Economics can be both complex and simple. Completely understanding the global wine trade—which can be altered by something as basic as the weather—is virtually impossible. On the other hand, if you decide to pass up a bottle of wine based on price, that's economics everyone can understand. In that regard, the Trump administration's 25-percent tariffs on many wines from France, Germany, Spain, and the United Kingdom—set to take effect on October 18—covers a swath in the middle. Some things are clear—someone is going to pay for these tariffs, which impact about $1.5 billion worth of E.U. wine exports representing about half of all wine sent from the E.U. to the U.S.—while other ripples are harder to predict. Still, the consensus seems clear: Any taxes on the wine industry are generally frowned upon by the wine industry.
A silver lining for consumers is that though the price of some wines will almost certainly increase, overall, wine drinkers shouldn't see the full cost of these import duties. "The general consensus within the industry is that it's mostly [European] growers and [American] importers who are going to end up paying for this," Jon-David Headrick, an importer with European Cellars which works almost exclusively with French and Spanish wines, told me. "We're certainly going to go back and speak with our winery partners in France and Spain who are affected and assess their willingness to help by lowering prices to some extent…. And we'll obviously do some adjustments to our margins and try to mitigate it as much as we can."
Harmon Skurnik, President of Skurnik Wine, a New York-based importer and distributor that works with both foreign and domestic brands, had a similar take. He said he plans to speak with his distributors as well to see if they might help with the burden so that "consumers don't feel the full brunt of what is essentially a new tax." "Keep in mind this tariff was foisted on all importers very suddenly—and we are still strategizing," he told me via email. "That said, there is a strong likelihood that consumers will at least see modest increases in Spanish, German and French wines," though Skurnik also said they planned to push any price increase off until at least December.
Along similar lines, Headrick says wiping away a "massive" 25 percent increase in cost is impossible, especially on price-sensitive wines. And he believes those are the wines that will be affected the most: Less expensive (under $15 retail) and high-quality wines where tiny margins are used to deliver more value to customers. "The growers are already very, very tight," he says. "There's not a tremendous amount of wiggle room, and it's the same for us as well." In the end, Headrick believes those $15 wines could end up costing closer to $18 at retail. Speaking of which, retailers could also help absorb some of the cost, though neither importer I spoke with seemed to suggest that would happen.
Meanwhile, the wines that are most able to hold their price may have had larger margins and were potentially a lesser value to begin with. "Larger companies are going to have an easier time dealing with this," Headrick said, perhaps by cutting things like marketing budgets that smaller wineries don't have. And tariffs could lead to a decrease in the quantity and variety of options of imported wines as well. "Growers have the ability to focus more of their efforts if they want to on the European market or the Asian market," Headrick added. "They can start to diversify."
But even though these tariffs may cause problems for importers, what about the domestic wine industry? Won't this drive more Americans to purchase American wines?
Strictly financially speaking, that might be the case—and certainly at least some American wineries exist that would like the extra business. (Don't forget: Trump owns a winery in Virginia!) But Wine Institute, which represents the California wine industry—and therefore 80 percent of U.S. wine production and 95 percent of exports—immediately came out against the tariffs. "Wine Institute has always supported the fair, open and reciprocal trade of wine around the world. Consumers worldwide have embraced California wines because of our premium quality, diverse offerings and leadership in sustainability," President and CEO Bobby Koch said in a statement. "However, we are concerned that this action will lead to increased tariffs on U.S. wines and set back our efforts to continue growing U.S. wine exports."
The U.S. sent nearly a half-billion dollars in wine to the European Union last year, so it's easy to understand the Wine Institute's stance that "wine should not be targeted for retaliation in trade disputes involving products other than wine." A representative for Napa Valley Vintners even pointed out that California's wine trade associations actively lobby to remove tariffs on both sides to promote a free market where wine doesn't become a pawn in larger disputes.
Plus, as Skurnik explains, just because some French, Spanish, German, and British wines are more expensive doesn't mean consumers will suddenly flock to American bottles anyway. "Our Italian and Austrian wines, for example, are unaffected," he told me. "Sparkling wines are unaffected. And while folks can always grab a nice bottle of (untaxed) American wine, I'd rather see that happen on the merits of the bottle than for protectionist political reasons."
Even more perplexing, as Reuters reported, is why, in a trade dispute tied to unfair European subsidies to the European aircraft manufacturer Airbus, wine was slapped with 25 percent tariffs while Airbus made airplanes only received 10 percent tariffs and aircraft parts bounds for Airbus's assembly plant in Alabama weren't affected at all. It's left some in the wine industry wondering whether these targets are about economics or more about politics.
These revelations highlight just how unfair the tariffs are—and how much of a pawn wine really is. "Importers who only work with wines from [the impacted countries] have it much tougher than we do, since we are diversified worldwide," Skurnik added.
Regardless, despite the somewhat haphazard nature of the tariffs and the short notice they were announced with, everyone I spoke with said they were preparing for this to be the new normal—at least for a while. "We are proceeding as if these tariffs have certainty, and are likely to be part of our lives for at least six months," Skurnik said. "We surely hope smarter heads will prevail ultimately, and the impact minimized, but we can't be certain of anything at the moment. Trump's 'trade war' in general shows no signs of abating unfortunately."