California wine takes a China tariff hit
Hank Wetzel’s vineyards stretch to the horizon, a swath of green straddling Sonoma County’s Russian River, farmed by generations of Wetzels for half a century.
It is a long way from Shanghai.
Nonetheless, seated outside his tasting room on a recent morning, the 68-year-old patriarch of Alexander Valley Vineyards was scrolling through photos from China on his tablet: A shot of his booth at a giant Shanghai trade show, thronged with customers. Another of Chinese restaurateurs sampling wines at a $1,000 dinner he hosted. And several of the pandas at Shanghai’s zoo.
When he began exporting to China two years ago, Wetzel had high hopes of penetrating its fast-growing imported wine market. But today, as President Trump’s trade war shows no sign of waning, “the economics of selling there are horrendous,” he said. “Our importer is keen on our wines, but every $15 bottle I sell her now ends up costing her $30. We could soon be out of business there.”
Since April 2018, in response to U.S. tariffs, China has slapped retaliatory taxes on $110 billion in U.S. imports - products as varied as electronics and soybeans. For wine, taxes and tariffs now amount to a 93% surcharge on every U.S. bottle. That’s double the amount on French wine, long favored by well-to-do Chinese. At the same time, wines from Australia and Chile, which recently signed free trade agreements with the Asian giant, are flooding into China, taxed at just 26%.
Global exporters view China as a barely tapped opportunity, given its exploding middle class and growing appetite for the quality and prestige of imported wine. The U.S. exported $1.46 billion in wine last year, 95% of it from California. China was the fifth-largest destination after the European Union, Canada, Hong Kong and Japan.
“China was our fastest-growing export market,” said Honore Comfort, vice president for international marketing at the Wine Institute, a San Francisco trade group. “We were heavily ramping up our activities there, adding restaurant promotions and cultivating relationships with key retailers.”
But U.S. wine exports to China were down by 33% in the first half of this year compared with the same period in 2017. As the trade conflict drags on, “Chinese importers will buy from a different country,” she predicted. “We’ve worked on building those relationships for two decades. Now all of that time is basically a loss.”
In an underground cave at Alexander Valley Vineyards, the air was cool and moist. Seven thousand oak barrels were stacked three high under the vaulted ceiling. Aging inside: a dozen varieties from Chardonnay to Zinfandel.
Outside the cave, a worker moved quickly across rows of barrels, siphoning wine through a glass tube from each of them, tasting for defects and spitting out each sample. Nearby, in a small warehouse, bottles moved along a conveyor belt as one machine after another filled them with Cabernet Sauvignon, corked them, sealed them with foil and slapped on labels before two women, working briskly, packed the finished product into cases.
Wetzel’s was among the first wineries established in Sonoma County and played a key role in establishing the Alexander Valley appellation. His wines, from Cyrus, a $65 Cabernet blend aged for 24 months, to Gewürz, a $15 wine made with organic grapes, have won national and international awards.
Over decades, Wetzel cultivated markets across California, in Texas and in other U.S. states to the point of shipping 175,000 cases last year. But he had never sought business abroad until he visited China two years ago. With his sons taking over day-to-day operations and sales, Wetzel and his wife, Linda, who oversees the winery’s bookkeeping, were looking for a new adventure.
“Twenty years from now, China could be the largest wine market in the world,” Wetzel said. “We want to be ready.”
At Shanghai’s trade show, they met Rose and Jack Sun, a young couple who operate Shindy Wine. “It was the kind of small operation I was looking for,” Wetzel recalled. “They had one Australian wine, one Chilean and one producer in France. I get more attention as their only U.S. wine.”
At the show, he was struck by the level of sophistication as hundreds of Chinese stopped by his booth. Although the vast majority of wine consumed in China is low-end domestic product, high-quality imports are gaining social cachet through social media and a savvy new breed of trained sommeliers.
Last fall, Wetzel hosted the Suns in Sonoma County. “We ate meals and drank wine for three days,” he said. “We showed them our harvest so they could go back to China and tell our story. We became friends.”