How the Wine Industry is Hit By China’s Counter Tariffs

Trump’s trade measures against China invokes another series of tariffs, that will hurt American producers and exporters tremendously. Is it worth it?

In response to President Trump’s protectionist tariffs on steel and aluminum as well as new duties on Chinese goods, China has also proposed a series of tariffs on up to 128 American goods, including soybeans, pork and airplane parts.

A specific target of these retaliatory tariffs is wine, which has not surprised many winemakers who have foreseen this hit coming. The president of Honig Vineyard and WInery, Mr. Honig, commented: “The reason the government realizes they should penalize us is, we are branded. It’s hard to go after a wheat grower, because who is a wheat grower? It’s a commodity. We are not a commodity.”

Winemakers, many of them situated in California, have spent years catering to the demands of Chinese consumers and are now losing the market they have carefully carved out and cultivated in the past years. Last year, American wine accumulated over $80 million last year just from exports to China, a figure that has increased by seven times in the past decade. This fast growth, however, is about to burst as it makes the wine industry a more vulnerable and visible target to Chinese policymakers.

China has announced the 15 percent tariff on Monday, and Jim Boyce, whose blog, the Grape Wall of China, has been paying close attention to the wine industry in relation to China, remarked that “Wine is something people can relate to. It’s like putting a tariff on Chinese dumplings. It’s something you can feel on an emotional and personal level.”

The major consumers of American wine in the past decade are those who have risen into economic prosperity recently and not yet at the level of ultra-rich yet. These consumers open up a market less exclusive than one targeted towards the top one percent and they constitute the driving force of the wine culture amongst the elite, upper-middle class in China.

Mr. Honig, paying frequent visits to China, especially to Beijing and Shanghai, the major commercial cities, have noted that “there are people who want to spend the most, but there are also aspirational buyers. You may want to buy the Rolls-Royce, but you can afford the Mercedes.”

The most popular wine of Mr. Honig sells at $25 a bottle and every year, over 500 cases of these got sold in China. With high tariffs, taxes, cuts and passes during the distribution of the wine, it ends up being sold in China for around $100, a price much steeper than the original.

An extra 15 percent tariff would take a toll on the sale of the wine as while the recently rich consumers are happy to splurge on Mercedes, they would not want to pay the price of a Rolls-Royce for a Mercedes. American wine would also lose its price advantage, since “if all they’re looking at is two different bottles side by side, and we are competing with Australia and Chile, that’s a big competitive disadvantage.”

This was reciprocated by importers in Shanghai, acknowledging that despite Chinese consumers’ fondness of Californian wine, a high price tag would still be a turnoff and makes other wines more attractive. This tariff targeted towards American wine would turn importers to cheaper alternatives and hurt American exports tremendously.

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