Since President Donald Trump took office in January, a new trade war has begun as multiple tariffs have been threatened, enacted, and paused in various succession. The alcohol industry was almost immediately drawn into the conflict, as Canada promised retaliatory tariffs on American alcohol and pulled products from shelves in several provinces. That only escalated when Trump enacted 25 percent tariffs on aluminum and steel imports, causing the European Union to slap back with 50 percent tariffs on American whiskey.
On March 13, Trump announced on Truth Social that he would enact 200 percent tariffs on “all wines, Champagnes, and alcoholic products coming out of France and other EU represented countries” should the EU not remove their tariff on American whiskey. “This will be great for the wine and Champagne businesses in the U.S.,” he asserted simultaneously.
But that’s not entirely the case. Taking aside the broader landscape of American wine businesses—retailers, restaurants, importers, distributors, and more—the vast majority of which will have to absorb or pass on higher costs to their customers, tariffs on imported wines may even be detrimental to American wineries and wine brands.
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“While tariffs are intended to strengthen the position of American producers relative to foreign producers, the reality of tariff implementation is that it hurts the entire wine industry,” says Remi Cohen, the CEO of Domaine Carneros in the Napa Valley. “Not only do certain tariffs increase the cost of goods used to produce wines domestically, tariffs on imported wine also impact the domestic industry by having a negative impact on distributors, retailers, and restaurants who work with imported wines. These are critical partners of domestic producers and if their businesses are adversely affected by tariffs, the pain is felt throughout the entire wine industry.”
Overnight Restaurant Closures and Lost Consumers
The basic assumption is that buyers—and therefore consumers—will swap out imported wine for domestic products, but Jim Fischer, who co-owns Oregon’s Fossil & Fawn with wife Jenny Mosbacher, dismisses this. “It’s facile to think that simply increasing the tariff on European wines will increase the sales of American wines,” he says. “There’s no one-to-one replacement for a lot of these wines in the portfolios that they’re sold out of.” As Harry Root, the president of Grassroots Wine, a family-run wine distributor and importer operating in Alabama and South Carolina, points out, the economists positing these ideas are often not familiar with the wine industry. “The reality is that wine is not fungible,” he says.
Some restaurants can shift from EU wines to domestic alternatives, but certain concepts—say, an Italian restaurant only serving Italian wine—are less flexible. “This will inevitably lead to making an incredibly difficult business even harder, leading to more [restaurants] going out of business and the market size of independent accounts shrinking,” says Zach Pelka, the chief operating officer of Une Femme Wines, an American canned wine company.
“To be clear, 200 percent tariffs would destroy the wine distribution network across the country in the U.S., and would make national distribution unattainable for thousands of small wineries.” – Harry Root, Grassroots Wine
Furthermore, many restaurants make a significant percentage of their profit from markups on imported wine, which tends to be cheaper and supports the rest of their business. “Nothing can compete with the profit-making potential that we get from EU wines,” says Root. “There are thousands of EU wines that American businesses make a lot of money off of, disproportionate margins to what they make on American wine. The American wines, as great as they are, really can’t replace those price points.” According to the U.S. Wine Trade Alliance, U.S. wine companies earn $4.52 for every $1.00 spent on imported wines.
Even if American wineries were to capture a greater share of on- and off-premise programs, that customer base would surely be decimated. “Frankly, restaurants are going to close,” says Root. “A 200 percent tariff would mean overnight closures of thousands and thousands of restaurants all across the U.S.”
In contrast to the strong demand for wine when tariffs were levied on the EU in 2018, the wine market is currently struggling to maintain its consumer base and garner enthusiasm among new generations of drinkers. Faced with higher prices and fewer choices, many consumers will simply turn away from wine altogether.
“It feels like this is kicking us when we’re already down,” says Mosbacher, pointing to the industry’s downturn due to inflation and an uptick in activity from anti-alcohol groups.
“It’s just going to increase the fragility of the whole market,” adds Chris Walsh, the owner and winemaker of The End of Nowhere in Amador County, California. “We’re not in a robust place to weather this.”
As Distributors Take a Hit, So Will Domestic Wineries
A key concern is the impact to the distribution tier. “To be clear, 200 percent tariffs would destroy the wine distribution network across the country in the U.S.,” says Root, “and would make national distribution unattainable for thousands of small wineries.”
American producers echo that sentiment. “Each of our distributors has a significant international portfolio in addition to their domestic portfolio,” says Mosbacher. “To cut that out of their business is taking half of their business, if not more. So it is bad news for everyone.” Fischer agrees, noting that many of these businesses are small and family-run, and “often rely on imports to keep their business afloat, which helps keep people employed and helps people keep selling Fossil & Fawn.”
