By Jean-Marie Cardebat
During his recent presidential campaign, Donald Trump displayed a fierce protectionist orientation. It is no longer just China in his sights, but the whole world. As far as international trade is concerned, Trump’s second term is likely to be worse than his first. What does the French wine industry have to fear in this context?
Still traumatised by the 25% Trump tax in place from October 2019 to March 2021, the French wine industry is anticipating further difficulties in exporting to the United States. However, a comparison between the previous tax and what the president-elect has announced for his second term provides some hope. Two factors are likely to change the situation: the rate of the new tax and the countries that will be affected by it.
An uncertain rate
There is some vagueness about the rate of customs duties that will be imposed on wines imported into the United States. Trump’s most commonly announced figures are between 10 and 20% for all non-Chinese products (and 60% for Chinese products). Of course, 10% and 20% are not the same thing. If the rate is too high, the inflationary effect on the US economy would be too great. Economists find it hard to imagine how American consumers would accept the shock of a 20% rise in the price of imported goods, especially after the inflationary period they have just endured. Tariffs that are too high could therefore be highly unpopular, even if Trump is betting on increasing the income of American households by cutting levies and taxes – cuts financed by these tariffs – in order to maintain the purchasing power of his fellow citizens.
€600 million in losses
The scope of the 2019 Trump tax was limited to France, Spain and Germany, the three countries in the Airbus consortium. The introduction of the tax was part of a dispute on aviation between the United States and the EU. The customs duties planned for Trump’s second term will affect all countries, which represents a profound change. Part of the reason French wines suffered in 2019, with a 40% sales drop and an estimated loss of 600 million euros, was because American consumers shifted toward other imports, including Italian red wines and New Zealand white wines. This time, the winners can only be American wines, the sole bottles not to be taxed.
What would be the effect of a 10% tax on all wines imported into the US? Part of the tax would be absorbed in the chain of intermediaries from producer to consumer, each of whom will accept a marginal reduction in their price. As importers, wholesalers and retailers want to retain their market share, the final price increase will be non-existent or extremely limited. This reflects what is known as margin behaviour, which is classic in the case of changes in exchange rates or customs duties. A 10% tax would not, therefore, give rise to fears of a market collapse for French wines on the US market. The volume effect would be limited and the margin would be just slightly eroded.
The danger of a 20% rate
However, the equation changes with a tax set at 20%. This rate would be too high for margin behaviour to erase its effect on the final price for the consumer. A rise in final prices would be inevitable, its extent depending on the rate of absorption by the chain of intermediaries. The big winners will be US producers, to which local consumers will turn.
For French wines, the effect will depend on the sensibility of American consumers. The most expensive wines, which are also the most in-demand and “unique”, are always less sensitive to price variations. On the other hand, demand for entry-level and mid-range wines, which have the most competition, will drop significantly.
Drink Trump?
Trump himself, as a wine producer, is in competition with European wines. A tax of more than 10% on imported bottles cannot be ruled out. However, this is not the preferred scenario. US economic policy seems to be mainly geared toward industry. The idea of tariffs is in line with that of the Inflation Reduction Act, which became law midway through President Joe Biden’s term. The aim of these policies is to create a strong economic incentive for global industry to install itself on American soil. Wine should therefore be flying under the radar.
Nevertheless, despite its expected limited impact on the French wine industry, Trump’s new protectionist announcement is contributing to a latent feeling of de-globalisation. The Russian market has closed amid the war in Ukraine; the Chinese market imposes taxes of 35% on European brandies (mainly Cognac exports). Access to major markets therefore seems very precarious, and there is no sign of improvement in the short term.
Beyond the policies of a second Trump term, it’s high time to make deglobalisation a reality. We need to understand that export flows must be redirected to countries where the tax system is more favourable to trade. Many countries in Asia, Africa and Latin America have potential reservoirs of consumers. Europeans also need to be won over, but with different wines. Marketing must therefore adapt to this new international situation.
Jean-Marie Cardebat professeur of economics at Bordeaux University and affiliated professor at à l’INSEEC Grande Ecole.
Linda Haworth says
I’m worried about so much more once he takes office
DaleL says
If global shipping were a country, it would be the sixth most polluting country on the planet. Shipping by cargo plane is even more polluting than by cargo ship. From an environmental viewpoint, tariffs are a good thing. I don’t think that Trump and his global warming deniers are proposing high tariffs to save the planet, but his proposed tariffs might, as a byproduct, reduce global shipping and its associated pollution.
On a side note, the French wine industry has suffered far worse than tariffs. France once “owned” the Louisiana territory which included Missouri. Early French settlers grew wine in Missouri using native American grapevines. Some samples of the grapevines were sent to France to evaluate. Inadvertently they were contaminated with the American phylloxera aphid and the grape blight that it carried. The result was that within 30 years, beginning in about 1860, the disease killed nearly 1/2 of French vineyards. The disease was halted by using American root stocks on the grape plants.
https://www.saucemagazine.com/drink/the-true-story-behind-how-missouri-saved-the-french-wine-industry-17339319
Ed P says
Let me start by saying that a huge number of Americans could give a shit about a tariff on fine imported French wines. That is like me complaining to a dinner server at my favorite restaurant that it’s going to cost thousands of dollars to fix my home elevator.
But, I get the concept. It will be more than wine.
