Wine industry could be next victim of US, China trade war

Wines of Substance owner Charles Smith on the state of the wine industry and the success of his business.

With no end in sight to the nearly year-long trade war between the U.S. and China, California winemakers are bracing for the long-term impact of tariffs from Beijing.

In mid-September, China responded to $250 billion worth of tariffs imposed by the U.S. by slapping its own retaliatory tariffs on $60 billion worth of U.S. goods -- including an additional 10 percent tariff on wine. In April, taxes on U.S. wines sold in China rose nearly 20 percentage points to 66 percent from 48.2 percent, according to the Wine Institute.

“China continues to be an important market for California wines, but tariffs put our products at a price disadvantage,” said Robert Koch, the president and CEO of Wine Institute, said in a statement.

Competitors, meanwhile, are beginning to shift toward tariff-free access to China, with Australia set to do so in 2019. Chile and New Zealand already struck free-trade deals with Beijing.

Although Chinese demand for wine has been steadily growing – U.S. wine exports to China and Hong Kong have climbed by 450 percent in the past decade – American wine exports to China fell more than 4 percent in January through August, compared with the prior year.

The value of the exports stayed mostly the same, up less than one percent in January through August, compared with the prior year to $44.7 million in revenue, according to the Wine Institute.

The tariffs could also exponentially hurt California, which produces more than 90 percent of the 380 million liters (worth $1.53 billion in revenue) sent abroad. The industry alone employs 325,000 Californians, generating more than $57 billion in economic activity and attracting more than 23 million tourists to visit wineries each year.

“There's nothing good that can come of these tariffs,” Michael Havens, a winemaker and a wine export broker at California American Terroirs, told the San Francisco Chronicle.

On Thursday, President Trump said in a tweet that he had a “long and very good conversation” with Chinese President Xi Jinping “with a heavy emphasis on trade.”