Last week, the United States Trade Representative (USTR) announced the extension of tariffs on certain wines from the European Union (E.U.). This decree upholds the 25% tariff on still wines at or below 14% alcohol by volume (abv) from France, Germany, Spain and the U.K., in addition to other items, first issued in 2019. With the wine industry already reeling from the effects of the novel coronavirus pandemic, many responded angrily to the August 12th decision.
“It shows a real lack of empathy for small businesses around the United States,” says Ben Aneff, president of the US Wine Trade Alliance (USWTA) and owner of TriBeCa Wine Merchants in New York City. “It’s spectacularly tone deaf.”
The tariffs were first implemented in October 2019 and are reviewed every 180 days. While some members of the wine industry were relieved they weren’t increased, other wine professionals had hoped the USTR would decrease or eliminate the tariffs.
“That’s like saying I’m hitting you in the face, but I could be stabbing you in the gut too,” says Erik Segelbaum, founder of Somlyay, a wine service and hospitality consulting company based in DC, and member of the USWTA. “At a time of absolute desperation in our industry, with such an easy opportunity to provide economic relief, this decision was made against the interest of U.S. businesses and U.S. consumers.”
“I am an American business. The warehouse where I store the wine is an American business. The people who make my deliveries, the restaurants and retailers they are delivering to, they are all American businesses. This hurts us.”—Brian London, co-founder, Passionné de Vin Imports
The tariffs were imposed in retaliation for E.U. subsidies to Airbus, an aerospace and defense corporation. The U.S. believes these subsidies put its Boeing Company at a competitive disadvantage. A World Trade Organization (WTO) ruling in 2019 permitted the U.S. to levy tariffs of up to $7.5B on E.U. goods. Immediately thereafter, the U.S. instated its 25% tariff on certain wines and other items from the E.U.
The American wine industry has been bearing the cost.
“Tariffs aren’t paid by the French wineries or the E.U. or Airbus,” says Eric Faber, COO of Cutting Edge Solutions, an importer and distributor based in Cincinnati. “They are paid by U.S. importers, retailers, distributors and ultimately U.S. consumers.”
“I am an American business. The warehouse where I store the wine is an American business. The people who make my deliveries, the restaurants and retailers they are delivering to, they are all American businesses. This hurts us.”
The wine industry has been aggressively lobbying members of Congress and the USTR since the tariffs were first imposed. However, those efforts did not lead to any changes in the latest announcement.
“I’m not going to say that they didn’t listen to us, but clearly they didn’t hear us,” says Daniel Posner, owner of Grapes The Wine Company, a retail store in White Plains, New York.
While it might be easy for those outside the wine industry to argue that retailers should simply swap out their E.U. bottles to sell U.S. wine, that underestimates the complexities of the wine business.
“Some people like Beethoven. You can’t tell them that they need to listen to Ozzy Osbourne. That just doesn’t work,” says Dustin Chiapetta, owner of Pearl Wine Company, a retailer in Denver.
Many distributors and retailers sell bottles from an array of destinations. Additionally, in an interconnected industry, anything that hurts U.S. distributors and retailers ultimately hurts U.S. wineries as well, as they rely on these same businesses to sell their wines. Even U.S. companies dedicated to wines that have not been tariffed are feeling negative effects.
“It is dramatically impacting our ability to succeed as a business in a time when we do not need any additional headwinds,” says Michelle DeFeo, president of Laurent Perrier US, a Long Island-based Champagne supplier. Due to financial hardships caused by the tariffs, DeFeo says she has delayed hiring several positions at her company.
Last month, Airbus agreed to make repayments for certain subsidies. However, the USTR deemed those actions insufficient.
While the decision from the USTR maintains the status quo, things could still change quickly. The WTO is expected to rule in September on a complaint by the E.U. regarding U.S. subsidies to its Boeing Company. That could lead to retaliatory tariffs by the E.U. which could then lead to an escalation of U.S. tariffs.
“None of it makes any sense,” says London. “The wine business has nothing to do with any of this.”
Though the tariffs have already harmed the U.S. wine industry at a time many say it could ill afford it, Chiapetta believes the worst is yet to come. “Everybody has been trying to hold on and get through this, but the extension of the tariffs is kind of like the death blow,” he says.
Across the industry, there are feelings of anger and helplessness.
“We really are being used as pawns,” says Faber. “We’re effectively being punished for transgressions in an industry that we have nothing to do with.”
Faber supports the domestic aerospace protections, but he doesn’t believe imposing tariffs that hurt the U.S. wine industry makes sense.
“I have no problem with the government protecting a company like Boeing that is really important to our economy. But I do have a problem with protecting them by hurting other American businesses.”