Some even breathe a sigh of relief as Trump had threatened 200% duties on wines and spirits from the EU. So the 20% duties are the least that could have been expected. This time, unlike in 2019, all products from all 27 EU countries will be subject to duties. In 2019, in retaliation for industrial diatribes, only wines from France, Spain, Germany and England were subject to duties.
Let us start at the beginning by explaining what duties are. They are a tax levied on goods arriving in the US from all countries on the White House’s ‘Black List’. This list includes no less than 60 countries, including the EU as a single state of 27 member states. According to the White House, the 20% tariffs applied to the EU are intended as retaliation against unfair and discriminatory European trade policies against many goods from the US.
The reality is that the Trump administration has lumped everything together by counting as duties even protective policies applied by the European Community in order to protect certain activities or, even more importantly, to protect the health of European citizens since the duty policies concerned products from the US that have more liberal laws on the use of certain materials, medicines, adjuvants or synthetic products for agricultural and food products.
However, let us focus on the subject that is dear to us and that is Wine. The United States is the leading export market for Italian wines with a 25% share of total exports. It is easy to understand that in the short term it is impossible for an Italian wine producer to absorb the loss by opening new trade routes. Impossible not only because it takes time and resources to open new markets, but also because a whole series of other countries with fast-growing economies are Muslim or in any case hostile to alcohol such as, for example, India, and therefore not inclined to laws that favour the entry of alcoholic substances into their state.
Speaking of numbers, we can say that Italy exports wine worth two billion a year to the US and that 73% of the wine imported to the US comes from EU countries. 37% of the wine drunk by US citizens is not domestically produced. So they import five times as much wine as they export. This means that in the short term they will not be able to become self-sufficient also because it would mean making huge investments, waiting years and being ready when the market opens up again. The duties will certainly be temporary and therefore no huge investment can be made without the certainty that it will be profitable.
All economists are united in saying that US tariffs will also hit American wine producers as they will see an exponential increase in the cost of raw materials that are essential for wine production and that come mainly from the EU. Think, for example, of glass for bottles, corks, barrels for ageing, and all wine-making machinery in which Europe is the undisputed leader.
The consequences of duties will fall, as always, on the end consumer and especially on those with the lowest incomes. The trade war that is about to begin will have no effect other than to raise prices and make the market ‘nervous’ and unstable. For as long as anyone can remember, the market has thrived in stable conditions and certainly not in a schizophrenic environment such as the one we have today.
What is really worrying for European wine producers is that they are at the mercy of the EU’s choices and individually or as a producer association they can do very little. They cannot engage in talks to mitigate agri-food duties using trade between the two continents as leverage since the US exports very little and we Europeans, on the other hand, have the largest and richest market for our food products in the US. We can only hope for a good and profitable EU policy.
The Effect of Duties on Investment Wine
As mentioned in a previous article, the investment wine market will not be ‘affected’ directly because, as you know, wine trading takes place within tax warehouses and therefore in a kind of ‘free port’ that is and will continue to be immune to all taxes and duties in the world.
On the contrary, many analysts foresee a possible increase in quotations because it is expected that American collectors will move their capital to Europe in order to acquire wine in bond (i.e. inside customs/tax warehouses) and then extract it only after the elimination of duties.
We think this hypothesis may be correct and desirable. Certainly we can tell you that the wines held by our customers within our warehouses are totally immune to any commercial struggle.
Another prospect for looking forward to new investments in wine could be that the low demand for European wines by American customers generates, at least in the first period, an abundance of supply of wines that until now were almost entirely allocated to the US. Therefore, it might prove easier to find some labels that were hitherto almost unobtainable. Stocking up now and then reselling when the market reopens could be a winning move.