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Co-owners Julio Pena and Beatrice Tosti di Valminuta own Il Posto Accanto, a wine bar and trattoria in New York whose wine list is almost entirely Italian.

Wine industry fears Trump tariff threat fallout

Jan 10, 2020 5:50 AM

MOST years, January is a time for the wine trade to pause and congratulate itself.

It has weathered the lucrative deluge of the holidays and should be well into the planning for the next six months, having placed orders for the summer's supply of rosé and whatever else it expects will be in demand.

Instead, the last month has passed in a blur of fear and dread as the industry contemplates the Trump administration's threat to impose 100 per cent tariffs on all wines imported from the European Union, along with a variety of other goods including foods, spirits and clothing.

Make no mistake: A tariff of that size, or any number close to that, would be catastrophic for Americans in the beverage and hospitality industry. A 100 per cent tariff would double the price of wines in shops and restaurants, with disastrous ripple effects.

Consumers may be furious if confronted with a US$25 bottle of Fleurie that has doubled in price to US$50. They will have to adapt, or drink wines from somewhere else. But that hardly matters when compared with the US jobs that may be lost and the businesses that could be threatened if the tariffs go into effect.

Nobody knows exactly what the outcome will be, or when it will be decided. The administration has a pattern of issuing dire threats and not always following up. Even so, the prospect has conjured up a pervasive feeling of fragility.

Some importers have postponed orders, fearing what will happen if, having calculated sales according to the price paid, a tariff is imposed while the shipment is in transit, requiring a huge lump payment on arrival and the prospect of not being able to sell the goods.

The fear does not stop with importers. An entire chain of businesses are built around the acquisition and sale of European wines and foods, from distributors to retail shops and restaurants, and all the associated workers - not to mention dock labor, forklift drivers and others.

"We hope this doesn't happen," said Beatrice Tosti di Valminuta, who, with her husband, Julio Pena, owns Il Posto Accanto, an Italian wine bar and trattoria that opened 21 years ago in New York City's East Village, and whose wine list is almost entirely Italian. "We're not a big company that can absorb this kind of thing. We are a local restaurant with workers who have been with us forever and neighbors who have supported us for years. This will be the end of us."

The new tariff threat comes on top of a 25 per cent tariff imposed in October on certain European foods, drinks and products - a fee that so far has largely been absorbed by importers, distributors and producers.

"The 25 per cent was already really, really tough," said Jon-David Headrick, who imports French wines exclusively, focusing on small family estates. "I was really proud that the growers almost to a one stepped up and helped, and prices in the market haven't risen by a significant amount yet."

The new rate will be another matter entirely. "This changes the game completely," said Harry Root, who, with his wife, Nicki Root, owns Grassroots Wine in Charleston, South Carolina, which distributes wine throughout the South-east. "It would affect 60 per cent of what we sell. These products are irreplaceable."

The tariffs are part of an American retaliation against the European Union over subsidies it gives to the European aerospace company Airbus. In September, the World Trade Organization ruled that the company had violated global trade rules.

The Trump administration is also considering a separate 100 per cent tariff on Champagne and other products in retaliation for a new tax it said unfairly targets US technology companies.

The Trump administration has not said why it has singled out wine and food in a dispute over industry and technology. Heavy machinery, aircraft and pharmaceutical products, for example, accounted for more than 40 per cent of France's exports to the US in 2018, while beverages, spirits and vinegar make up about 9 per cent of the French exports, according to Trading Economics, a statistical website.

"From a political standpoint, it's completely ludicrous to have these trade wars somehow connect airplanes to wine," said Danny Meyer, whose restaurants, including Gramercy Tavern, depend on European wines. "It's the one time I'm happy we have so many wines in reserve."

The potential tariffs may be damaging as well to small producers in Europe whose businesses are focused on the US market. Luxury goods corporations, with wine divisions and big wine companies, have the resources to adapt and find other markets. But tiny family estates as well as the small importers who work with them will be in trouble.

"Yes, they can find other markets, but that can take many months," Mr Headrick said. "The Europeans will recover, but Americans will be crushed by this."

Good wine is the product of a culture and a place. If, for example, the already sky-high price of Burgundy doubles, consumers will not be able to replace it by switching to, say, Oregon pinot noir. It's a different wine. Without European options, Americans will be drinking differently.

Nor will high tariffs on European wines necessarily be a boon, as some have suggested, for the US wine industry, especially for small US producers who depend on their distributors to explain their wines to customers.

"The short-term impact is likely to be pretty serious and pretty negative," said Jason Haas, general manager of Tablas Creek Vineyard, an excellent producer in Paso Robles, California. "All wines rely on the same distribution network. If the prices double on European wines, it will have an immediate negative impact on all those distributors."

Small businesses are left trying to imagine how they will cope if the products they depend on become prohibitively expensive.

Shelley Lindgren is the proprietor and wine director of A16, a southern Italian restaurant in San Francisco that since 2004 has been a showcase for little-known Italian wine regions and producers. She is concerned for her restaurant and the producers from whom she buys wine.

"We work with a lot of micro-producers from Italy," she said. "It's punitive to the wrong people for the wrong reasons." NYTIMES