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How the US-China trade war affects the local wine industry

New tariffs imposed by Beijing Monday will make U.S. wine an even more expensive product for Chinese consumers, as their leaders battle with the Trump administration in an escalating trade war between two of the world’s largest economies.

The latest action will tack on another 15% to the price of American wine sold in China, effective June 1 — the third spike within 14  months. Since Trump took office in January 2017, the tariff rate on U.S. wine exported to China will have climbed from 14% to 54% as the government of President Xi retaliates on American tariffs that have been placed on Chinese steel, aluminum and many consumer goods.

The tariff rate is in addition to a tax rate of 44% on American wine exported to China, resulting in an overall assessment of 98% starting next month. That level of tariff and taxation is far higher than many other foreign competitors in the global wine marketplace.

The trade war will make it harder for vintners in Sonoma and Napa counties who have courted the Chinese market in recent years, said Damien Wilson, the Hamel family faculty chair in wine business at Sonoma State University. However, he said high-end producers like those who make “cult cabernet” from the Napa Valley shouldn’t suffer much given their sterling reputation.

“It is imperative to resolve this dispute as soon as possible, so that our wineries do not suffer long-term market loss. Despite these challenges, the California wine brand remains strong with Chinese consumers and we are committed to doing everything we can to ensure this does not change,” said Robert “Bobby” Koch, president and CEO of the Wine Institute, the trade group representing California vintners.

The trade war already has had a negative effect on U.S. wine sales to China. Last year, the $59 million value of U.S. wine exports to China decreased 25% compared with 2017.

“With each additional round (of tariffs), it becomes more and more difficult to compete,” Koch said.

China ranks as the fifth-largest export market for the United States, but its potential as the fastest-growing wine market in the world means that it’s coveted by the premium wine regions of Sonoma and Napa counties.

“It’s certainly starting to impact. Initially, there was a lot less concern about it,” Wilson said. “There is a bit more pain out there at this moment.”

Five years ago, the Sonoma County Vintners industry group was part of a trade mission in China to promote local wineries and some — such as Alexander Valley Vineyards in Healdsburg — have made small inroads in Chinese exports.

The problem for U.S. vintners is that other countries face lower tariffs selling products into China, most notably Australia, which thanks to a 2015 free-trade agreement with Beijing now faces zero tariffs exporting into a nation with 1.4 billion consumers. Australian wine imports in China have grown from $51 million in 2008 to $588 million in 2017 — making China its largest export market well ahead of both the United States and the European Union.

“Australia will readily be swiping up the U.S. market share at a steady rate,” Wilson said.

Other new global wine producers such as Chile and New Zealand also pay no tariffs selling into China, while the European Union has a 14% tariff rate on its wines.

Source: PetaLuma320

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