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The problem has been resolved
You might think that the 30% tariff proposed for European wine would sit well with people like Bob Dixon, but the owners of the award-winning vineyards in southeastern Arizona are not full of enthusiasm.
Rather than spitting in the outlook to reduce foreign competition, he cites rising costs of bottles, barrels and winemaking equipment from new tariffs. He worries that corks grown in countries including Portugal and Spain could become more expensive.
He also sees no chance of expanding the international market for domestic growers if the Trump administration threatens the threat of taxing various other exports from the European Union from August 1st.
“Taxes can affect our revenue,” said Jules, co-owner of a 1764 vineyard in Hill Country, a highland, southeast of Tucson. “The winery here doesn’t run at a big margin.”
Others involved in the domestic wine industry say the tariff hikes have destabilized the long-standing wine import, distribution and retail system that they endure from the early days of depression, and offer less export potential to American wineries.
Furthermore, they warn that consumers will likely face higher prices.
“There’s no way for an intermediary to absorb all of that,” said Benjamin Anjeff, president of the US Wine Trade Union, about the possibility of a 30% tariff. “Wine prices will skyrocket,” he predicts, and the range of options available to consumers will “collapse.”
Steve Chucri, president and CEO of the Arizona Restaurant Association, expects higher tariff costs will be shared by suppliers, retailers and customers. “You can’t hand it over to the consumer. They’ll be pushed back,” he said.
Wine prices haven’t escalated much lately. The restaurant’s wine tabs have grown by 2.9% in the 12 months to June, not much different from the overall inflation rate of 2.7%. The prices of wine consumed at home rose by just 0.9% in that range.
However, a 30% tariff hike could change that scenario, industry advocates warn.
More tariff confusion: Trump’s trade talks intensify as tariff deadlines approaches
Why tariffs are important
Taxes are sales taxes paid by importers based on the value of the item when entering a country. Importers pay customs duties and they are collected by US customs officials.
According to a guide from law firm Farera, Brown & Martell, “we can assign contract obligations between contractors and foreign suppliers between importers and foreign suppliers.” “Wine importers often operate on a thin margin of razors, so even the threat of increased tariffs are often scheduled to have their cargo cancelled.”
Dixon in 1764 cited the possibility of price increases with wine-making equipment, such as those made in Italy, France and Croatia. He said that even a 10% or 20% tariff could have a significant impact on a $10,000 machine. Other winemaking equipment and supplies he purchases come from countries including Mexico and China, where tariffs are already rising, he added.
Trump’s April 2nd executive order has sought tariffs on various goods since the delay. The White House tariff policy focuses on correcting trade imbalances, addressing the “hollows” of US manufacturing bases, disarming potential threats to national security, strengthening vulnerable supply chains, and negotiating passive trading partners.
However, Aneff argues that global trade in wine is fair. “We can buy the products we want, and our EU business can buy wine from the US,” he said. “no problem.”
If anything, long-term trade disputes can undermine the ability of American producers to sell to foreign countries. US wineries “need to grow export markets,” Anhu said, noting that the domestic industry is younger than its European rivals. “Exports require an open market.”
In recent weeks, Trump has announced several newly negotiated trade agreements, including 15% tariffs on Japanese imports and deals with Indonesia, Vietnam and the Philippines. The UK has previously signed a trade agreement. His pledge to slap a 30% tariff on imports from the EU could be a negotiation tactic, but many in the wine industry are still concerned.
Pushing back the threat of tariffs
Several trade groups have spoken out against tariffs on European wine. The US Wine Trade Alliance, Napa Valley Vintner, Wine Institute, Winnea Maurica, Wine & Spirits America Wholesalers and the National Association of Wine Retailers have submitted a joint letter urging the administration to remove wine from the tariff list and return to the negotiation table.
They say they will be discouraging tens of thousands of small businesses across the United States, including an estimated 4,000 wine importers and distributors, 50,000 wine retailers and more than 350,000 restaurants. Even American wine producers can suffer because they rely on the same distribution network that processes imported wine. Access to shops and restaurants can be at risk.
Wine sales are particularly important for restaurants, offering a higher profit margin than most other food and drink offerings, Aneff said.
Two tariff-related topics have recently stood out in discussions with members, according to Chucri of the Arizona Restaurant Association. Prices for imported agricultural products and prices for alcoholic beverages including wine. The latter tends to be a relatively large money maker for many companies in the industry.
“Every restaurant has a specific loss leader on menu items,” Chukri said. “You make up for it with cocktails, wine and beer.”
European wine forms the backbone of the alcohol distribution system. According to Aneff, if wine tariffs were imposed between 2019 and 2021, distributors and retailers lost $4.52 for every dollar of revenue loss incurred by exporters.
Headwinds facing the wine industry
The possibility of wine tariffs can even exceed the 30% of the number critics are focusing on.
“The new 30% tariff already exists above the existing 20% mutual tariff, placing a total of 50% tariff on all EU products imported into the US,” reported Wine Industry Advisor, an industry publication.
Opponents of the EU wine tariffs have argued that the threat is exacerbating the harsh economic situation, and while several companies in the industry have announced layoffs in recent weeks, they are not necessarily denounced the tariffs. These included 1,756 job openings announced in California in July at the Republic National Distribution Co.
Trade frictions over tariffs with Canada, a wine export market that is important for American producers, have added to the industry’s anguish.
Aneff says imported European wine drives nearly $19 billion in annual economic activity in the US, with the majority being held by importers, distributors, retailers and restaurants, with just $5.3 billion back in Europe.
The EU vowed to retaliate by calling it unacceptable to the proposed 30% tariff. Wine producers such as Italy, Spain, France, Germany, Portugal, Greece and Austria are one of the 27 member states of the bloc.
Possibility of unstable wine distribution systems
The wine industry operates within a “three-tier” system, which occurred around the time that amendments to Article 21 of the Constitution were passed in 1933, ending the ban and allowing the state to regulate alcohol sales. With this system, most states oversee the landscape of checks and balances that allow for the delivery of safe-equipped alcoholic beverages and efficient means of collecting taxes on them.
“The three-tier system has been an effective method of alcohol regulation and distribution in the United States since the end of the ban,” the National Association for Alcohol Beverage Management said in the commentary. “This structure creates important public health protection measures while streamlining the tax revenue process. The products have had an illegally difficult time to get to the market.”
Wine proponents fear that if tariffs promote a slump in European wine imports, the system could be weakened.
“Domestic growers don’t want tariffs on wine,” said Amph of the US Wine Trade Alliance. “Domestic producers need a sound distribution system for access to the market.”
Please contact the writer at russ.wiles@arizonarepublic.com.
