Tariffs on European Union Goods Impact U.S. Wine Industry

Wines on a shelf in a wine shop
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Broad reaching tariffs on certain European Union (E.U.) goods went into effect earlier this month, impacting items that include certain French wines, Italian cheeses and hundreds of other products. U.S. importers and distributors, as the ones who bear the burden of paying the increased duties, have already begun to feel the effects, passing much of the cost on to American consumers.

“Lots of European wines are going to be more expensive,” says Tom Wark, executive director of the National Association of Wine Retailers.

The 25% tariffs, totaling $7.5 billion, were imposed by the Trump administration in retaliation for the E.U. providing subsidies to Airbus, a large, France-based aerospace and defense corporation. The administration believes these subsidies put Chicago-based Boeing Company at a competitive disadvantage.

Tariffs are now being added to certain E.U. goods imported into the U.S., such as still wines from France, Germany, Spain and Britain that are under 14% alcohol by volume (abv). The tariffs will not affect wines from Italy or Portugal. However, other items like cheese, fruit and single-malt whiskies from Scotland and Ireland were also part of the tariffs, which were approved by the World Trade Organization (WTO) following a ruling against the E.U. Airbus subsidies last May. The tariffs affect any goods received on or after October 18th and have impacted in-transit products as well.

“I’ve got some Burgundy on the water that, quite honestly, I have a feeling it’s going to end up in my own personal cellar as I’m not going to be able to sell it at the price it is now,” says Guy Harris, founder of Cru Selections, an importer and distributor based in Woodinville, Washington. “Most of the businesses impacted by the tariffs are small operations like myself. These are small companies that can’t absorb hits like this.”

“Most of the businesses impacted by the tariffs are small operations like myself. These are small companies that can’t absorb hits like this.” —Guy Harris, founder, Cru Selections

Given the October 2nd announcement of the tariffs, the biggest short-term impact to the wine industry may be on sales of the 2019 vintage of Beaujolais Nouveau. The French wine is traditionally released the third Thursday of November—right at the beginning of the holiday season.

“[All] of our commitments for Nouveau had already been set in stone with retailers and distributors,” says Dennis Kreps, co-founder of Quintessential Wines, which imports 100,000 cases of Georges Duboeuf Nouveau annually. “There was no turning back.”

Kreps has spent the past three weeks working to avoid a potential disaster: retailers passing on commitments to buy Nouveau his company had already purchased. The seasonality of Nouveau adds to the urgency.

“It’s not like any other product, where you can say, ‘Oh well. I’ll have six months of inventory,’ ” Kreps explains. “After December, you can’t sell it. You’re going to have it forever.”

Duboeuf agreed to shoulder one-third of the tariff by reducing the wines’ price. Quintessential will do the same. The remaining third will be passed on to distributors, retailers and ultimately consumers.

“Everybody is taking a little bit of the pain instead of it being catastrophic, which it certainly could have been,” says Kreps. However, he stresses the impact is still significant.

“It was painful when I did the math. It came to about a million dollars. I definitely feel like we’re shouldering our fair share of the tariff.” Kreps notes some cancelled their Nouveau programs altogether.

Harris, meanwhile, is already making changes on affected wines. “A lot of the things we had quantity discounts on, those are going away,” he says. “On my everyday bottle price, I’m having to crunch my margins as much as I possibly can to help keep the increase to a minimum. Even with me cutting my margins, these prices that I’m going to have to pass on are significant.”

On the retail side, Wark says it will take time for businesses to adjust to the tariffs.

“Retailers simply have to see what happens with the marketplace, [and] see how consumers react to the higher price structure for imported wines. Then they will rejigger their inventory to accommodate that,” he says. “That’s really the only thing they can do.”

The obvious question is, how long will the tariffs last?

“I think everybody kind of has in the back of their mind that it’s a temporary thing,” says Harris. “You don’t know that. I’m having to plan as if it’s a permanent thing, with the hope that it goes away really quickly. Even if it does, I don’t think they’re going to refund anybody.”

“Maybe it’s the new normal,” Wark says, ruefully, of the increased prices. “For now, consumers are going to be paying 20, 25% more for a lot of different French, Spanish and German wines.”

Published on October 29, 2019
Topics: Latest News


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