U.S. 100% tariffs will decimate the Italian wine industry (including people you love)

Above: empty picking crates waiting to be filled with grapes at harvest.

No two people could be more diametrically opposed in their sentiments and approaches to Italian wine than Ceri Smith, one of our nation’s leading wine retailers and tastemakers, and James Suckling, one of our nation’s leading wine critics and tastemakers.

But this week, the unlikely pair sent messages to their supporters in which their views seamlessly aligned: in urgent tones, both are asking their followers to register their dismay at the thought of 100 percent tariffs on Italian wines and other European agro products currently being considered by the Trump administration.

Read Ceri’s here (on Facebook) and James’ here.

“Proposed higher tariffs on expanded list of European wines could devastate business, say importers and retailers,” according to a piece published earlier this week by the popular wine trade-focused blog SevenFifty.

Michael Skurnik, a leading importer of Italian wines in the U.S., was quoted in the article: “If enacted, these tariffs could have the effect of essentially crippling the importation and sale of European wine in the U.S. This would mean a devastating loss of revenues, jobs, and taxes to many sectors of the U.S. economy.”

Trade wars like this are nothing new to the U.S. nor the global economy. Few in the wine industry are old enough to remember the Banana Wars of the 1990s. During that decade, the U.S. “imposed a retaliatory range of 100 per cent import duties on European products, encompassing everything from Scottish cashmere to French cheese” (the Guardian).

At the time, the U.S. was retaliating for an EU quota on bananas grown in Latin America but sold by north American companies. Today, the U.S. is retaliating for Airbus subsidies illegally doled out to European interests and for a proposed European “digital service tax.”

What do bananas have to do with cashmere and cheese? What do wine and cheese have to do with airplanes and online advertising? That’s how trade wars work.

Earlier this week, I spoke to one of the top sales agents in California for the largest distributor of fine wines and spirits in the U.S. Even his Trump-supporter colleagues share his fear that said tariffs would decimate their business, not to mention many of their suppliers’ and clients’ businesses. He told me that even his boss, an avid “Trumper,” recognized that many of his employees would have to be dismissed if the tariffs were implemented.

Think of your average Italian restaurant in the U.S., he said, where the wine programs are designed around Italian wines that land at “by the glass” prices. The industry rule of thumb calls for wines by-the-glass to be sold at the same price as the wholesale cost of the of the bottle. An $8-9 by-the-glass wine would now cost $16-18.

Would you pay $18 for a glass of Sangiovese that cost $9 the previous day?

The reasoning is oversimplified here for sake of argument but you get the picture.

According to some estimates, 70 percent of the wine grown in Italy is shipped to the U.S. In many cases, Italian wineries sell nearly 100 percent of their products to the U.S. If the Trump administration implements the tariffs, the entire industry would be disrupted — from top to bottom. The people in the middle would devastated as well (including me and my marketing consulting business).

Ceri and James included the following links where Americans can send messages to their representatives in congress and the U.S. Trade Representative to stop these tariffs from taking effect.

To your senators (via the National Association of Wine Retailers):

To your congressperson (via the National Association of Wine Retailers):

To the United States Trade Representative:

If you love Italian wine and the people who grow, make, and sell it, I encourage you to join Ceri, James, and me in taking action.

15 thoughts on “U.S. 100% tariffs will decimate the Italian wine industry (including people you love)

  1. Excellent, Jeremy. Thanks for this. I remember well the Banana Wars of the 90s. I was living in Switzerland at the time and it was quite a topic in the European papers.

  2. Let me be clear, I am just talking about this topic, not immigration, race, confederate flag, etc.

    In this case, the President has a point. As an exporter of wine, I get the blow back from these tariffs. For me though, there will not be much harm because our allies have done their damage to our industry.

