Of spirits, a debate and a spirited debate - Tariffs on wine and spirits!

The tariff war manifests itself in different ways. Raising tariff on imports produces losers as well as winners. We generally assume that increasing tariffs on imports on specific products, will by making those products costlier, benefit local producers of the same. It is a form of protecting one's businesses as well as strengthening one's industry.

News of increased tariffs to be imposed by the US on EU wines and spirits is doing the news rounds here and here. This is in relation to the retaliation in the non-compliance by the EU in the Airbus WTO dispute. The EU is awaiting the WTO order on the Boeing WTO dispute that may perhaps give it the right to retaliate also.

In this blogpost, I wanted to reflect on some of the public submissions made by local US businesses on the proposed tariff rise. There is a portal on which public comments can be given and one can view the public comments already provided. Some of them make interesting reading and opens us to the reality of imports, trade and who benefits. This of course is product and nation specific, but in any case is a fascinating piece of information.

Some of the public comments on the proposed tariffs on wine is naturally from the US wine industry (consisting of US wine manufacturers as well as importers). 

This comment from a wine importer states:

Tariffs related to the importation of European wines will do nothing to benefit the American economy, the business of wine in American, nor the thousands of Americans who make their living through this business. Increased tariffs, on top of the already unnecessary 25% tariffs for certain European wines, will actually harm American businesses and kill American jobs. This will ruin the key relationships and trust in the American market that so many in our industry have worked for decades to create with partners in Europe and that dissolution of trust will only lead those producers to send their products to other, more favorable markets. In the way to the COVID-19 Pandemic, we've already seen hundreds of thousands of American jobs lost as they relate to the wine industry in the hospitality sector, more tariffs will only increase the lose of those American jobs further and make it more difficult for local and national US business to be successful moving forward.

Another one is more elaborate:

Adding a 100% tax on imported wines would devastate these industries, and eliminate the jobs and livelihoods of thousands of Americans, many of whom have specialized knowledge and skills specific to wine importing and that do not seamlessly translate to other industries. In addition to these adverse effects to the far-reaching wine import industry, I am further concerned that this proposed action by the USTR will lead to increased retaliatory tariffs on U.S. wines and set back ****** efforts to continue growing U.S. wine exports. Today, there is a gross surplus of wine – bulk wine in particular – that will not be consumed by Americans. Adding on top of that challenge the possibility of E.U. countries levying retaliatory tariffs, will be catastrophic to many American grape farmers. It could cause the shuttering of countless US wineries, because the E.U. is American wine's biggest export market, totaling $469 million in sales in 2018. I and my company support US efforts to hold our trading partners accountable, level the playing field for American businesses and forge enforceable trade agreements. We urge the US administration to get back to the negotiating table while working with our allies to develop global, enforceable solutions. An escalated trade war is not in the country’s best interest, and both sides will lose. I am counting on you to force a positive resolution that removes the current 25% tariffs, abolishes the proposed 100% tariffs, fosters American competitiveness, grows our economy and protects our workers and customers. 

A succinct, direct one is here:

As the General Manager of a small wine distributor and importer I am strongly opposed to any tariffs levied against European wine, foodstuffs, and other goods in response to the Large Civil Aircraft dispute. The tariffs levied in 2019 have already cost American jobs, and any expanded or increased tariffs will only cost more American jobs. What's more, it's American companies and consumers who end up paying for these tariffs as a result of higher prices. This does nothing to harm the European economy. What's more, these tariffs one wine, foodstuffs and other products have absolutely nothing to do with the aviation industry! These tariffs are misguided, should not be increased or expanded, and in fact should be repealed. Thank you for your time.

On how small businesses will be impacted, not the bigger ones, this one:

I own a small wine bottle shop. Half of my sales are European wines from France, Spain & Germany. I also buy from small importers & distributors. They can't absorb the increase in wines I buy & have my customers enjoying. If I'd have to raise prices at least double, that would put my distributors/Importers out of business, as well myself. What wine has to do with aircraft I have no idea. This will effect everyone in the industry & all you'll end up with is the huge companies. Small businesses built this country, not the Evil Empires! If this country is to continue, this should not happen!

Some support for the tariffs:

Using the approved WTO ruling of tariffs on products that can, and are, already manufactured in the USA will help grow our domestic manufacturing capability, thereby providing jobs in the important manufacturing sector. 

 What does one learn from this? 

Domestic industries (albeit importers/local businesses) are also impacted by tariffs on imported goods. If there is no adequate local manufacturing capacity, then it does not translate to any benefit. The pain of a few domestic players is inevitable when imposing a tariff that seeks to send a message to the importing country to bring its measure into compliance? What about the same products that are being exported? This report shows that as a result of tariffs on wine, American whiskey will also face the same fate in Europe and be impacted. The dichotomy between small businesses (whether manufacturers or retailers) employing local workers and interests of large corporations comes out very clearly. Of course, the consumer is not in the picture out here - typically not organised and electorally significant, her interests of reduced rates don't count!

This news report sums it up:

As the threat of tariffs on certain wines looms, Ades and others in the industry fear that many wineries and connected U.S. businesses will be unable to sustain the cost impact, and that consumers will face a reduction in choices on the wine shelf, in addition to higher price tags.          ....  

 “Tariffs may impact the country of origin, but they also have a real impact on Americans: from a jobs perspective, from a consumption perspective, from a life perspective,” says Ades. “They hurt American businesses and reduce jobs and income, which is why American wineries universally oppose these tariffs as well. It weakens their customers and their distributors.” 

Who are the winners and losers? Where are jobs lost? Which industry is impacted the most? What do consumers gain from this? How does it impact the country of origin? 

It is sure a spirited debate!