As if the fine wine industry were not already nursing recent wounds, President Trump brought fresh apprehension to US retailers, and fine wine merchants worldwide with his threat of 200% tariffs on European wines this week. Before panic sets in, we examine the facts and offer our analysis of potential outcomes below.
The Background
Imposition of tariffs by the Trump administration should come as no surprise. Fine wine has already absorbed some impact of this threat surrounding the presidential election last year. First, demand for imports of European wines from the US initially froze, as buyers adopted a “wait and see” approach pending election results. Once clarity prevailed, American demand surged briefly, driven by rush trades seeking import prior to any tariff confirmation.
Initial reaction to the 200% figure has inevitably translated into lost confidence. Shares of European alcoholic beverage corporations dominating market share of FMCG wine and spirits brands took an initial stock market hit, but how will fine wines fare?
Is this the end?
The tactical 200% is no doubt designed to instill fear in the hearts of wine producers across Europe. If threat became a reality, it would cripple the wine industry on a global scale. The US is the world’s largest wine consumer, accounting for 15% of consumption worldwide. One third of all wine consumed in the US is imported, and imports are largely responsible for the 220% growth its wine economy has witnessed since 2002. The idea that any government would allow such a scenario to play out is ludicrous, especially given its negative implications on America’s own economy.
A value-only market
Alternatively, if high (but not excessively high) tariffs are imposed, they could drive up the value of fine wines. While much of Bordeaux prepares to rush-ship wines by air to the US before any official tariff deadline, wines on the ground once tariffs are imposed would become “the market”, therefore offering Americans a much more limited supply of vinous icons. When 25% tariffs were imposed during Trump’s first administration, US-based auction houses claimed the stark increases they saw in hammer prices were partly caused by these internal limitations.
Too bad to be true?
In all likelihood, the current hyberbole around tariffs on EU imports will descend to a more reasonable level. Just like last time, once the actual tariff percentage on EU alcohol is confirmed, US buyers will have sufficient clarity to resume normal buying habits, and said tariffs will prove manageable for the industry. While we await this confirmation, a prolonged market freeze is likely. Considering the potential impact on pricing and access to top wines, long-term collectors should seize the opportunity this presents to build collections in secure, in-bond facilities, such as 1275’s climate-controlled wine vault in Switzerland.
Our philosophy is simple – keep calm, and carry on collecting.