties -- especially vineyards in the U.S., and drinkers in China with a taste for their product.

U.S. President Donald Trump has raged at Europeans for taxing American wine out of their markets. Chinese tariffs have sent the price of a Californian red soaring in Beijing. Even the apparently unrelated question of Boeing’s competition with Airbus could have fallout for wine-drinkers who, in various parts of the world, have had to get used to higher prices.

Here’s a roundup of wine-trade news:

The China Front

China has slapped three rounds of tariffs on American wine in little more than a year, with the latest one coming into effect at the start of June, according to the Wine Institute, an advocacy group for Californian producers.

That’s having a sharp impact on prices in what’s become the fastest-growing major wine market in the world.

Honig Vineyard & Winery, based in Napa, California, has been exporting to China since 2007. Before the trade war escalated in 2018, “a bottle of the Cabernet would cost around $50 in our tasting room and about $70 in China,” says Stephanie Honig, director of communications and exports.

Three rounds of tariffs later, the Beijing price has gone up to $170 — assuming you can find it. Honig, which exported 1,000 cases to China in 2016, says the number fell to zero last year.

The wine industry in California has taken “terrific hits,” Mike Thompson, a congressman from the state, told U.S. Trade Representative Robert Lighthizer in a House hearing this month. “We are at a disadvantage when competitors are paying zero percent.”

The European Front

Trump isn’t at all happy about the terms of American wine trade with Europe, where the world’s biggest exporters are found — and he’s been stepping up his complaints since November.

A quick glance at supermarket prices tends to reinforce the point. For example, a bottle of Chateau La Pointe Pomerol Rouge 2014 is on sale for 27.95 euros in France, where it’s produced, and $39.99in the U.S. — a premium of about 20% at current exchange rates. But a chardonnay from Beringer Founders in California, which sells for $6.47 at one U.S. outlet, costs 10.98 euros in France — a markup of almost 50%.

Trump’s threat to retaliate with matching U.S. tariffs also forms part of a much bigger trade argument: the one involving plane-makers Boeing and Airbus. As the dispute escalates, both the U.S. and Europe have drawn up lists of goods that they’ll target with tariffs, and wine is on the American version.

“The only linkage alcohol has with planes is that it’s served on planes,” said Robert Tobiassen, president of the National Association of Beverage Importers. “This injures consumers.”

The TPP Front

Trump’s decision to leave the Trans-Pacific Partnership is a big deal in the wine world. The remaining 11 members of the agreement — including Australia and Chile, which are bigger wine exporters than the U.S. — now have better access to each others’ markets.

The Wine Trade

Canada is one of the countries where American wine is most popular — the U.S. ranked third as a provider of imports in 2017, behind France and Italy, according to the Canadian Vintners Association.

Lighthizer addressed concerns about Canadian tariffs in his recent congressional testimony, saying that the revamped version of Nafta that’s making its way through legislatures would be “ending discrimination on certain wine products in Canada.”

The new deal known as the USMCA will represent “real progress towards improved market access for U.S. wine in Canada,” Robert Koch, chief executive of the Wine Institute, said in October.

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