The Impact of Tariffs on Wine

An Important Note to Our Valued Wine Partners, Importers, Shippers, Customers, Industry Peers and Consumers.

Dec 21, 2019

You may have heard the recent news that the US Trade Representative (USTR) is considering two new tariffs on EU goods. We wanted to take an opportunity to elaborate on what is happening and the impacts this may have on your business, your industry, your personal purchasing, and the economy at-large. Please note, currently there is a 25% tariff on many products, including still wines from France, Germany, Spain and the UK with alcohol 14% or less. What we discuss below is in addition to this already existing tax on US businesses.

The first new tariff proposed is a 100% tax on all French sparkling wine. This is a retaliatory tariff in response to a new French tax of 3% on revenue earned by large internet companies. If the retaliatory tariff is approved, any US company importing French sparkling wine would pay an additional 100% tax to the US government on the cost of goods at the time the wine enters the US. As an example, if the cost of a wine is 7 euros, the US importer would pay 7 euros to the winery, the cost of shipping and already established duty (this is roughly $17-$25 per case, depending on shipping efficiency) and then an additional 7 euro tax to the US Government on arrival. Using this wine as an example, it would currently cost about $19.99 in a US wine store, but with a 100% tariff, it would cost $37.99 or more.

The second new tariff proposed on a very long list of EU goods would also be 100%. This tariff is a retaliatory tariff for the dispute regarding Boeing and Airbus subsidies. You can see a full list of what is proposed to be subject to tariffs here – “Annex I” lists all products currently subject to 25% tariffs, “Annex II” lists all items currently being considered for the second, new 100% tariffs. This list includes, but is not limited to, all wine, cheese, olive oil, pork products, pasta, clothing, building materials, glassware, etc from the EU.

Something important to note is that these are 3 separate tariffs. The first 25% tariff went into effect on October 18th. The second two tariffs will be voted on January 13th and could go into effect as soon as January 23rd. This means, that for the categories of wine (and other goods) that fall under the 25% tariff from October, any new tariffs assessed would be in addition to the current 25% tariff. So on many categories of goods, this could mean 125% tariff.

These tariffs will be paid by US companies, not foreign entities, and dramatic price increases would be absolutely necessary across the US market due to such a high increase in the cost of goods. While we are concerned over impending impacts of all items on this list, we are most well-equipped to speak about the impact this will have on our specialty, which is wine.

Domestic wines and non-European imports cannot take the place of affected wines because they are intrinsically different products; and the current demand for wine in the US far outweighs what Domestic wineries and non-European imports can support. These tariffs will result in fewer options and higher prices for wine consumers. There simply will not be enough good, affordable wine to meet market demands and tastes. We will witness a general trend away from wine and likely a significant shift toward greater cocktail consumption.

While we cannot predict the future for the industry as a whole, we can share information and elaborate the effect retaliatory tariffs of this size would have on our company and the companies that we directly do business with. We work in a very competitive field; hundreds, if not thousands, of our competitors and peers across the country would also be affected by such a severe change in taxation and US Trade Policy. You can imagine the rippling effects this would have on the entire Food & Beverage industry, as well as the myriad businesses that support and rely on the F&B industry.

Free Run Wine Merchants operates as an importer and distributor in Virginia, Maryland and Washington DC. Currently, over 70% of our business is generated by imported European wines. We have 1,000 active wholesale customers, primarily made up of independently owned restaurants and wine shops, that we service on a weekly basis in these 3 markets. The impact of these tariffs will put independently owned restaurants and retail shops at great risk. Costs of products key to our industry success will rise at the same time that access to these core products declines. Our customer base would take a hard hit. Resulting losses would cause cutbacks, layoffs and business closures. Independent retailers would be hit especially hard in Virginia where they would not be able to look to liquor to help make up for lost wine sales since all liquor sales are through the state.

Our company has 37 employees who are offered benefits and competitive wages. Putting 70% of our products at risk in the market would have both immediate and long-term effects on all our employees. These effects would particularly impact members of the sales team, delivery drivers, and office support staff.

In addition to the risk to our own business, employees, and 1,000+ domestic-based customers, there are more than 28 US-based businesses that specifically support our company’s efforts to import and distribute European wines. The direct stress on these businesses, in addition to the stress felt by their partners across the country, would impose extreme hardship and likely result in decreased wages to employees, layoffs, and business closures..

