Gains and Losses of Wine Tariffs

Joan McGuire

The Trump administration’s 25% tariff on European wine could put the squeeze on distributors, but also create an opening for Oregon labels.

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Since taking office, the Trump administration has been highly proactive with its use of tariffs to punish countries for what it considers to be unfair trade practices.

After entering a trade war with China three years ago, the administration turned its attention to Europe last October, leveling a 25% duty on imports of French, German and Spanish wine.

The tariff was enacted as part of a dispute with the European Union over the subsidies it provides to multinational aerospace company Airbus.

The value of wine exports to the United States have plummeted nearly 50% in the since the tariffs were put in place, according to France’s Ministry of Finance.

Could these duties give a competitive advantage to domestic producers such as Oregon, at least in principle?

The state has seen a boom in wine revenue. Production has grown every year since 2011, according to the Oregon Wine Board.

Andrew Browne is the CEO of Precept Wines, a privately-owned wine company with vineyards in Oregon, Washington, Idaho and New Mexico. He says that while tariffs have the potential to increase local sales, those gains might be offset by losses elsewhere.

He says promotion by wine sellers is an important way local brands get recognized, and would rather see distributors focus on promoting local, lesser-known brands, than spending their time adjusting the new trade taxes.

“If something goes up in price and there’s something to replace it at a lower price, I think it’s fair to say consumers might pick the cheaper product,” says Browne.

“But I want retailers to focus on promoting Oregon pinot noir and pinot gris. If they’re focused on their rose from France, that’s not what any Oregon producer wants to see.”

According to Maria Ellis, executive director of the Pacific Northwest Trade Organization, it is small wine distributors, not any country, which will pay the price of the tariffs.

“Distributors serve as ambassadors and get the word out on wines to the rest of the world,” she says. “If a distributor is selling to a restaurant or hospitality, they might say, ‘Have you tried this wine from Oregon? They are known for their pinot noir.’ When you disrupt that system Oregon wine can suffer as a result.”

Twenty years ago there were 3,000 distributors of wine, beer and spirits across the U.S. Today, consolidation has left the industry with around 700. Since tariffs are essentially an added business tax, they advantage larger companies that able to absorb the hit.

Ellis says that the tariffs could also damage the restaurant and hospitality industry because tariffs could mean a wine case already on order could become more expensive upon delivery, leading to unexpected expenses.

Oregon produces just 1% of the domestic wine market. If French and Spanish wines left the shelves, Oregon could potentially capitalize on a slightly smaller pond nationally, especially considering the state’s growing reputation as a wine state.

Charles Lazzara, founder of wine importer Volio Imports, says such an opportunity is possible, but not a guarantee.  

“Research shows consumers tend to look at wine in terms of categories as opposed to individual brands,” says Lazzara. “If someone’s favorite wine went up in price, it might help wine-producing states who haven’t had their day in the sun, so there might be an opportunity there.”  

Still, he agrees that it is importers which will bear the brunt of the administration’s tariffs, leading to further consolidation, as smaller importers are less able to compete.

“With a 25% tariff the price isn’t going to increase. You’re just hurting a lot of distributors and a lot of importers,” he says. “There’s no way smaller importers will be able to survive against large national brands.”

After toying with a 100% wine tariff, which would have undoubtedly trickled down to the consumer, the administration chose to leave the 25% tariffs as is, at least for now.

While there’s no telling how long the tariff will last, even small distortions in the market could make it impossible for smaller importers and distributors to compete.

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