An Economy of Imports
Tariffs are taxes on imported goods. The resale of imported goods, from machine parts to citrus is a bedrock of the American economy. If you are reading this, something (most likely your device) did not originate on American soil.
Hundreds of thousands of people rely on imported goods whether they’re making nails in mid-Missouri to making margins during happy hour in a Midtown, Manhattan restaurant with $10 glasses of Bordeaux.
Tariffs, Subsidies, and Exemptions
American consumers are largely unaware of price fluctuations. Importers and distributors have spent decades building a market for their products, and plenty of negotiation happens with suppliers in origin countries.
Some industries receive government subsidies when their livelihoods are threatened by government-imposed tariffs or retaliatory tariffs in other countries, like soybean farmers affected by Trump’s trade war with China. While subsidies do little to alleviate the pain, in some instances they allow business owners to plan for the coming year.
The wine and food industries affected by the proposed 100% tariffs will NOT receive any subsidies.
Some industries have enough leverage in Washington to appeal for tariff exemptions. The aforementioned mid-Missouri nail factory that saw sales drop by 60% following Trump’s steel tariffs, finally received an exemption after 10 months, which will allow them to return to competitive pricing, and yet the damage was done.
Not Just Wine
In October 2019 the Trump administration placed a 25% tariff on imported wines, whiskey, and other European goods in retaliation for European subsidies to Airbus, a producer of large aircrafts and competitor to American Boing. See the full list.
Where and when possible, importers and distributors absorbed the added costs to keep prices, and therefore their customer base, consistent. While you may have read about it, it’s unlikely you noticed a radical price increase in Parmigiano Reggiano or Greek yogurt at your local grocery story. That will change.
This Won’t Last Forever Right?
The tariffs might not last, but the effect will be long-term and potentially devastating. The goal of levying tariffs on imported goods (taxing Americans) is to put pressure on foreign governments to facilitate trade and favor American imports abroad. Trade wars are supposed to end in a negotiated response. Ideally importers are able to return to pre-tariff pricing and recuperate losses. If these 100% tariffs (taxes) go into place, entire business models will be affected for years to come. Many will not survice.
Long-Term Projections are Impossible.
At every level, business owners make purchasing and hiring decisions based on projections of what they can afford to import, distribute, buy and sell, months in advance. As this article explains, every aspect of the wine business is affected when the prices increase.
European Winemakers Will Sell to China.
The Asian wine market is exploding. Even small producers and exporters are making a footprint in Asia, China specifically.
This is already happening. The DATA is in and it’s damaging to USA economic growth.
Click to see the shift of our wine industry revenue lost, and GAINED in Chine.
A diverse client portfolio makes sense, and American-European wine relationships go back beyond a century. That said, wine producers abroad can no longer afford to allocate wines to the United States when their sales are threatened. Read more from a respected American importer’s experience.
The Three Tier System
Our three-tier system, for wine and spirits distribution requires that all products, domestic and imported to employ a distributor. By the time the wine ends up in your glass, it’s been marked up several times:
- At the port of entry (if imported, including across state-lines).
- By distributors, who employ everyone from warehouse workers to drivers, administrators, sales agents, and accountants, not to mention larger distributors with enough cashflow to create marketing positions.
- Finally, buy retailers, on-premise restaurants and bars, or off-premise stores.
American Winemakers are at Risk.
The first response the proposed tariffs is usually, “won’t this be great for domestic wine production?” Giant domestic wine conglomerates won’t feel as much of the pain, but for the majority of small and medium-sized American wine producers, like Jason Haas, Partner & General Manager at Tablas Creek Vineyard in Paso Robles, California, 100% tariffs on European wine could decimate their ability to get their products on shelves, due to the three-tier system of distribution.
“Every one of the 50+ distributors who sells our wine also sells wine from countries around the world. Every one. There is no such thing, in my experience, as a domestic-only distributor. And for many of these distributors, a majority of their sales comes from European wines. These distributors would be devastated by tariffs that would slow that segment of their business to a trickle. Distributor salespeople, who are paid by commission, would see an immediate decline in their standard of living. Distributors would likely result by cutting sales staff and increasing the number of accounts each salesperson called on, reducing their ability to interface with accounts and sell the other wines in their portfolio.”Jason Hass, Tablas Creek Vineyard
He and others explain that American wineries can never fill the the gap or supply wines that possess the distinctive qualities and prices that come from Europe. American wine production is costly, and much of that is due to government regulation and taxation.
Property taxes and insurance drive up the cost to the extent that many American wineries can barely break even. Wine taxes vary by state, making it nearly impossible for American wines to compete. That is not Europe’s fault.
Importers, distributors and retailers will look elsewhere to satisfy their clients’ demand most likely from South American and other emerging wine markets, but those relationships will take months or years to create and foster. Many importers and distributors will drastically reduce operations, ie. LAYOFFS, or shut down all together. Restaurants that cannot make their margins on wine sales will close.
American Jobs Are At Risk
American supply chains dealing in imported goods, like three-tier system for wine, employ hundreds of thousands of people. The current 100% proposed tariffs on wine, food, and other European goods could decimate a segment of the American economy in irreparable ways.
“The US wine industry employs 1.74 million people and generates $68.1B in sales through both retail and hospitality channels. Approximately a third of these sales are from imports, 75% for wines produced in EU countries. Those wines are sold by every mom-and-pop corner liquor store struggling to pay the rent, every salesperson trying to meet her sales target, every young person waiting tables to put themselves through school, every truck driver working around the clock to deliver packages to consumers and businesses, and many thousands of other middle-class Americans around the country who work in the wine industry. The proposed tariffs, which range from 25-100%, will have a devastating effect on these people and their families.”Antonio Galloni. CEO Vinous Media
As this article, also by an American wine producer, points out, “If these tariffs go into effect, it will truly punish American small businesses, American jobs, and American consumers much more than any EU country.
What Can I Do?
Time is running out but you can make your voice heard with a comment on the Regulations.gov. Do this TODAY.
Go to the upper right and click the COMMENT NOW button. Let the US government know how this will affect you personally. It’s not just about paying more for wine. It is your livelihood or the financial devastation of hundreds of thousands of Americans.
Contact Your Congressional Representatives.
No taxation without representation! Call your legislators and let them know how you feel.
Ask them to support a stay on the implementation of 100% proposed tariffs on European goods so that Congress can continue to hold hearings on the devastating effects on such an action. Read transcripts from earlier hearings on January 7th for expert commentary how tariffs will ravage industries. Transcripts from January 8th.
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