The current 25 percent European wine tariff, which may turn into a 100 percent covering all European wine, makes deciphering wine prices 2020 a sad and painful duty
Forecasting wine prices 2020 should have been easy. Combine too many grapes in California with fewer wine drinkers in the U.S. and Europe, and throw in the beginning of the end of premiumization. The result? Steady to lower wine prices, and maybe a lot lower, by the end of the year.
And then the tariffs happened.
The first, last October, seemed horrible. And then we heard about plans to impose a 100 percent tariff on all European wine, which would effectively double the price of every bottle of wine made in Europe and sold in the U.S. And suddenly, 25 percent didn’t seem so horrible.
Tariffs artificially raise prices, and economic theory says consumers then switch to cheaper, similar domestic products. But the similar products are not as cheap as the original, so the consumer is paying to prop up a domestic industry. Which pretty much explains the popularity of tariffs on goods like steel.
But there are very few $13 California wines that are similar to $10 French or Spanish wines. Wine isn’t finished steel. So in my search for a cheaper product, economic theory says I could well move from wine to something even cheaper, like beer or White Claw — especially if I’m buying wine on price. Which is the dark, dirty secret of the wine business.
In this, the tariff will push wine prices 2020 up, until demand weakens so much that no one will buy wine at the tariff-inflated prices. Then we will have shelves full of wine, including domestic, way too many grapes, and even weaker demand than before. How much fun will that be?
And, among all this mayhem, there would be little point to the blog. Somehow, I don’t think that’s supposed to be the result of a political dispute about aircraft parts.
Havoc and destruction
In this, the 100 percent tariff would come close to destroying the European wine business while wreaking havoc on U.S. wine retailing, distribution, and importing. That’s because the U.S. is the EUs biggest wine market, accounting for more than one-quarter of its exports. The tariff would all but eliminate the market for European wine in this country; who’s going to pay $30 for a $15 bottle? It would also lead to bankruptcies, layoffs, and business closings among retailers, importers, and distributors. That includes the largest wholesalers, who, I’m told, are just as worried about the end of the French wine market in the U.S. as their smallest competitors.
So I’m going to do something I have done but once in the blog’s history: Get political. When the publisher of the Wine Spectator and I agree about something, then there’s no time to waste.
The 100 percent tariff is nothing but spite, a finger in the eye of the EU for no legitimate reason by a Trump administration that apparently has no understanding of economics or tariffs. For it, it’s easier to tweet trade war bravado than to understand the implications of the Smoot-Hawley tariff in the 1930s. That U.S. citizens will suffer far more from the tariff than U.S. aircraft companies will benefit is beyond their comprehension.
And it’s not like U.S. aircraft companies need the help. Boeing, the focus of the original World Trade Organization ruling that led to the 25 percent levy, had $10.5 billion profit in 2018. That’s larger than the gross domestic product of 30 countries, and that’s just Boeing’s profit. Its revenue was $101 billion, which would make it the 177th biggest country in the world by GDP.
But Boeing gets a boost, while many U.S. wine retailers will get to go out of business. That seems fair, yes? The owner of a small wine shop in the Dallas area, with a wife and child, can ponder his fate (as well as ousted Boeing CEO Dennis Muilenburg’s $62 million farewell package) while he looks for work.
You can comment on the proposed 100 percent tariff — go to www.regulations.gov, enter docket number “USTR-2019-0003” and click search. Then, click “comment now” and explain why this is not a good idea. Comments are open until Jan. 13.
And those of you who disagree with me – you’re more than welcome to pay $20 for $10 wine. Enjoy the privilege.