28 US-based businesses that directly support our efforts to import specifically European wines are referenced below.

  • Import Partners with sole focus on EU wines (all US owned and operated businesses): 1 in North Carolina, 1 in New York, 1 in Ohio, 1 in Missouri, 2 in Georgia, 1 in Minnesota, 1 in South Carolina, 1 in Virginia, 1 in New Jersey and 1 in California
  • Warehouses specializing in wine storage: 7 in New Jersey, 1 in Georgia, 1 in Maryland and 1 in Connecticut
  • Trucking Companies we partner with to move European Goods within the US: 1 in North Carolina, 1 in Virginia, 1 in Wisconsin, 1 in Texas
  • US-Based Consolidators and Shippers we partner with to move goods within Europe and across the Atlantic to major US Ports: 3 in New York

From the list above, our Import Partners alone employ over 55 US workers. Collectively the warehouses, trucking companies, consolidators, shippers and major US ports employ hundreds of thousands of US workers. All businesses referenced here would be significantly affected by an extreme rise in cost and decrease in market availability of EU wines and other products.

In the State of Virginia, 151 businesses hold active Wine Importers licenses and 381 businesses hold active Wine Wholesaler licenses. To have these licenses, they must operate offices and warehouses in Virginia. All of these businesses would feel a negative impact from the proposed tariff, many would feel severe impacts.

In the District of Columbia, as of July 1, 2019, there were 43 businesses with active licenses for importing and distributing. To have this license they must have a warehouse in the District. This does not include the many distributors and importers who do business and employ industry professionals in the District but operate out of other states (Virginia, Maryland, New Jersey and New York to name a few). All of these businesses would feel a negative impact from the proposed tariff, many would feel severe impacts.

In Maryland, there are 95 businesses with active distribution licenses. In order to have this license they must have a warehouse and resident partner in Maryland. All of these businesses would feel a negative impact from the proposed tariff, many would feel severe impacts.

Valued at $825 billion in 2019, the restaurant industry is composed primarily of small businesses: for example, 9 in 10 restaurants are small businesses with fewer than 50 employees[1]. The direct effect of these tariffs would be devastating to many of these businesses.

In addition, the resulting layoffs and downsizing on all levels will have a negative effect on US Wineries as well. With fewer restaurants and retailers to sell to, many depend on a wide variety of the goods proposed for tariffs not just wine, distributors will have fewer customers. This in turn will necessitate smaller sales teams. For US Wineries, this will mean fewer restaurants and retailers to buy their wine, and fewer sales people within their distribution partners to promote and sell their wines.

Believing in the probability of business loss, layoffs, and companies closing is not an alarmist position; it’s realistic and well-informed, based on many decades of shared industry experience and knowledge. We are not the only people concerned about the reality these tariffs would present. Here are links to a small selection of the many articles well-known industry leaders have posted recently on the subject:

Wine Spectator – well-respected and well-known publication

Alice Feiring – well-respected writer and wine critic, leader in the Natural Wine Movement

SevenFifty – an industry platform for restaurants, retailers, and distributors.

Jenny & Francois – a New York based importer

One particularly interesting and relevant passage comes from Jenny Lefcourt’s post:

“These tariffs are really without precedent, but to glimpse a window on the possible disastrous consequences, we could examine the 1930 Smoot Hawley Act. History teaches us that this act hastened the arrival of the Great Depression, extended its length, led to a 65% downturn in global trade, and made imported goods a luxury item only affordable to the top 1% of the American population. What’s more, those tariffs were only between 40-48%, not the 100% tariffs currently in discussion. Smoot Hawley is the reason most of the world’s leaders today favor unregulated free trade.”

These pending EU tariffs arose from a dispute concerning subsidies for airline manufacturers. Ironically, most of our industry products never see an airport much less an airplane as we ship on container vessels across the Atlantic Ocean and via the US trucking system. We believe this dispute should remain in the airline industry, not take the form of new taxes on the US Food and Beverage industry.

We are sharing this information and these views with our community because we are deeply concerned these tariffs will have costly repercussions felt far and wide by not only our company, our partners, and our industry; but vast numbers of small to medium-size businesses and consumers throughout the US. Among the inevitable results of these proposed tariffs will be a great loss of momentum and support of the wine industry in America, and a fierce blow to global food & beverage culture.

We welcome you to share this letter, or any of its content with your community, the USTR, and your Congresspeople. There are also links and pre-filled letters in some of the other industry publications listed above.

If you would like to comment to the USTR – you can do so by going to this link and clicking the blue box in the upper right corner that says “Comment Now”.

If you would like to contact your US Senator – you can easily find their websites to contact them by using this tool provided by the US Senate Website. If you would like to send a letter that has been already written by industry advocate organizations directly to your Senator – you can use this link to send the letter in less than 30 seconds. The content of the letter is attached in the link so you can review.

If you would like to contact your US Congress Representative – you can easily find their contact information by using this tool provided by the US House of Representatives Website. If you would like to send the same letter as above to your US Congress Representative – you can use this link to send the letter in less than 30 seconds.

[1] National Restaurant Association. 2019 Restaurant Industry Factbook.