Wines and spirits imported to the U.S. from France and Germany will be hit with tariff hikes starting Jan. 12, making New Year’s Eve toasts among the last opportunities to raise a glass at current prices.
In a notice on Wednesday, the Office of the U.S. Trade Representative (USTR) announced a 25% hike for certain wines and spirits from France and Germany, and a 15% hike for certain plane parts from the two countries. The tariffs will almost certainly be passed on to U.S. consumers, who have reliably been purchasing alcohol even amid a pandemic-induced recession.
Consumers can expect a roughly $1 increase on each 750 mL bottle of wine subject to the additional tariffs, says Adam Sager, co-president of Winesellers, Ltd., one of the nation’s largest wine wholesalers.
The measure will increase prices for individuals, restaurants, bars, and event venues that are already struggling due to the pandemic, according to Sager, who said it’s unclear whether the 25% figure represents a final determination of the percentage increase.
Winesellers Ltd. has already ditched plans to launch a French rose in a 3-liter bag-and-box format because of the tariffs. “The cost really pushes the retail price over where we want to be,” Sager said.
A much wider net than previous tariffs
The duties — which apply to certain non-sparkling wines, cognac, and other grape brandies along with the aircraft parts — cast a much wider net than previous tariffs, Sager said. The alcohol tariffs apply to a broader range of “format” or container sizes, and a broader range of alcohol content levels.
“The previous tariff covered 375 mL, 750 mL, and 1.5 L formats,” Sager said. “Now the tariff covers, for French wines and German wines, anything shipped in 2 L formats and above.”
The change, unlike the prior tariff, includes bulk wine, he said, which will impact “bag in the box” style wines popular among US consumers. Grape-derived beverages with alcohol content exceeding 14.1% are also targeted in the latest measure, whereas the prior duties applied only to wines below that threshold.
Sparkling wines, such as Champagnes, were excluded from the latest tariff, but “effervescent” wines such as frizzante and spritz are subject to the duties.
“What a lot of producers tried to do, where they could, was increase the alcohol content of the wine over 14.1% to avoid the tariff. You can't do that in every region because it could really affect the quality of the wine and the style of the wine,” Sager said. “It's not even possible in some regions like Germany, which is known for Riesling.”
The latest weapon in an ongoing trade dispute
The measure is part of an ongoing, 16-year trade dispute between Boeing (BA) and Airbus (AIR.BE) over aerospace subsidies. Boeing has pursued litigation for years fighting European loans and subsidies that it says give its European rival an unfair trade advantage.
As a countermeasure, the U.S. received a green light from the World Trade Organization (WTO) to impose $7.5 billion in annual tariffs on EU goods. The aerospace giant’s pursuit won favor from the Trump administration. In turn, this past September in the midst of the pandemic, the World Trade Organization authorized EU tariffs on $4 billion in U.S. goods. The USTR says that the EU used a method to calculate its tariffs on U.S. goods that relied on artificially low COVID-era trade volumes, which imposed tariffs on more products than it should have. The latest U.S. tariffs, the agency said, were meant to hit back with tariffs that “mirror” the EU’s method.
For Sager, he hopes the new Biden administration will renegotiate how the tariffs are handled.
“It's pretty unfair to industries unaffiliated with the airline industry,” he said.
Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney. Follow Alexis Keenan on Twitter @alexiskweed.