Considering Trump’s tariffs on European wines – restaurants and retailers nationwide could be in for a big hit.
Just when you thought things couldn’t get worse after the 25% EU tariff last October, the restaurant industry gets hit with two more blows. First, on Dec. 6 the United States Trade Representatives announced they’re considering a 100% tariff on French wines and goods in response to France’s new digital services tax. Second, on Dec. 12 the USTR decided that the EU wasn’t doing enough in regards to the Boeing vs. Airbus subsidy dispute and so, is considering raising the current 25% tariff to the full 100%.
If you’re confused, don’t worry — this double whammy is most definitely confusing. After all, what do the tech and aerospace industries have to do with food and drink anyway? But the potential impact is plain as day — the wine industry is going to get hit the hardest first, casting a dark shadow on the food and drink industry at large.
Mindy Cook, Beverage Director at Toro Bravo Inc. in Portland, Oregon, spoke to us on the potential influence a 100% tariff could bring to the industry. Mindy explains, “At first, buyers can be creative, sourcing what hasn’t been affected by the tariffs, buying what they can to keep those numbers down or simply purchasing lesser quality wines.” She continued, “The reality will soon creep in to make a decision to either take a lower margin, or raise prices to between $16 and $32 per glass.” She went on to explain that the average customer likely expects the restaurant to eat the costs — which is simply unrealistic given the small margins most restaurants are already working with. For survival, wine quality will have to go down or prices will have to go up — a hard pill to swallow either way.
“The real cost of the tariffs is seeing some of our beloved small restaurants shutter in the face of these serious price increases,” Mindy continues. “The small distributors who we cherish in Portland to bring us all the unique and small family run wineries will close as their business depends on imports, and glass pours are their bread and butter.” While Mindy speaks specifically of her home city of Portland, the issue is mirrored across the nation. “Closing distributors means local wineries don’t have a place to sell their wines, both in the local and national market,” she notes. With less businesses to distribute wine, and potentially more demand from consumers, we could see a rise in the cost of domestic wines as well as they become harder to get and harder to produce to scale. Mindy predicts that a 100% tariff on European wines could cause, “… a collapsing wine market in America for both imports and local wines.” Which would be catastrophic to the economy at large.
As we move forward into the new decade, it feels as if we are actually moving decades behind as a nation. I wish I could end this article with some good news, but given the current state of things, it’s really just scary for many reasons. The best thing you can do as a small business is begin to prepare. At this point, increasing tariffs is only being considered, and like other things, could change with a whim. Giving yourself time to prepare is currently your best weapon for surviving these disruptive trade wars. Start thinking about how your business can adapt, budget and plan — and hold on to hope that these tariffs won’t last long if at all.
UPDATE, February 17, 2020: Since the publication of this article, the Trump Administration and France have agreed to postpone the tariff increase and tech tax as they continue to negotiate a solution to the taxation of U.S. tech companies in France. As always, we will continue to watch as this unfolds and update you with the most recent information.