Alcohol is at the forefront of the global trade battle
From champagne to bourbon, alcoholic beverages have become pivotal in the ongoing global trade conflict. Alcohol has emerged as a significant player in a global trade conflict, placing French wines, Irish whiskeys, Kentucky bourbon, Japanese beer, and Mexican tequila in the midst of tensions between the United States and its major trading allies. In Ontario, the provincial liquor stores have removed California wine and Tennessee whiskey from their inventory, opting instead for local alternatives, accompanied by signage proclaiming: “For the good of Canada.” A wine director at a restaurant in Washington state is apprehensive about the impending arrival of shipping containers laden with European wines that are priced beyond market viability. The governor of Kentucky is advocating for the preservation of the bourbon industry. Makers of American sparkling wines are positioned to reap substantial financial gains.
On Thursday, President Trump initiated a new economic strategy, proposing a 200% tariff on all alcoholic beverage imports from the European Union to the United States. Trump’s statement was a reaction to the European Union’s decision to implement a 50% tariff on American whiskey. Thursday’s escalation triggered alarm across both sides of the Atlantic.
According to data from Eurostat, the EU’s wine exports to the U.S. exceeded $5 billion last year. Nearly 50% of that originated from France, while approximately 40% was sourced from Italy. A 200% tariff would elevate the prices of numerous bottles on retail shelves beyond the $20 threshold that a significant portion of American wine consumers deem acceptable, remarked Lamberto Frescobaldi, head of the esteemed Italian winemaking lineage that has persisted for 30 generations. Beyond that price threshold, he remarked, “the majority of consumers are unlikely to make a purchase.” Remi Cohen, the chief executive of the modest California producer Domaine Carneros located in Napa and Sonoma counties, was relaxing in her hot tub on Thursday morning when she encountered the tariff headlines on her phone, prompting an immediate increase in her heart rate. A producer of domestic sparkling wines and pinot noir, she appeared to be a clear choice to celebrate the announcement. However, the winery, which is under the ownership of France’s Taittinger family alongside the American Kopf wine-distributor family, was already facing challenges due to the tariff disputes initiated by Trump.
In light of impending U.S. tariffs on steel, the winery proactively secured its steel requirements for trellises to facilitate the replanting of a segment of its vineyards late last year. Recently, the winery has been evaluating the implications of tariffs on imports from Canada and Mexico, which may influence the pricing of glass bottles. Cohen indicated that the imposition of a tariff on European alcohol may adversely affect the interconnected ecosystem of retailers, distributors, and restaurants that Domaine Carneros relies upon. “Should they experience adverse effects, the repercussions will reverberate across the entire industry,” she stated.
It is important to note that the implementation of a 200% tariff on European alcohol is unlikely to occur. The implementation may experience postponements, reductions in scope, or be limited to a brief duration. In February, Trump was on the verge of enacting a 25% tariff on all imports from Canada and Mexico, which would have included Canadian whisky and Mexican tequila, but ultimately postponed the decision for one month at the last moment. The tariffs were implemented for a short duration this month before being predominantly suspended.
Ontario Premier Doug Ford responded with a counter-offensive targeting American alcohol policies. The Liquor Control Board of Ontario has removed American alcoholic beverages from retail outlets and has instructed bars, restaurants, supermarkets, and convenience stores to cease placing orders for products originating from the United States. “The governor of Kentucky asserted, ‘Do not interfere with our bourbon.’ Ford stated, “Governor, that’s the first issue we will address,” during a recent press conference. “Kentucky bourbon manufacturers have reached their conclusion; they are no longer in operation.”
Other entities are also engaging in proactive measures. This week, Asahi Group, a prominent player in Japan’s beverage industry, announced a substantial investment of tens of millions of dollars aimed at initiating and enhancing the production of its flagship Asahi Super Dry beer at a facility it acquired in Wisconsin last year. Asahi has been bringing the beer brand into the U.S. from Italy, which may expose it to the implications of potential U.S. tariffs on European goods. “That is an aspect we cannot overlook,” stated Atsushi Katsuki, Chief Executive of Asahi.
Erik Liedholm, the wine director overseeing three establishments in Washington state, reported that he became aware of Trump’s recent threat on Thursday, as his phone was inundated with messages from colleagues in the wine industry engaged in trade with Canada and Europe. “They were merely expressing, ‘What actions should I take?’ What actions should I take? <text”Liedholm remarked on the trail of texts, describing it as nothing short of extraordinary. “I found myself at a loss for words.” An email from his wine importer conveyed the information that prices would be increasing. “Our margins are increasingly compressed,” Liedholm stated. With shipments currently en route, one might liken the situation to boats arriving with a contagion.
Should a 200% tariff be implemented, the mechanics of its operation would unfold as follows: The retail price of a bottle of Champagne is generally set at $50, while the cost to the importer hovers around $20. Imposing a 200% tariff would result in the importer’s cost increasing to $60, effectively tripling the initial expense. Should the importer and retailer maintain their joint profit margin of $30, the $50 bottle of bubbly would be repriced at $90. However, importers contend that a more probable outcome is a complete cessation of imports. The market for those bottles simply failed to materialize.
Imposing tariffs on European alcohol may enhance the prospects of American wineries, as their products vie for market share against European imports. Producers of domestic sparkling wines may find advantageous opportunities should the prices of Champagne and prosecco experience significant increases. However, certain winemakers have expressed skepticism regarding the potential of levies to significantly alter the domestic wine industry. European wines constitute a small fraction of the total wine sales in the United States.
Oren Lewin serves as the chief executive of IBG Wines, which boasts a portfolio featuring Oregon Pinot Noirs marketed under the Duck Pond Cellars, Rascal, and Firesteed brands. According to Lewin, these options may function as substitutes for European burgundies; however, he refrains from modifying the company’s business strategies in anticipation of possible tariffs. “We focus on the factors within our control,” he stated.
Cedric Nicaise, a co-owner and sommelier at the Noortwyck in Manhattan, expressed skepticism regarding the likelihood of American consumers altering their drinking habits. On Thursday morning, while consuming coffee, he received a message from a frequent patron, with whom he had enjoyed a glass of Marquis d’Angerville Volnay the previous evening. The communication indicated: “Consumed at the optimal moment!” Nicaise procures approximately 30 to 35 cases of wine each month for his establishment. The predominant nationalities are French, Italian, or Spanish. “Consuming Burgundy may lead one to opt for a Pinot Noir; however, one might also choose a cocktail,” Nicaise remarked. One does not simply transition to American wine. The consumption of French wine is driven by specific factors.
