How global wine buying is becoming increasingly hit by world trade disputes
By Richard Siddle
One of the more common recurring dreams is the one where no matter how hard you try, you feel stuck and can’t get to where you want to go. Be it running down a street, or clambering over a whole series of obstacles that keep being put in our way. You can never reach your destination.
Now you probably don’t need to spend vast sums of money to have that analysed by a psychiatrist, or read up on your Freud, to find out you are probably going through a bad period of stress or are in a life situation where you feel powerless by its outcome.
Which for those of us involved in the day to day producing, selling, buying and distribution of wine around the world is probably a dream we all know very well.
No matter how easy that process gets there always seems to be stumbling blocks being put in the way to make it more complicated. Be it adverse weather conditions, smaller harvests, fluctuating currency rates, customs disputes or strikes at ports, no matter how smooth the working week starts, there is always something that is bound to come up to disrupt the status quo.
For global wine producers and buyers the latest major roadblock to be put in their way comes in the shape of trading wars, tariffs and the whims and ways of President Donald Trump.
It seems his mission to make “America Great Again” by ensuring any trade deal it has with the rest of the world is “fair” through the eyes of the White House, particularly in terms of reducing trade deficits with major countries including China, means there are going to be rough times ahead for how some major countries can trade in the future.
We’re already seeing the impact that tit for tat trade tariffs are having around the world. It resulted
in the breakdown of the recent G-7 talks between the world’s biggest economies reflecting the very real tensions that lie beneath the surface of forced handshakes and staged photo calls.
One of the biggest drinks sectors to be hit by the current round of trade tariffs has been American whiskey and bourbon. The EU’s decision to hit back at America’s tough trading stance by placing tariffs on EU-sourced aluminium (10%) and steel (25%) saw it introduce tariffs on $3bn worth of US goods, including a 25% tariff placed on all imports of US whiskey and bourbon. That, in turn, has seen the likes of Jack Daniels’ announce it is going to have to put up the price of Jack Daniel's Tennessee Whiskey by at least 10% in the coming months to compensate.
Hard to plan
It hardly makes forward planning for an industry already beset with a host of long term problems any easier. Particularly as the spectre of Brexit and the ramifications of what happens when the UK finally leaves the European Union is now less than a year away.
For all the talk of improved trade deals for much of the world once the UK is free from its EU obligations nothing can be agreed or put in place until the UK is formally outside the EU. We are also no nearer knowing exactly what terms the UK is set to leave the EU and what tarirffs, if any, are going to be placed between the two sides.
A no deal Brexit, where the UK would fall straight into WTO tariffs, is still very much on the cards, no matter how much both sides of the negotiating table say they want to prevent that.
Whatever happens with the UK it will also be a time when the EU will be forced, willingly or not, into discussing trading terms it has with other countries around the world. With Australia and New Zealand already jostling for attention to address their trading terms.
Good tariffs
Now that’s not to say that changes in tariffs need to be bad news. Far from it. In fact the biggest success stories in the world of wine over the last five years have probably been as a result of favourable tariffs being introduced between key countries.
Most noticeably China and what impact it has had on the wine industries in China, Australia and Georgia by opening its doors to their wines, by bringing down import tariffs, step by step, to what are now effectively zero per cent for Chile and going that way for Australia in January 2019.
As a result Chile has gone from being a nice to have wine partner for a Chinese distributor, to a must have and it now sits comfortably in the top three wine imported countries. It’s a similar story with Australia which is following in Chile’s wake taking advantage of better tariff deals year by year.
Conversely US wine is going nowhere fast in China due to the enormously high trading tariffs placed on wine, that is effectively 70% when you factor in the 50% VAT charge as well. Until the US and China make any headway on their overall on-going trade disputes it’s hard to see US wine really making any real progress in what is such an important growing market. Nor Chinese wine in the US.
The trouble, however, does not stop even if you have a zero per cent tariff agreement. Look at the rising tensions between China and Australia ever since their respective warships had a standoff in the South China sea. There are now regular reports coming out of the likes of Treasury Wine Estates and Pernod Ricard of their wines being held up at Chinese ports.
It’s all enough to send you to sleep with nightmares, never mind stressful recurring dreams.