Despite wider economic conditions, the wine industry has managed to keep the party going for years. And now, tariffs are walking in like a baton-wielding gang of cops.

While everyone seems to agree that these taxes are a bad idea, especially in the long term, many are looking to fill the gaps the current and potential levies are creating.

Earlier this month, the Office of the United States Trade Representatives threatened an eye-popping 100-percent tariff on European wines, on top of the 25-percent tariff it slapped on wines from France, Germany, Spain and the UK in October. If it goes through, the 100-percent tariff will encompass all still and sparkling wine produced anywhere in the EU, regardless of the alcohol level or container size. Most industry experts agree that it will essentially double the prices of every bottle of wine, something that not even the most rich and rabid American Euro-enophile will likely be able to shell out for, long-term.

For the most part, the industry is in lockstep against the tariffs. After the initial round of tariffs was announced, several industry organizations, including the Wine Institute and the Distilled Spirits Council of the United States, issued a statement warning that up to 78,600 US jobs could be eliminated.

“If beverage alcohol products remain on the final US list, the EU would certainly respond by keeping US beverage alcohol products off its list, thus inflicting more damage on US companies that export to this critically important market and hampering the export progress that has benefited our sectors and created good-paying jobs across the US,” the groups stated, somewhat breathlessly. The EU has threatened to impose tariffs on imports of US wine, vodka, and rum.

The numbers, thus far, appear to be on their side. Since the EU imposed a retaliatory tariff on American whiskey last summer, exports declined 19 percent. And since China put a retaliatory 54 percent tariff on US wine imports, trade between the countries has declined 57 percent.

Forecasting doom

The drop in exports and estimated job losses, several industry pros point out, are connected to the 25-percent tariff. The 100-percent tariff is being regarded by many as a nuclear bomb headed toward the industry.

“The potential job loss for Americans if this 100-percent tariff goes through is almost impossible to imagine,” says Gino Colangelo, whose communications agency’s portfolio of clients skews 65 percent European. “Because it isn’t just importers, distributors and the sales and marketing teams who would be affected. It’s also restaurant workers, retailers, warehouses, truckers. I think that ultimately, if this goes through, it will punish Americans just as much, if not more, than it will hurt European producers.”

Colangelo has already seen the impact on clients, from the threat alone. “One of our clients had a $1.5 million order” of equipment from a European cheesemaker canceled because the future is so uncertain.

Importers and distributors are as close to panic mode as one can be without taking to the streets and shrieking in inchoate terror. Several have sent out grim missives to their clients, predicting a long and terrifying road ahead for everyone if the tariffs go through. North Charleston, South Carolina’s Grassroots Wine sent out a newsletter predicting a “de-facto prohibition on those products”, causing a “crippling effect”.

European natural wine maven Jenny Lefcourt also warned clients and fans of Jenny & Francois in a newsletter: “These tariffs are really without precedent, but to glimpse a window on the possible disastrous consequences, we could examine the 1930 Smoot Hawley Act. History teaches us that this act hastened the arrival of the Great Depression, extended its length, led to a 65 percent downturn in global trade, and made imported goods a luxury item only affordable to the top 1 percent of the American population. What’s more, those tariffs were only between 40–48 percent, not the 100 percent tariffs currently in discussion. Smoot Hawley is the reason most of the world’s leaders today favor unregulated free trade.”

Italian wine importer Empson’s CEO Tara Empson says that the wine business currently pervaded by a “feeling of uneasiness”, and that she has learned of some competitors “stocking up big time, while others are holding off”. But whether or not the threatened tariffs go through, the damage, she says, is partially done.

“The market is already so saturated that it has made business quite challenging,” Empson says. “The tariffs, whether they come into effect or not, have been a massive game changer for all of us. We will struggle even more to keep momentum going between stock, exchange rates and tariffs.”

Dissent and opportunity

And yet. There are people who think that the tariffs, while badly executed, draw attention to, and open the door to, more sober discussions on the essential inequity of current trade policies.

“The wine industry in the EU gets substantial government support,” says Rob McMillan, EVP and founder of Silicon Valley Bank’s Wine Division. “Imported wines have grown from 12 percent of US sales in the early 2000s to close to 35 percent today.”

McMillan says that the US’s “relatively open market” has forced people to examine unjust trade policies more closely.

“Nobody likes seeing tariffs levied, but they already exist today and have for years,” he says. “American wine into the EU has higher tariffs than European wine into the US. If the end result is an awareness of those inequalities and a leveling of the playing field, allowing product quality to be the determining factor for consumers, I see that as a good thing.”

