Tim's Wine

Friday, November 1, 2019

The Brave New World of Tariffs

In September the World Trade Organization (WTO) announced that the US was justified in imposing $7.5 billion dollars in tariffs against some European Union countries.  This is in response to what the US argues are unjustified subsidies that the same EU countries gave to Airbus, fifteen years ago, giving them an unfair advantage against American producer Boeing.  The result is that the US government has identified a list of products, of which many are categories of wine we sell, that will be subject to new tariffs beginning on October 18th.       At the moment I believe that the effect for us will be minimal with regard to the wines we sell in 2019. Inventory at distributors and in stock are not subject retroactively, so it will only apply to wines landing in bonded warehouses after October 18th. 

It’s not all bad news

Luckily all Italian, Greek, Portuguese and Austrian wines are excluded as well as any over 14% alcohol, regardless of country of origin.      Twenty years ago this would have been a bigger issue, but thanks to climate change, today most of the European reds we buy are at or near this threshold.  As wines under 15% alcohol are allowed to state their content with a variance of 1.5%, importers I have spoken with will simply relabel them above the minimum to avoid the tariffs.  However, many white wines from Europe fall well below this level and so they will likely be subject to tariffs.  This includes most Loire white wines, including Sancerre, many Rosé from France, Albarino and most Spanish white wines, and virtually all German white wines.  If you love those wines, you may want to consider stocking up.     

We have been here before, sort of…

For those of us who love European wines, there is a precedence for rapid price increases, and we managed to get through.  In 2008 the Euro spiked to 1.59 against a very weak American dollar, and stayed above 1.3 for several years.  Currently the dollar is very strong, trading at 1.09 against the Euro.  Even with a 25% tariff the real value of the wines is below the ten year historic high.  During that period many producers were forced to lower prices, and many importers also cut their margins, to offset the increases.  There are also many great wines from Italy and Portugal, to say nothing of the ever increasing quality of South America, that are also available to fill the void as they are not subject to the tariffs.  Never fear, we will get through this, it may just mean discovering many great new wines to fill the voids!