Devil's Advocate: More Thoughts About the Trump Tariffs

Robert Joseph offers an updated version of his early reactions to the US president's on-again, off-again tariff policy.

Reading time: 5m

Image: Cath Lowe / Midjourney AI
Image: Cath Lowe / Midjourney AI

When you throw a pebble into a pond or stream, it’s impossible to say how large the ripples will be, how far they will travel, and the impact they may have. And when the surface of the water is hit by a rock the size of Donald Trump’s new tariffs, the effects are certain to be especially deep and wide.

Of course, at a superficial level, wine-producing countries will be comparing the level of tariff that is going to be applied to them. Australians and Britons, for example, may be celebrating their 10%, compared to the 20% imposed on the Europeans and the 30% the South Africans have to deal with. But, to be honest, it is only like the debate between English school kids back in the days when it was legal for teachers to beat them with a cane. 

They’d all ask each other ‘How many strokes did you get?’ The only certainty was that they’d all be suffering from some level of bruising. And the knowledge that the teacher might find fault with them again at any time.

Most obviously, everyone exporting wine to the US is going to find it harder to compete with local brands. This would be tough in an expanding market but, as we all know, on the other side of the Atlantic, it’s shrinking. Every bottle sold to a new customer almost certainly means a loss of a sale by a competitor who was already struggling.
 

Reducing commitment

The new tariffs arrive at a time when big US distributors have reduced the size of their sales force. Their commitment to wine - like Constellation Brands’ - is already shallow, so there’s a substantial risk of them dropping some imports completely. 

One Italian producer welcomed this prospect. For them, the tariffs will open the door to smaller, more wine-focused companies. He may be right; I’m far less optimistic.

Another obvious issue is over who is going to pay the new bill. Early indications suggest that the US distributors are reluctant to either share the extra costs from their own margins. Producers, at the lower end of the price scale in particular, have been realistically open to carrying half the burden, but they are neither willing nor able to bearing all of it. Inevitably this situation increases the chances of some wines falling out of the US market completely.

A significant US importer has told me quietly that they canceled some European shipments when there was talk of tariffs at 200%. But they are not going to reorder those wines now there is 'only' 20% to pay. In other words, the sales have been lost.

Terroirists may balk at the idea, but there are wines whose production could be switched to the US. Stella Rosa and XXL are both currently made using European Muscat, but few consumers of these wines care where the grapes were grown. The challenge for the brand-owners, however, lies in finding US-grown fruit at a sufficiently attractive price.

On the other hand, there are producers of ‘US’ wine who’ve been relying on bulk imports from Spain and elsewhere to make up 50% of their blends who are going to have to raise their prices.

 

Insights

President Trump has imposed tariffs of between 10% and 20% on wines from Europe and other countries. Jeff Siegel reports.

Reading time: 4m 45s

Changes in Canada

The next prime minister of Canada, a country which has every reason to feel especially bruised right now, is going to face a lot of specific challenges, but it has been suggested that one consequence of Trump’s moves will be more trading between provinces. This may include oil pipelines, but also alcohol monopolies.

Europe, which has shown signs of structural instability, may well pull closer together, though it is unclear whether the decision to apply a lower - 10% - tariff on the UK and talk of a trade deal will lead to the UK being further separated from the EU. British resistence to chlorinated chickens, hormone-boosted beef and US companies’ involvement in British National Health Service may, in any case, limit the extent of any deal. 

Another unknown is the impact the tariffs will have on currencies and the international economic system. Will the dollar fall in value against the Euro? Will we see a global recession?

A stronger dollar would hurt US exports; a weaker US currency while, temporarily at least, putting some more money in successful exporters’ pockets, will simply exacerbate the problem of rising import costs and overall inflation. US wineries, it should not be forgotten, use imported corks, bottles, tanks, presses, botting lines and barrels. Costs of all of these will rise. Switching from French to American oak will not be an acceptable option for many producers. US manufacturers of top quality winery equipment are not going to spring up overnight.

And, in the more immediate term, recession is bad news for everybody. On Wednesday 9th April, Jamie Dimon, CEO of JPMorgan Chase told Fox Business’ "Mornings with Maria" that a recession and defaults by borrowers are a probability. As the day progressed and talk centred around China's decision to raise its own reciprocal tariffs, it became clear that US Treasuries, once a safe haven in times of financial uncertainty, were facing heavy outflows.

As we go to press on Wednesday evening, we learn that - apart from China - the other 'non retaliatory' nations wil get a 90-day reprieve.

But, for most serious observers, the damage has already been done, just as it has between the US and Canada. The Trumpian status quo is one in which nothing is certain or predictable. There is no such thing as a friend, ally or trusted supplier of customer. 
 

Slower to place big orders

Everything is transactional and dependent on the value of a nation at any given moment. Investors notoriously hate uncertainty, but so too, do big businesses. The knowledge that huge tariffs can be applied overnight, while a shipment is halfway across the ocean, is now going to hang over every US importer and exporter when there is discussion of an order for a few containers of wine – or any other product. From here on, producers are going to want clarity over who is going to pay any increased costs. And without those costs being predictable until the shipment hits US soil, importers are not going to want to provide it.

The possibility of any order being the last from a US customer is, similarly, going to be in the back of the mind of every exporter.

Anyone who wasn’t already beginning to think about building a market for their wine in Asia or Africa or the Emirates or Eastern Europe is now almost certain to be doing so.

More to come?

Finally, just in case anyone outside the US may think they’ve taken their beating, everyone needs to remember that the battle over the tech companies has barely begun. President Trump has already made it clear that US consumers’ reluctance to buy Tesla cars is unpatriotic; European and other countries’ attempts to restrict or tax big US businesses like Apple, Google, Meta, Twitter/X or Amazon will almost certainly lead to (even) more punishment.

Some 300 US buyers were flown into Verona for the Vinitaly fair. They were well-received, but everyone acknowledged the cloud that hung over every conversation.

Over the next few days, US wine enthusiasts and professionals will travel to Bordeaux for the 2024 en primeur campaign. Some of them may be able to focus totally on the liquid in their glass without thinking about the financial storms that are likely to break. They will be the exceptions.

It would be very good to be able to end on an optimistic note.

But the ripples are still spreading.

Insights

After 80 years, the giant US company is exiting the wine business. Jeff Siegel reports.

Reading time: 4m 45s

 

 

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