Many small wineries worry that they would be the first impacted by distributor consolidation. “It’s already hard enough as a small producer to find distribution in other states and in other markets, and if there’s fewer people to go to, it’s going to be that much harder,” says Walsh.
Pelka agrees. “If the distributor tier is faced with significant disruption, they’re going to continue to double down on bigger brands with more awareness, better supply chains, and more accessible capital.”
If these tariffs are formally enacted, the business ramifications could be immediate. Many importer-distributors currently have wines in transit, and should they dock after tariffs are in place, those American companies will have to pay 200 percent more than they initially budgeted when placing the order. “That product has already been shipped, and producers are going to expect payment for those goods,” says Adam Lee, the owner and winemaker of Clarice Wine Company, Dial Tone, and Busy Signal in California, as well as the forthcoming Étienne in Lirac, France. “I really feel for [those import] businesses.”
The Impact of Uncertainty
Even if Trump’s 200-percent tariff threats never come to fruition, the threat alone is impacting American wine businesses—and trickling down to domestic wineries. “If I was an importer right now, I would be afraid of your bottom line,” says Walsh. “You’re probably not thinking of expanding your markets—you might be looking at how to trim your costs. And it could be that if you’ve got a domestic producer that doesn’t earn you very much, maybe you don’t buy wine from them.”
“It’s just going to increase the fragility of the whole market. We’re not in a robust place to weather this.” – Chris Walsh, The End of Nowhere
That’s exactly what is playing out right now. “We’ve effectively frozen adding any new wineries, domestic or foreign,” says Root, whose portfolio represents about 80 U.S. wineries, as well as many international producers. “We just got back from a trip from California where we met with three new wineries that we want to add to our portfolio. But because we’re having to preserve cash now because of the tariff threat, we won’t be doing business with them until this storm has passed.”
With all this volatility, “How does a [domestic] winery know how much to produce?” asks Max Rohn, the CEO of Wölffer Estate in Long Island. “The lead times are long and you need stability in the market to determine quantities, which can take years to hit the shelves. Even if no tariffs come to pass this time around, it erodes our ability to predict the future.”
Short-Term Growth, Long-Term Decline
Pelka acknowledges that there could be an immediate financial benefit to some American wine brands, which are now in the position to either rapidly capture market share from their European competitors or increase their sales prices and margins to be on par with a more expensive market. “The reality is that American brands will do both, creating inflationary pressure to consumers,” he said in a statement. However, domestic producers should look beyond short-term gains. “The question at the end of the day for American wineries becomes: is that benefit [to your brand] greater or less than the impact throughout the full-tiered system?” he added in an interview.
Larger brands could potentially see gains from tariffs on imported wine. “If you’re huge and you have a big enough market share where you can control some of your own distribution, then I could see that this could potentially be a benefit for you if you keep your prices the same,” says Walsh. Lee, for example, thinks that American rosé could see gains as the prices of French mainstays skyrocket.
But the team at Wölffer Estate, which produces a highly popular domestic rosé, doesn’t necessarily think that will happen. “We have experience from the Trump 1.0 wine [tariffs],” says Rohn. “We did not see a meaningful increase in sales from that.”
And for relatively small producers, such as Fossil and Fawn, filling gaps in the market is not a possibility. “A lot of American wine is operating on such razor thin margins, as are restaurants that have wine programs,” says Mosbacher. “There may be an opportunity for some domestic wines to fill the void left by increased costs or just an absence of European wine, but I don’t see how small producers like us are capable of filling that niche very easily.”
In addition to the upheaval caused by EU tariffs, American wineries are also dealing with the impact of retaliatory tariffs and boycotts of American alcohol in Canada, as well as the impact of any potential tariffs on goods required to make American wine, such as glass or aluminum. Right now, all American wine businesses can do is make their voices heard and try to weather the storm.
“[We’re] trying to just hold on tight and support one another and remember that we’re all in this together,” says Mosbacher, “and that hopefully, as we come together as a community, that we can be stronger as a united industry.”
Dispatch
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Courtney Schiessl Magrini is the editor-in-chief for SevenFifty Daily and the Beverage Media Group publications. She has held sommelier positions at some of New York’s top restaurants, including Marta, Dirty French, and Terroir, and her work has appeared in Wine Enthusiast, GuildSomm, Forbes.com, VinePair, EatingWell Magazine, and more. She holds the WSET Diploma in Wines. Follow her on Instagram at @takeittocourt.