    In the link you provided, James Suckling begins his letter with, “If you are one of the many millions around the world who love to drink great wine, there has never been a better time in history to do that.” The problem is, and Jeremy you know this better than most, great wines around the world usually only include a few of the same American wines. From London’s Hedonism, Aussie’s Langton’s to Mexico’s La Europea, the American wines are pretty much the same. There are examples of some smaller producers have found some independent shops in the EU or elsewhere, but few and far between. It is not because our prices are too high, but because of taxes and fees imposed by the Countries. In the UK I attended an exporters masters class where it was shown that from the time the wine was sold from the producer to the time it it was sold to the on-premise customer the price increased 6-folded. That’s with average markup and taxes. The cheapest US wine I have exported was $3.60 F.O.B. There are cheaper wines too, but how are they to compete against a 3 Euro bottle, 6 Euro bottle.

    The United States is getting the short of of the trading stick. There needs to be a reconciliation on many issues including wine. As for wine there should be a free trade agreement with the EU. (Australia is suppose to be trade free, but they heavy tax the incoming freight. Kind of defeats the purpose.) Wine is a mature market that can stand or fall on its own. The USA should be working vineyards, and farmers, to make our producers 100% SIP and carbon free. I have no problem with that. And I understand the VAT, but there has to be limits and let the market work its magic.

    The point is the President is speaking a measure of truth. However, as former Senator Sam Nunn recently said rather diplomatically (talking on a different topic but I think it applies here), “while I think the President has good concepts, he has no (organized) plans to implement them.” Could not have said it better myself.

  3. Despite its fears, the Italian wine industry in the USA may not be affected by the increase in tariffs as long as it ceases to focus on flagship appellations. The overall budget for Italian wine will not shrink, yet, the consumers’ choice will evolve towards a better understanding of the offer. Wines of lesser-known appellations, cheaper but certainly not of lesser quality will bring in as much money as those which yesterday scored between 96 and 100. Wouldn’t it be a win/win situation to widen the panorama of Italian wines and finally talk about the wonderful top Barbarescos, Roeros, Nobiles, Etnas etc? Not to worry, if tomorrow the tariffs increase the scores will quickly readjust and those overshadowed wines will reach the top. As a matter of fact, nobody knows how they didn’t manage to reach it yet.

  4. Those who enjoy great Italian wine would still be able to purchase it and probably appreciate it more. I love Italian wines, especially Barolo’s. The fact is, its time to level the field. Italy, Spain and France send 11 times more wine in value to the US then we send to the EU. We export to all the other EU countries but virtually nothing to Italy, Spain and France. I agree that some Italian wine can not be replaced but many can . We can deliver outstanding wines that can replace and maybe dominate certain categories. As a grower and winery owner in California I will always push to promote our products over imports, 40% of the US market is imported! Just as you are concerned for your business so am I. If the field was truly level, no tariffs and no Government subsidies, then let the BEST wine win.

    • Did it ever occur to you, Rodney that California doesn’t sell much wine in Italy, Spain and France simply because there is very little demand for it. Consumer choice is not an unfair trade practice. In the US, things are very different, and there is high demand for European wines. Heck, go into a Michelin starred restaurant in NYC or trendy wine bar in Chicago, and you’re likely to see very little California wine while being exposed to virtually every wine region in Europe. That’s simply consumer demand and choice and the end result of California’s decade long falling out of favor in major metropolitan wine markets due to its over the top “hedonistic fruitbomb” styles and absurd pricing.

      • Lenny your comments are interesting. You make it sound like American wines are crap and the pricing is crap as well. The bottom line is there is a style and price point for anyone that cares to take the time to explore. If you want to transport wine across the globe at the sake of the environment just to have the ability to post a picture of the label on facebook go for it. You obviously haven’t tried American wines, or you are from overseas promoting an agenda. I prefer to drink wine or beer from the location in which I live. I’m done with the excuses that it got “cooked” in transport … save the environment and drink local – if in the US drink US wines and if in Europe drink European wines … get over it …

        • It’s not that “American wines are crap.” That’s a pretty blanket/absurd statement. However, the reality is that a lot of the big players in our industry have been chasing a formula of more residual sugar which does make it harder to appreciate regionality. This is probably why a lot of restaurants do lean more heavily upon imports for their wine lists. They probably work better with food.

