Update: While no formal resolution has been announced, on Monday, January 20, the U.S. and French presidents agreed to reach a compromise on tariffs related to the digital tax dispute—for now. And on February 14, the USTR officially announced there would be no tariff increases on the EU wines and spirits currently subject to a 25 percent tariff related to the Airbus dispute, and that these tariffs would be revisited in 180 days.
Following weeks of intense lobbying in Washington, D.C., by retailers, producers, importers, and wholesalers, the wine and spirits industry waits in limbo for a decision on tariffs from the Office of the United States Trade Representative (USTR) that could take days—or even months—to arrive, with no clear timeline in sight. Through testimony and written statements, the industry made a persuasive case for the “catastrophic” impact the proposed 100 percent tariffs on European wines and spirits would have on countless American businesses.
Yet the impact of the threat alone, and the climate of uncertainty it has created, is already being felt—resulting in layoffs, broken deals worth hundreds of thousands of dollars, and extreme logistical chaos. Importers and retailers tell SevenFifty Daily that if this waiting game continues, they foresee the potential for millions of dollars in losses, widespread bankruptcy, and an altered wine industry.
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Radical Disruption
“The threat of the 100 percent tariffs alone is a nightmare,” says Steve Melchiskey, a managing member of USA Wine West, a bicoastal provider of importer services whose portfolio is made up of about 65 percent European wine, about half of which is French. “It has already completely restructured the wine import landscape. Importers have had to sign documents from the government stipulating that if the tariffs go into effect—which theoretically could happen tomorrow—the government will remove from our bank accounts whatever the wine coming into port is worth.”
In other words, if a shipment of wine from France is worth $300,000, that sum will be removed by the government from the importer’s bank account. Since December, the restructuring has meant that USA Wine West has been forced to import wines from clients themselves, whereas previously, distributors were able to cut through a layer of cost and logistics by importing directly. Melchiskey estimates that his firm’s brisk business of facilitating imports from clients to distributors is off by 70 percent.
“Right now, we have maybe 150 containers ourselves worth $100,000 each on the water,” Melchiskey says. “We’d be completely screwed if the tariffs went into effect right now. We’d have to find free-trade-zone ports where you can legally dock the ships and store the wine; then we’d have to refuse delivery and send them back.”
The docking, storage, and returned shipments would still be costly but wouldn’t result in immediate bankruptcy, as the acceptance of the deliveries might.
“If these tariffs go through,” Melchiskey says, “and even if the period of uncertainty drags on for too long, this will force out dozens and dozens of import companies who have cultivated relationships with European winemakers and who have dedicated their careers to teaching retailers and consumers about them. It would be the most radical thing to happen to the wine industry since Prohibition. Most small and medium-sized importers would go out of business. And with them, a lot of passion and energy would disappear.”
Retailers like Christy Frank, who runs the wine and spirits shop Copake Wine Works in Copake, New York—and who testified in Congress on January 7 on behalf of small retailers—says the cash-flow problem has already become a logistical thorn in her side, especially since her shop specializes in selling wine from small-scale producers, sold by tiny import shops that generally wouldn’t be able to shell out hundreds of thousands of dollars on the fly to stock up and store wines in the face of the feared tariffs.
“We are already feeling the effects of importers and distributors not reordering wine because they’re worried it will arrive after tariffs have hit and they will immediately need to come up with the cash,” Frank says. “It’s also difficult because at least in New York, their pricing for stores and restaurants has to be set 45 days in advance. So there are wines we want to sell that are simply not in stock.”
With Threat of 100 Percent Tariffs on EU Wines and Spirits, Fears Loom Large
Proposed higher tariffs on expanded list of European wines could devastate business, say importers and retailers
How We Got Here
How did the U.S. wine industry, worth an estimated $70.5 billion in 2018, arrive at such a calamitous juncture so quickly?
It started in October 2019, when 25 percent tariffs were levied against French, German, Spanish, and English still wines under 14% ABV by the USTR. That tariff was levied in response to EU subsidies meted out to the Airbus aerospace corporation. Many winemakers, importers, and retailers worked together to absorb some of the costs, passing on as little to consumers as they could manage.
On December 2, the USTR proposed a 100 percent tariff on French sparkling wine (left out of the previous tariff) and other goods worth an estimated $2.4 billion. This was in response to a 3 percent tax imposed by France on digital services, a tax the USTR and President Trump say unfairly targets major U.S. companies like Google, Apple, and Facebook.
Then, on December 12, the USTR proposed a 100 percent punitive tariff on European goods, including all wine, in response to the contested Airbus subsidies.
There is no timeline deadline for a decision on the tariffs, though many say it will be made as early as next month. The USTR accepted public comments on the proposed tariffs until January 13, and 25,622 were received.
The manner in which the industry responded, with importers, distributors, retailers, and winemakers sounding the alarm on social media, is the silver lining of the storm cloud hovering over the industry, says Alexander Michas, the chief operating officer of the importer Vintus, based in Pleasantville, New York.
