Looming Trade War Bodes Ill for Wine

To defend the US company that makes two airplanes that recently crashed and killed everyone on board, the US government proposes to make French wine more expensive here.

The US trade representative (USTR) announced Tuesday that the government is proposing tariffs on a wide range of European products, including wine and brandy.

Despite President Trump specifically complaining about low tariffs on French wine in a tweet last November, wine has not been singled out. Far from it. The US is also proposing to impose tariffs on olive oil, cheese and jam; as well as helicopters, carpets, tweezers, monuments and dozens of other items. If the French were to make another Statue of Liberty for us as a gift, we would slap that sucker with a tariff.

In theory, the move comes in response to European Union subsidies of Airbus, the European manufacturer of airplanes. Last year, the World Trade Organization ruled that these subsidies are illegal and have been a competitive disadvantage for the US company Boeing, Airbus' main rival, and maker of the ill-fated 737 Max plane. The USTR estimates that these subsidies have hurt US trade deficits to the tune of $11 billion per year, and it has proposed $11bn worth of tariffs on goods.

Realistically, though, this is just the Trump Administration's way of dealing with the rest of the world. "Trade wars are good, and easy to win," President Trump said last year. The US is already in trade wars with China, Mexico (where Trump recently threatened to end trade entirely before backing off), Canada and the EU. Tuesday's announcement is an escalation, not a new engagement. By Tuesday afternoon, the morning's announcement was no longer considered significant enough news to be on the Washington Post's home page.

Just last year, the US imposed tariffs on steel and aluminum imported from the EU, which responded by slapping tariffs on a number of products perceived to be mainly from states that voted Republican in the 2016 Presidential election, including Harley Davidson motorcycles and orange juice.

That grab bag of EU tariffs included American whiskey; a quadruple whammy for Bourbon because China, Canada and Mexico have also imposed tariffs on American whiskey as part of our trade wars with them.

The Distilled Spirits Council released a study last month that estimated that whiskey exports to the EU dropped by 13.4 percent after the tariffs were imposed. Complicating matters, the top export market for US whiskey is the UK, which may or may not be leaving the European Union; you may have read about it. Spain and France are tied for second.

"We strongly oppose the inclusion of distilled spirits on any trade retaliation list," said Lisa Hawkins, Distilled Spirits Council vice president of public affairs. "The US and the EU are each other's best markets for our respective spirits products and have contributed to the economic vitality for both markets and job growth."

It's worth pointing out that President Trump owns a winery in Virginia and could stand to benefit from higher prices for competing imported wines.

Current tariffs for wine are indeed lower in the US than the EU. The US imposes $0.05 on each bottle of still wine from the EU and $0.14 on each bottle of sparkling wine. Going the other direction, the EU charges from $0.11 to $0.29 for each bottle of wine.

The level of new tariffs has not been decided, and the USTR has invited public comment. From the press release: "To submit comments via www.regulations.gov, enter docket number USTR-2019-0003 on the home page and click 'search'. The site will provide a search results page listing all documents associated with this docket. Find a reference to this Notice and click on the link entitled 'comment now!'" Public comments must be filed by May 28.

It's possible that if the US decides to unilaterally double its tariffs on European wine, you won't see any price increases; importers might just eat the difference. Tariffs would have to be much larger to have an impact on enophile wines. But it is also possible that larger tariffs on cheap wines would make a difference on the bottom shelf. E. & J. Gallo, the world's largest winery, just paid $1.7 billion for 30 lower-end wine brands from Constellation. It could benefit if its competition's shelf prices go up by $1.

There are so many products listed in the USTR announcement that wine should feel like a minor part of the escalation. It doesn't, though. On November 13, 2018, after feeling snubbed by French president Emmanuel Macron, Trump tweeted: "On Trade, France makes excellent wine, but so does the US. The problem is that France makes it very hard for the US to sell its wines into France, and charges big Tariffs, whereas the US makes it easy for French wines, and charges very small Tariffs. Not fair, must change!"

We'd have to search his tweets, but I don't recall anything about tariffs on tweezers.