          That said, US wines are well-represented on the vast majority of wine lists across the USA. Yes, even most Italian and French restaurants have a healthy dose of US-produced wines.

          The other reality is that the USA doesn’t make enough wine to quench the entire market. As we all know, land’s expensive in California and vintners aren’t all of a sudden going to buy and plant new vineyards to pick up the slack. Even if they did, it’s a good 4-year process.

          The sad reality is that these crazy tariffs are going to cost Americans jobs. Americans who started importers and work at distributors. I know of many importers that will be forced to lay off staff immediately. The EU wineries? Well, for starters they don’t pay the tariffs. Second, they’ll find other markets to do business. Asia, etc… They might need to find homes for ~10% – 15% of their product in the medium term, but the “pain” is minuscule vs. US-owned companies who’s livelihoods will be severely damaged by this draconian legislation.

          That’s cool if you’re a strict “locovore” when it comes to wine. Your choice and I respect that. Just understand who’s really going to pay…

      • So True. U.S. wines are geared towards the palate of midwesterners who like cherry coke and southerners who like sweet tea. If you like drinking hummingbird food, American wine is for you, if you like something that tastes like wine, you would prefer Italian and others. We have a similar problem with cheese. For all of the foodie innovations of the last 20 years, the U.S. food and beverage market is still geared towards baby boomer women in frumpy, Cabin Creek sweaters who have Glade plug-ins in each room.

    • Rodney, the fact of the matter is that the US wine industry has grown for the past 25 years, and there’s not enough wine to satisfy the entire US market. Hence the reason why so few California wineries sell much of their product overseas. Especially in a market like France, Italy and Spain where they have enough product for their entire population and have plenty of wine left over for global exports.

      Where the USA has been moderately successful are markets in Scandinavia, Canada, the UK and China (although the USA-China trade war has really hurt the business) where domestic supply <<< demand.

      • As an exporter, that has not been my experience. I just sent 3 bottles to the London Wine Competition at a retail value of $250. The VAT was $177. And we are just talking about wine. Wine and spirits are just being used as a threat. This discussion really includes all of agriculture products that trade between the US and EU/UK. The core of the administration’s argument is sound. The implementation is not. Tariffs do not work, but neither does an unbalance trade agreement. This has nothing to do with quality.

        • It is true that if you’re exporting wine into countries in the EU, you have to pay taxes that seems onerous. However, in the USA we have the three tier system, so an import wine is subject to an additional tier of taxes and margin that you don’t pay when a US-based winery sells overseas. While I cannot give you the exact “net-net” re who pays more in taxes/margin/etc. this is an important point that is important to keep in mind.

          Trust me, the US market is VERY EXPENSIVE for import wines to do business in and the idea that there’s an unfair advantage doesn’t seem accurate based upon my years in the business.

          • Absolutely. I’ve talked extensively to my counterparts at shows about this we all agree that the taxes/fees/tariffs run both ways. It’s ridiculous. The general consensus I have heard is to create a trade free agreement and let the market play itself out. I am not opposed to Government supplementing upgrades to equipment, but that’s where it should end. No price fixing, no supplementing cost, etc. Level the playing field a bit and see where the chips fall.
            I shared a booth with an Italian Producer last year. 280,000 cases annually, all certified organic. He made the point that his cost were lower than “commercial” grown grapes. If memory serves me, his cheapest price was €4ish. That’s tough for me to compete with. I might now a shot in the UK now because the EU is going to be charged €2.14/btl after Brexit happens.
            I agree with Jason & company, tariffs do not work. Neither does tax gouging which has made access of the US wines very limited in the EU.

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  6. Maybe there are millions of consumers around the world who would like to open a bottle of American wine and not go into insulin shock after drinking it.

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