Already hit with a 25% tariff back in October, French wines were threatened yet again in December with another proposed tariff which could reach 100%. So what do the French Wine tariffs mean for American consumers?
Are you ready to pay more for wine in the new year? The Trump administration is ratcheting up a long-festering trade dispute with the European Union by proposing 100 percent tariffs on a variety of European goods, including whiskies, cheeses and wines. If imposed and maintained, these tariffs could have a devastating impact on the specialty foods industry, as well as wine importers and retailers, most of which are small businesses. The French wine tariffs would affect consumers, too, and not just with higher prices
If you haven’t been keeping up with the tariff news, here is a little backstory…
The French government approved a new “digital service tax” last year on online economic activity, which would hit large American tech giants widely frequented by French citizens. French leaders implemented the new tax regulations over concerns that their government was not capturing revenue from companies that sell or advertise to the French market.
In response to the digital service tax, the Trump administration opened an investigation to determine whether or not it targeted American companies directly. And in late July, Mr. Trump threatened a variety of tariffs that would essentially stonewall European goods from entering American markets.
In October, the World Trade Organization gave the U.S. permission to impose levies on up to $7.5 billion of European goods exported annually, among the list of resulting tariffs were French aircrafts, cheese, and yes, wine.
What Does this mean for French Wine Lovers in America?
“The American consumer, who enjoys the world’s most dynamic wine market, would see increased costs and decreased selection. And the cost to the European farmers and winemakers, many of whom have been farming their lands for centuries, would be heartbreaking.”.
So How will these tariffs effect consumers directly?
French Wine Tariffs by the Numbers
(These are hypothetical examples; markups can vary widely.)
Let’s say an importer pays $2 per bottle to a winery in Italy. It costs about $2.50 per bottle on average to ship that wine to the importer’s warehouse in the United States. So the importer’s cost for that bottle is $4.50. An average importer that also acts as a distributor would sell that bottle to a restaurant or retail shop for about $9. The restaurant sells the wine for $9 by the glass, and probably close to $40 by the bottle. The retailer sells it to you for about $14. If the importer sells it to a distributor, the importer charges less, but this adds another markup to the price as the distributor takes its cut
Now, suppose that bottle held French wine. With the 25 percent tariff imposed in October (50 cents on the $2), the wine is now $10 a glass at your favorite wine bar, or $15 for a bottle in a store. With a 100 percent tariff, either of those wines would be $13 by the glass and $21 for a bottle, as the tariffs reverberate through the distribution system.
What about higher-end wines? If the ex-cellar price paid to the winemaker is $10 a bottle, with no tariff the wholesale price to restaurants and wineries would be about $18 (markups tend to be lower for higher-priced wines). This wine would probably sell for $18 a glass or about $70 by the bottle at a restaurant. You’d find it in a store for about $28. With a 25 percent tariff, the wine is beginning to be priced out of the by-the-glass market at $22, and the retail price would be $33. The full tariff makes it $51 retail. The wine would now be too expensive, at about $34, for by-the-glass pours in restaurants, and the bottle would probably reach the triple digits on the wine list.
(The Washington Post 12-27-2019)
Larger European wineries may be able to focus their attention on other markets if their wines become too expensive for U.S. consumers. China — or at least Chinese wine lovers — may be the big winner. But smaller wineries, family operations that have existed for generations, have built relationships with U.S. importers that may now be sorely tested. On both sides of the Atlantic, small businesses will feel the most pain. And as a consumer, now that your $40 champagne is now $70, you are likely to change your buying habits.
Make Your Voice Heard!
Those truly effected by these proposed 25-100% wine tariffs are the small businesses and working-class families that depend on the viability of these goods. And for consumers the end result will be fewer choices and higher prices on imported wines.
Readers can leave comments with the USTR, but the window is closing fast and must be in by Jan 13th.
Comments due January 13:
Review of Action: Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute