New tariffs stand to change the face of the entire US wine market
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% tariffs on a variety of European goods, including liquor, cheese and wine. 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. It would affect consumers, too, and not just with higher prices.
The tariff tempest has been confusing. In October, the United States imposed a 25% tariff on wines and other products from France, Germany, Spain and Britain. Inexplicably, this measure did not apply to wines over 14% alcohol or to sparkling wines. (Two wines in my annual greatest values list have already increased in price because of the October tariff.) Then on Dec. 6, the Office of the U.S. Trade Representative said it was considering 100 % tariffs on French goods, including champagne and other sparkling wine, in retaliation for France’s new digital services tax. On Dec. 12, the USTR proposed slapping 100% tariffs on a wide spectrum of European goods in retaliation for the EU’s subsidies to Airbus.
Here’s how these tariffs could affect U.S. consumers most directly — in the pocketbook. (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% 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% 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% 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 triple digits on the wine list.
You may shrug if your favorite Bordeaux by the glass at your neighborhood restaurant is replaced by a malbec from Argentina, and you may say a chardonnay is a chardonnay, whether from France, Chile or California. But if your favorite $14 Chianti suddenly costs $21, and your $40 Champagne is now $70, you are likely to change your buying habits.