American Businesses May Become Collateral Damage in Trade Dispute

A public hearing convenes tomorrow morning in Washington, DC about a proposed 100% tariff on goods imported from France. French sparkling wine is the only wine affected on this proposed list of $2.4 billion of imports that includes handbags, makeup, French cheese and haute couture. The root of this dispute is a “digital services tax” that France has imposed on the world’s biggest technology companies, most of which are American.

Concurrently, the large aircraft dispute threatens to impose tariffs of 100% on all wines imported from Europe. This is a separate matter that pertains to Airbus subsidies. The US and the EU have had this dispute simmering since 2004 but the issue came to a head on October 7. At that time, the World Trade Organization issued a ruling that gave the US the green light to levy tariffs on $7.5 billion worth of goods. The list that the US Trade Representative drew up included some wines from France, Spain, Germany and the United Kingdom that were hit with a 25% levy less than two weeks after the WTO ruling.

The wine trade is justifiably on high alert about both trade disputes. While Champagne and sparkling wine tariffs will be painful for many importers, distributors, retailers and restaurateurs, it is the proposed tariffs in response to the large aircraft dispute that present an existential threat to the wine industry. A 100% tariff on European wines would cause sales of those wines to plummet. This would lead to layoffs at some importing companies, distributors and wine shops and some US business could close if it goes on for an extended period. Importer Jenny Lefcourt of Jenny & Francois has not minced words on the matter, writing in the New York Times that she could be out of business by April if the tariffs are raised.

The US Trade Representative has elicited public comment on the large civil aircraft dispute through January 13. There has been an outpouring of comments from members of the wine trade and consumers: So far, 12,763 comments have been received. Josh Greene, Editor and Publisher of Wine & Spirits magazine, is among those who have commented (his letter can be read here).

The Champagne tariff threatens to snuff out the exciting category of Champagnes from small producers.

“The tariffs are aimed at the French but the ones who are going to suffer are the Americans,” says Jeff Hellman, a partner at Transatlantic Bubbles, who imports boutique champagnes such as Georges Laval. 

“A lot of the producers we import are in tremendous demand around the world, if we don’t import them, they will just sell them somewhere else,” he says. But American businesses, such as his, would be devastated. He is importing some Champagne to the US this week to beat the tariffs. But he cautions that the 2016 and 2017 vintages were short and there is not a lot of wine to go around.

Pointing out that this action was being taken to protect big tech companies, he says “the last time I checked, Amazon and Google were doing just fine.”

Indeed, given that the Federal Trade Commission and the Department of Justice are threatening investigations of several big tech companies, there is a bit of irony in the trade dispute. It recalls the classic sequence from Animal House about the appropriate hazing of fraternity pledges: “He can’t do that to our pledges—only we can do that to our pledges!”

Tariffs in the digital services dispute could come soon after the hearing. The relevant web page notes “USTR expects to proceed expeditiously thereafter.”

A call to the office of the USTR confirmed that there is no public hearing scheduled for the large civil aircraft dispute—the one with 100% tariffs threatened on all European wine. There is no fixed timetable for increasing the tariff in that dispute, if indeed it goes into place. Our previous reporting on this issue showed at least one member of the trade is using February 15 as the earliest possible date.

Uncertainty and fear are the dominant emotions right now in the wine trade.

“It’s a scary time—nobody knows what is going to happen,” says Hellman.

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Tomorrow’s hearing will take place in the US International Trade Commission (500 E Street SW, Washington, DC 20436) starting at 9:30 AM.

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Tags  Tariffs January 2020  Tariffs