“Our goal,” Michas says, “in the comments period and in the public hearings in D.C., was to help the USTR understand the real scope of the issue. It doesn’t make sense to make a list of goods against which to apply a tariff against an illegal subsidy. Not only is it punishing an unrelated industry, but it’s creating a cascade effect of harm. About 10 million people work in the wine, restaurant, and hospitality industry in the U.S., and about 100 million Americans drink wine. This will affect all of them.”
Michas estimates that the European portion of his portfolio will see a drop-off in sales of between 70 percent and 85 percent if the tariffs are imposed. He says, too, that in their logistical rush to send extra shipments before the tariffs go through, European winemakers in his portfolio had to cancel their companies’ holiday vacations over Christmas and New Year’s, and that market visits from European winemakers—which boost sales year-round through events—have been called off. Vintus, meanwhile, is paying to house about five times the wine it normally carries in anticipation of the tariffs—a massive financial burden.
While it’s tough for Michas and others to express current and future potential losses in hard numbers, the Wine & Spirits Wholesalers of America estimates that tariffs on French sparkling wine alone would gut wine sales overall by 2 percent, costing the U.S. economy $2 billion and causing 17,000 people to face unemployment.
Arguing that wine should not be dragged into “unrelated trade disputes,” wine industry professionals pointed out “at hearings in D.C. that both the U.S. and the EU are each other’s largest export markets, trading $5.33 billion in goods in 2018 and “creating jobs and investment on both sides of the Atlantic.”
Educating Congress
Nearly two dozen members of the U.S. wine industry argued against the tariffs at the USTR commission’s public hearings in D.C. on January 7 and 8, saying they were misguided and would punish working Americans and wine-loving consumers. The managing director of Tribeca Wine Merchants, Ben Aneff, said that the “domino effect of unintended consequences from the proposed tariffs would be catastrophic for tens of thousands of American businesses.”
Michelle DeFeo, the president of Laurent Perrier U.S., a subsidiary of the French champagne house, said that one person in her company—representing 13 percent of her workforce—had already been laid off “due to the extreme uncertainty” of the proposed tariffs. If the tariffs go through, she says that her network—51 distributors, 49 of whom are small businesses; five sole proprietor wine brokers; and 7,918 stores and restaurants, 76 percent of which are independent establishments—could be severely affected.
Copake Wine’s Frank, who was also present at the hearings, says that the legislators there seemed to her to be completely out of touch with the most basic machinations of the wine industry.
“It was very clear they didn’t understand the legal, regulatory realities of the three-tier system,” Frank says. “We are highly constrained in who, how, and what we can sell, so we can’t ‘pivot’ in a way that might work for other industries.”
While some might argue—as Trump has—that domestic wineries will benefit from the tariffs, American producers are by and large vehemently opposed to them. The day public comments closed, the Wine Institute in California and the Comité Européen des Enterprises Vins issued a statement decrying the proposed tariffs.
Many at the hearings pointed out that the notion of using tariffs to step up domestic job growth and juice the economy is misplaced. A recent study from the Federal Reserve indicates that the 2018 tariffs meant to spur growth in the manufacturing sector did just the opposite. Titled “Disentangling the Effects of the 2018–2019 Tariffs on a Globally Connected U.S. Manufacturing Sector,” the report finds that instead of creating jobs, tariffs were “a drag on employment and have failed to increase output.”
Unprecedented Industry-wide Unification
Despite the anxiety and uncertainty, industry members appear buoyed by the camaraderie across nations and all sectors of the marketplace, and they’re determined to make sure their voices are heard in D.C. now and in the future.
“We need to do a better job,” says Frank, “of making sure our local and federal representatives and appointed officials understand that the regulations governing the alcohol industry limit our ability to react to changes in ways that other entrepreneurs can. Because at root, that’s what this industry is made up of … small-scale, family-owned entrepreneurial businesses with deep ties to the communities we serve.”
Marc Taub, the president and CEO of Taub Family Companies based in New York, also applauds the “unprecedented unification within our industry, coming together to work collectively toward ensuring tariffs are not expanded. It has been truly uplifting to walk the halls of Congress with importers we have long viewed as competitors, and who we now stand with to protect our industry.”
Because of this unity, Taub, Michas and Frank believe that their message may actually have made an impact.
“We feel very optimistic,” Taub says. “In just a few short weeks, a phenomenal amount of work has gone into educating our congressional leaders about how our industry operates.”
In addition to generating more than 25,600 public comments, the grassroots opposition to the tariffs led by members of the wine industry and the wine-loving public resulted in 108 members of the Congressional Wine Caucus uniting to urge the USTR representative Robert Lighthizer to refrain from including wine in the punitive tariffs, and in 22 members of Congress from New York requesting a halt to tariff increases.
“This has been a hectic but also wonderful few weeks, seeing the industry come together,” Michas says. “But if these tariffs do go through, it will be a disaster. Not just for the industry as a whole, but for consumer choice and the quality of life of millions of American workers and consumers.”
Dispatch
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Kathleen Willcox is a journalist who writes about food, wine, beer, and popular culture; her work has appeared in VinePair, Edible Capital District, Bust magazine, and Gastronomica, and on United Stations Radio Networks, among other venues. She recently coauthored, with Tessa Edick, “Hudson Valley Wine: A History of Taste & Terroir.” She lives in Saratoga Springs, New York.
