How much will US Tariffs effect French wine and the wine trade between Europe and America


This is an article which focuses on the economic effect of US tariffs on French wine if they go ahead.

Alex Pearcy-Caldwell writes about the French wine market and the effects of US tariffs.

Amongst the US governments most recent set of tariffs, an area which caught the eyes and attention, was an imposed tariff on imported French wine into the US. What this article seeks to explain is how much of an effect this new tariff will have on French wine and the market in general.

In the latter half of July 2019 France announced that they would alter their tax system in order to tax revenue made by online companies and most impotently the US tech giants Gafa (Google, Amazon, Facebook and Apple). The Trump administration believe that America is the only country with the right to tax their corporate giants. Therefore America vowed to tax French wine in retaliation.

But how big are the US as importers of wine?

Well statistics of trade released from the EU agricultural office for 2018 shows that as an importer of wines from all over the EU. The US is the biggest country that Europe is exporting wine to. With Europe earning €3,763 million from the US alone in the wine market, with the next biggest importer of EU wine China and Hong Kong, only importing €1,778 million, half of what the US imports.

However, it should be noted that this is the total amount of wine exported from all 28 member states. But if you look at the data in more detail, the data then shows you that France is indeed the biggest earner, earning €1,704 million from US trade, while Italy is the second highest earner, earning €1,463 million. Although if looking at the volume of wine traded to the US, Italy actually exports more than France with 3,392,294 hectolitres (hl), (1 hectolitre is 100 litres) while France only exports 1,703,729 hl to the US.

The comparison which can be drawn from this data is that generally Italian wine is aimed and sold at a generally cheaper market. While French wine more specifically the well-known wines such as Champagne and Bordeaux are aimed at the upper class markets.

So, what will the tariffs affect?

It will depend on whether it is purely a percentage increase, or whether it is minimum monetary amount and standards based.

If it is the latter, then the French wines that will be affected the most will be the cheaper and less well-known wines, as cheaper wines will end up with the larger percentage change in price making the increase in price more noticeable to would be consumers.

As a result some Americans would move to other countries brands, or be prepared to pay more on the well-known French wines to ensure they get their money’s worth.

If it is purely a percentage basis then all French wines are affected equally, although this would likely have a disproportionate effect on cheaper wines as alternatives would be available to those who are suffering the greatest cost pressures. This is more likely to result in some Americans moving to other countries’ wines.

This can, in a way, benefit Italian wine, as they tend to be on the lower end of the price scale. As French wines increase, so the logic goes, Americans will turn to lower priced alternatives such as their own domestic wines or Italians.

Can it escalate to another trade war? The answer is it can, however it will likely be avoided. This is as America is already in a trade war with China, leading to mainly the US’s agriculture suffering as a result. Although it worth highlighting that it is far more than just agriculture that is being affected on both sides.

Joined up thinking?

Another reason why a trade war will be avoided is due to the mixed feelings among the 28 member states of the EU, as any increase on tariffs on US goods must be agreed to by all member parties. Some members (Germany and Italy) will be against the idea because they worry about US retaliation on their own exports. While others (the UK) will be anti-tariffs with the US because of the amount of Goods they import from the US.

In actual fact the UK is the biggest importer of wines from outside of the EU, importing 6,825,609 hl making up 48.5% of the EU’s total wine imports of 14,073,943 hl. It is also the most valuable with €1,240 million from the EU’s total imports of €2,651 million, making the UK worth 46.77% of total spending on wines imported from outside the EU. The UK is unlikely to agree to tariffs on wines therefore.

From a Brexit perspective, it should be noted that the UK will have wine as a major consideration when negotiating trade deals. Whilst the British government has been looking to impose a similar tax as France, on firms operating business through the internet and thus, it is unlikely the US would target the small cottage industry of wine making as a result. Whilst Britain is likely to incur similar increased tariffs from America, it will be on a different area of the economy.

Summary

Overall it will be unlikely to escalate into a fully-fledged trade war if the US remains focused on France, as France then would be unlikely to get the support from the other 27 members of the EU. However, if America does start adding tariffs to other EU countries, then the likelihood of a trade war will significantly increase.

In conclusion the tariff will have mixed results depending on which area of the wine market you are looking at. The cheaper and less well-known French wines will suffer as a result of the extra tariffs however the more expensive and well-known wines are unlikely to suffer significantly as a result due to already targeting an upper-class market. As Italy could benefit, and other countries will not want a trade war, there could be little retaliation from Europe as France wouldn’t be likely to get agreement from the other member states, meaning that only French wine will really be affected. Whilst that is logical, the EU does not always follow logical thinking when it comes to protectionism.

We would avoid shares in companies linked to French wine production, an industry that has already suffered and had financial casualties in the past few years.

End of article: How much will US Tariffs effect French wine and the wine trade between Europe and America

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was published on 7 August 2019


About the Author

Alex Pearcy-Caldwell

Well-travelled and resident in two countries, Alex is studying Business Economics at University and is a general director of Aisa International s.r.o. He writes about economic data and how it impacts on investment decisions.


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