There are also producers who are gunning to grab that shelf space currently being vacated by France, Germany and Spain, and perhaps in the coming months, by the entire EU.

“It is devastating, of course, for US importers and their suppliers, but the European agricultural lobbies are well under way to ensure their politicians negotiation appropriately,” Monika Elling, president of wine and spirits importer The Paradigm Collection and CEO of brand development agency FMG. “Conversely, US wine exports have been hampered forever by EU imposed taxes and duties. US growers and spirits manufacturers cannot truly compete there, based on outragous taxes, which have been slapped on US wines and spirits by the EU for decades, without recourse.”

In the meantime, Elling says, “key domestic regions and their producers will benefit while the negotiations continue. California has had surplus fruit this harvest, and that also has been a cause of concern with respect to imported wines. Right now, the trade tariff issue helps with opportunity to improve domestic product market share, even if it is more optics than reality.”

Ken Lineberger, president of Waters Edge Winery & Bistro, a national winery and wine bar franchise, believes that the tariffs “will absolutely provide us with an opportunity to grow our market share. Certain levels of the marketplace, especially the ones in the mid-to-lower tier, about $35 a bottle or under, are very sensitive to price. When consumers see French, Spanish and German wines go up in price, ours will look a lot more affordable.”

Currently, Waters Edge produces 12,000 cases annually, but Lineberger hopes to see that increase to 20,000 or more next year, with the current, and possibly future, tariffs in place.

Non-EU producers abroad are also looking to amp up their shelf space.

“I was an economist originally, so I feel strongly that tariffs are never a good idea, and I feel terribly for the producers and companies dragged into this,” says French native turned Argentian expat Anne Bousquet, also CEO and co-founder of Mendoza‘s Domaine Bousquet. “But it does leave us in a good position. We have very strong sales in the US and, with a French name, French know-how and French palate, combined with Argentinian terroir, we will probably be able to take a lot of the market share that would have gone toward French-produced rosés, for example.”

Domaine Bousquet also offers four sparkling wines, which she also believes will perform very well if the tariff against sparkling wines is enacted. By end of year in 2019, Domaine Bousquet hopes to break 100,000 cases in sales in the US; as of October, it was at 80,000, a growth of 50 percent year-on-year, she says. Next year, even without the tariffs, sales are projected to reach 118,000-plus cases. If all of the tariffs go through, those numbers could skyrocket.  

EU countries not affected by the initial tariff were poised to move into the space being vacated. Take Italy; US consumers are increasingly thirsty for wine from the Boot and, according to several winemakers I spoke with before the 100-percent levy was threatened, they were planning on a concerted marketing push in 2020, especially among rosé and sparkling wine producers. Sales of Italian-made sparkling wine increased 9.2 percent year-on-year in the US for the 52 weeks ending November 30, according to data and analytics specialist Nielsen. Total sparkling wine sales increased 5.4 percent. Sales of all wine imported from Italy increased 4.8 percent, compared with increased sales of 1.9 percent for all imported wine.

If the 100-percent tariffs go into effect, those plans will naturally have to change. In the meantime, wine importer Wilson Daniels president Rocco Lombardo says that EU producers, including his clients from Italy, are already rushing to get their wines into the US before the proposed tariff can go into effect. Wilson Daniel’s client roster is comprised of about 70 percent European clients, and 30 percent domestic. Of the 70 percent, Lombardo estimates that about two-thirds hail from France, with Italy carrying the majority of the remainders.

“For the 25-percent tariff we were able to compress our margins and share the cost with our winemakers,” Lombardo says. “Right now, we are working with our Italian clients to get as much stock as we can for 2020. Some of our producers are cutting their Christmas holiday short to make sure we get it in time. We’re all doing what we can, and trying to mitigate the impact for us, the producers and the consumers – but, if this goes on long term, and costs escalate, all of our growth plans will be stalled.”

Like McMillan and Elling, Lombardo says that there is some “basis for complaint” for the inequities in trade, but he believes that roping the wine industry into a dispute over Airbus and digital media companies doesn’t make sense. “I’m sure there are lobbyists from the airline and digital media space all over DC, and I’d like to see an increased voice and presence from the wine industry down there as well,” Lombardo says.

Retailers, meanwhile, are stocking up on regularly priced wine from the EU while they can.

“We’re increasing our orders to get them in now,” says Shawn Paul, wine operations director at Foxcroft Wine Co. “But if the 100-percent tariff goes through, it will be impossible for us to serve wines by the glass from Europe.”