Is the simmering trade war creating opportunities for bubbles?
Applying tariffs to sparkling wine is unlikely to bring celebrations. Unless you're Nyetimber or Cloudy Bay.
EU wine growers face uncertainty over the viability of the US market
Hardly a week goes by where the US trade war with the rest of the world doesn’t make headlines. From Mexico, to Canada and now the EU, the threat of tariffs is creating uncertainty for those who trade with the US across a range of sectors.
The good news is that uncertainty can be managed and helps to clarify new opportunities if diagnosed and understood correctly.
Taxing Tattinger et al
Celebrations will not be in order for those French vignerons (other European wines are also available) who are now facing threats of tariffs of up to 200% from the Trump administration. This follows a 50% EU tariff on US whiskey, which followed a US tariff on steel, which followed…you get the picture.
So what to take from this?
If followed through, it would make consuming European wines very expensive (it’s worth remembering tariffs are paid by consumers, not by the businesses). The business impact of this political decision is significant and multifaceted:
It is obviously bad news for EU wine producers. Their US market would likely contract significantly, and a protracted tariff may alter buying habits permanently. This requires structural changes to their business plan.
It is potentially good news for the UK sparkling wine industry (let’s admit the red is just not there yet…), who under current arrangements, would not be subject to the same US tariff because the UK is not an EU member state. Pierre-Emmanuel Taittinger, former president of Champagne Taittinger, said that with a UK exception to levies “there, of course, would be a benefit to British wine”. It is especially good news for those French producers, like Tattinger, who have diversified into the UK market and could export their UK fare without the tariff implication.
It is a wake up call for European producers reliant on the US market to diversify and find new markets with more stable and predictable trading arrangements. If you are a European vigneron, it is worth considering the political situation in alternative markets to ensure the effort involved in diversification is not rewarded with a second act of the same play we are currently watching.
Growing season: for chardonnay and trade disputes
Political risk extends beyond tariffs
All businesses have to contend with political risk to varying degrees. It is most acute in regulated environments such as defence and healthcare, but political decisions affect and impact every industry to some extent.
The wine industry is currently in the spotlight because of a very specific tariff threat, which would be immense in impact. But even if this does not come to fruition, it is worth considering how other government policies will likely impact the buying behaviour of target consumers.
The US stock market is currently undergoing a reset, with the S&P 500 having now fallen 9% since its February peak. As the top 20% highest earning Americans hold 87% of stocks and mutual fund shares, this fall in wealth disproportionately affects them. You’ll find few others sympathising with this, but those producers targeting elite consumers with GCC wines and similar will find this pinch starts to affect those in the lower percentiles of that bracket.
A study by Visa has indicated up to $0.24 of consumer spend is tied to every $1 in wealth change in this bracket, meaning up to 24% of every $1 drop in stock market value could be cut from discretionary spend. It’s not quite goodbye Dom Perignon and hello Prosecco, but it might be hello Franciacorta.
A case in point that political decisions bring risks for some and opportunities for others. It might not be sensible to start cracking open the Champagne given lots of this is still up in the air, unless you live in the US. In which case you might want to get last orders in.
