Some European wines could get more expensive with new tariff; Arizona restaurants voice concern
Happy hour — and a lot more — could become more expensive with a sudden new round of imported wine tariffs that take effect Tuesday.
America’s top trade official on Dec. 30 slapped a 25% tariff on some higher-alcohol European wines to complement a similar tariff on lower-alcohol European wines that took effect more than a year ago.
The action could show up in higher prices for importers, distributors, restaurants, retailers and consumers at a time when many restaurants are trying to survive amid COVID-19 business disruptions.
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In a December letter to President-elect Joe Biden, 52 Arizona restaurants signed in protest of the new round of tariffs, which apply to certain European wines, mainly from France and Germany, with alcohol content above 14%.
The earlier tariffs, imposed in 2019, raised prices on some European wines with less alcohol. Representatives from a few thousand restaurants nationally signed the letter.
The latest tariff decision, which caught many in the wine industry by surprise, also affects shipments that were already paid for and are in transit. Worse yet, they say, this trade dispute has little to do with their industry but mainly relates to a two-decades-long confrontation between the U.S. and European Union over subsidies given to their dominant aircraft manufacturers — Boeing and Airbus, respectively.
“The tariffs are terribly negative for our industry as a whole,” said Sariya Jarasviroj, founder and co-owner of a Tucson company, Circo Vino, that imports European wine with shipments currently en route to the U.S.
Sales at Circo Vino, which translates roughly to “Wine Circus” in Italian, are down 50% over the past year given the first round of tariffs and the coronavirus shutdowns affecting restaurants and other businesses, Jarasviroj said.
“It’s a one-two punch for this industry,” she said.
Dispute over aircraft leads to tariffs
Airbus is an aircraft-manufacturing consortium with operations in several European nations with a heavy German and French influence, including a primary factory in southwest France. The latest round of tariffs are centered on French and German wines.
Circo Vino focuses on wine imports from other, unassociated nations including Austria, Hungary and Slovenia, though it does work with a winery in France whose products will be hit by tariffs. More to the point, Jarasviroj fears that many of her customers that rely on higher-margin French and German wines will be hurt too, spreading malaise throughout the business.
“No importer or distributor is immune to the stress on the industry due to tariffs because our supply-chain is so interdependent,” she said.
In announcing the tariffs directed at a wider range of European wines, the office of U.S. Trade Representative Robert Lighthizer said the U.S. was authorized in October 2019 to impose additional duties on $7.5 billion worth of European Union products as a result of World Trade Organization litigation over the Airbus-Boeing dispute.
Still, U.S. officials have been “restrained” in how they imposed tariffs on European goods, the trade office said in its Dec. 30 announcement.
The new tariff applies to many higher-alcohol still wines from France and Germany, though not on those from Spain, the United Kingdom and various other European nations, according to the U.S. Wine Trade Alliance.
European products that are subject to increased tariffs do include aircraft parts from France and Germany but also wine and selected food items from those and other countries plus certain cognac and brandies from France and Germany. Sparkling wines and champagne from France, Germany and other European nations remain tariff free, the trade group said.
Industry makes appeal to Biden
With the change in presidential administrations, many restaurateurs and others in the wine industry are hoping for a more conciliatory approach from Washington.
In the letter sent to Biden, the 52 Arizona restaurants and many others from around the nation requested relief.
“Restaurants, bars and shops, the social heart of our local communities, cannot afford 25% tariffs on European food, wine and drink products and cannot recover (from the general industry slump) with them in place,” the letter read.
“Tariffs hurt many industries, but they hurt the hospitality industry most.”
Valley restaurateur Chris Bianco, who signed the letter, said the new tariffs will put further cost pressures on restaurants and bars at a time when those businesses are in survival mode with already-thin profit margins. Cost increases likely will be passed along, at least in part, to diners, and the impact could result in lower overall sales and less wine selections.
“Raindrops make puddles, and puddles make floods,” Bianco said of the higher costs. “Our industry is in a flood, from a lot of raindrops.”
Bianco said his sales declined and prices rose as a result of the initial 25% tariff nearly a year and a half ago.
Price impact and substitution
Domestically grown wines and those from unaffected nations such as Chile or Australia could gain market share at the expense of European wines, but they also could raise prices. As often happens when tariffs are imposed, domestic and other producers face a choice between raising prices or grabbing more sales at the expense of competitors burdened with tariffs.
But Hitendra Chaturvedi, a supply-chain management professor at Arizona State University, doesn’t think U.S. producers will be able to grab much market share largely because domestic wine production was hampered by the coronavirus pandemic, resulting in shortages of farm workers in some areas, and wildfires last year in some key growing areas.
Besides, he said, substitution doesn’t work so well with wine.
“If you’re a fan of French Burgundy, would you replace it with a California Chardonnay?” said Chaturvedi, a former amateur winemaker himself. “People who are that discerning are going to go after a product they like.”
Importer Jarasviroj agrees. “Wines are so tied to where they’re grown,” she said. “Wines from Chile can’t be slotted into a French … profile, even if they’re the same variety.”
Consumers will share in at least some of the price increases triggered by the latest tariff, though the amounts will vary by type of wine, retailer and other specifics.
During the initial 25% tariff imposed in late 2019, consumer prices increased 5% to 7%, Jarasviroj estimated, with importers, retailers and other middlemen absorbing the rest of the tariff amount. The numbers could be different this time around.
Trade war impact unclear
The signatory restaurants asserted that their recipe for survival in coming months will depend on maximizing sales from profit drivers such as wine, and minimizing the cost of other items and ingredients they sell such as cheese, olive oil and meat (some of which also face tariffs).
The letter added that the earlier wine tariff was a failure that “in no way pressured the European Union to end its aircraft subsidies, yet the Trump Administration has kept the restaurant tariffs in place even through the greatest crisis our industry has ever faced.”
Biden has nominated a new trade representative, Katherine Tai, who might be less focused on imposing European wine tariffs, though it could be many months before the taxes are removed, assuming that happens at all.
Many in the industry hope Biden might take executive action to mitigate or reverse the latest tax.
Chaturvedi thinks the Biden Administration could take action to remove or mitigate the tariffs, sensing that the new president wants to use his honeymoon period to build bridges with trading partners. However, any thawing in trade tensions on this issue could take at least a few months, the professor said.
Industry representatives also are hopeful.
“An executive order to remove the tariffs … would be an amazing thing,” Jarasviroj said, though in the meantime she also urges affected businesses and consumers to contact their legislative representatives.
Arizona Republic reporter Priscilla Totiyapungprasert contributed to this article.
Reach the reporter at [email protected].
This article originally appeared on Arizona Republic: Some European wines could get more expensive with new tariff; Arizona restaurants voice concern