Red or White, or Blue: How the Trade War is Hurting California’s Wine Industry

Tim and I have a little shtick on the PRI podcast where on the last question we ask each of our guests for a favorite wine recommendation. Our headquarters in San Francisco is just down the road from Wine Country and most everyone loves wine at PRI.  So perhaps more than any other free-market think tank in America, it pains us to learn that because of the trade war, China has slapped a 15 percent tariff on imported U.S. wines.

In a trade war, it seems to me that there are bigger fish to fry than wine — especially since fish goes so well with white (I couldn’t resist).  But why wine? Jim Boyce, who runs a blog called the Grape Wall of China, told the New York Times “Wine is something people can relate to . . . . It’s like putting a tariff on Chinese dumplings. It’s something you can feel on an emotional and personal level.”

In 2017, China’s imports of American wine reached $82 million —a sevenfold increase over the last decade.  The U.S. share of the wine market is just 2 percent and has been shrinking of late. The Wine Institute, which represents California growers, says that it’s partly because the U.S. sells fewer wines at higher prices.

Michael Honig, who runs Honig Vineyards (I’ve had their cabs – they’re delicious), said that his best-selling cab is about $25 a bottle wholesale. He ships more than 500 cases to Shanghai.  But with existing tariffs, value-added taxes, shipping, and distribution costs to hotels, restaurants, and shops, Mr. Honig’s cab sells in China for the equivalent of $100 all in.  Admits the New York Times, “An extra 15 percent would be brutal.”

Mr. Honig is especially concerned about competition from abroad, “If all they’re looking at is two different bottles side by side, and we are competing with Australia and Chile, that’s a big competitive disadvantage.” The Chilean and New Zealand wines face no Chinese levies, and a free-trade agreement with Australia means their wines will become tariff-free in 2019.

Wente Family Estates in Livermore reported that Chinese importers have already stepped back from shipping due to the tariff.  The Wente family has donated their wines to PRI galas for many years.  Michael Parr, vice president of international sales, says that their importers in China are reluctant to proceed with wines that have been already ordered.

While we are hopeful that the trade war between the U.S. turns out to be a shot-term skirmish, the industry is concerned about a prolonged battle. John Aguirre, president of the Sacramento-based California Association of Winegrape Growers, is worried about its longer-term effects, “We’re clearly concerned about the impact that this ultimately will have on winegrape prices … While it clearly has the potential to disrupt transactions for individual wineries, the longer-term concern is the (overall) market.”

Dave White, founder of the wine blog Terroirist, sums it up, “The trade war is taking us in the wrong direction. It’s resulting in higher prices and fewer jobs at home — and less revenue and fewer opportunities abroad.”

And while some might think that a tariff on wine isn’t a big deal – indeed it’s not steel, or cars, or food products.  Nevertheless, it’s unfortunate that one of California’s signature industries has become a casualty of the trade war with China.  Thomas Jefferson never underestimated the damage: “I think it is a great error to consider a heavy tax on wines as a tax on luxury. On the contrary, it is a tax on the health of our citizens.” Amen!

Rowena Itchon is senior vice president at the Pacific Research Institute

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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