Discounting that we must( yes must) fix the trade deficits that are costing us billions and billions. That Trump is threatening the use of tariff as negotiating tools. That a foreign government is likely to step in and subsidize their industries to minimize or ameliorate the tariff if enacted. That a tariff may not ever happen. Discounting all of this.
We have choices. It’s like walking down the cereal aisle at the grocery store. Too many choices and alternatives. We could even move to fresh fruit instead or a hot cooked breakfast.
Back to the wines, would $2.00 to $4.00 more a bottle change your purchases. Maybe.
Maybe you would buy it at Total wine and save, or better yet by the case and negate the 20%. Or worse yet, move to another year or even a different brand or country of origin.
Where your Patriotic and pioneering spirit.
Jake from state farm says
It will be OK Linda. Be brave. The world is not going to end. What you have been told about the end of Democracy / of our Republic was just to scare the week minded. Telling you that he is going to be sending people to internement camps.was not true. There will not be jack boots high steeping down the streets on January 20th. He is not the reincarnation of Hitler. Having other countries upset at him is not a bad thing. It really means they are upset the gravy train is over. They get to now share the cost of the defense cost of their country,. They either have fair trade with accepting our products into their country at a fair tariff or their products get priced out of the market. It will be OK Linda. If we can get through the disaster of the last administration we can get through anything. Be brave. Be strong. It will be ok.
DaleL says
I would add, if we can get through the disaster of the last TWO administrations, maybe just maybe, one of the just 2 major parties can nominate someone that most American voters can support. Mr. Trump won with a plurality of votes, not a majority. Ms. Harris lost with millions fewer votes than Mr. Biden received in 2020.
FlaglerLive says
FlaglerLive thanks Jake from state farms for being a loyal supporter of the site for many years, and for his latest contribution, despite his displeasure with what he often reads here, despite the fact that he’s even had some comments withheld. We appreciate the comments and the support.
Joe D says
I think people are missing the POINT of the article. I think the focus on French wine was kind of “tongue in cheek.” Think GRAPES/ bananas/ coffee/tea…just go down the grocery store shelf and see on the labels, how many items are produce or grown OUTSIDE the country. Think MEDICATIONS: I looked at my bottle of vitamin D supplement ( I don’t eat/drink enough dairy since the kids are grown), my Glucosamine tablets for preventing joint deterioration…both produced with imported ingredients. Much of your PRESCRIPTION medication is sourced from out of the county COMPOUNDS, even if the Pharmaceutical Company combines them here, in the US. Almost 30-40% of “American” car auto parts are produced outside the USA, and would be subject to tariffs. The Chrysler Pacifica van is SOLELY produced in Canada! Who do you think is going to PAY these price increases? YOU and ME! It’s not like there are many US companies you can switch to, because they aren’t here!
“Drill baby drill.” A catchy Republican campaign slogan. Well, the US oil companies (although the want to maintain control over the oil field RIGHTS)…are not interested in drilling ANY more oil…there is a GLUT of US oil being produced, and if they produce any more they will …(wait for it)…have to DROP oil prices (OMG…and cut into their MASSIVE profit margins).
Economists have thought this through, even if TRUMP hasn’t…but it did get him votes!
Biden (through the Infrastructure Act) invested (along with bridges , and roads)…clean energy manufacturers, and digital chip manufacturing. But those industries have just started US manufacturing, and are too “young” to take up the slack yet.
In the meantime, good luck in your grocery aisle label reading for “MADE in the USA” products….and expect that grocery bill to increase rather than decrease (another election promise likely blown)…but it got Trump the votes! Try getting a major home appliance that is manufactured in the US…not Mexico or South Korea… very few! 50% of cell phones ( of ALL manufacturers ) are produced in China…
The “retaliation” tariffs from other countries have already begun. Canada has already suggested they could stop selling hydroelectric power to US border states. Canada provides the US with only 1% of its electric power, but re-routing the power to those US border states, would take time and expense. China has proposed banning Gallium and (?) Selenium exports to the US. Those are essential chemicals needed to produce batteries.
Trade wars are going to end up hurting one group… there is a US consumer!
Jake from state farm says
Thank you for the acknowledgment Flagler Live. I am appreciative of the all you do for the community. Important information that the community needs to here. My “concern” is not what is shared with the community it is what is not shared. The community deserves to hear both sides, good and bad. I understand that it may believe one side is so much worse than the other, it is not fair to the community to not present news fairly. I could go on with a list but you get it. I know you do. Journalism is reporting the good and bad from both sides regardless of your personal or political leanings. To be a full service to the community, they deserve to hear it. They ar smart enough to figure it out and draw their own opinions.
Sherry says
@ jake from sf. . . considering the fact that so many people voted to put a “Convicted Felon”, “Sexual Abuser” in the white house, I am not at all confident that many people are smart enough to figure it out for themselves. I’ll stick with “credentialed facts”, thanks!
Jake from state farm says
@ sherry….Says allot about the candidate that was put up by the Democrats doesn’t it. Oh wait she did not win the primary…. She must have been pretty bad. Hmmmm.. sounds like the Democrats have a lot to learn. Perhaps stop calling the other side racists, Nazis, anti gay, and the innumerable other things the right was called. If the left would try to just reach the middle of both parties and not reach for the extreme they would have a chance. I wish you and your family and everyone at Flagler Live a Very Merry and blessed Christmas.
linda says
yeah, I’m still in a state of shock re trump
Ed P says
Joe D,
The concept that major oil companies won’t drill baby drill could have some validity. However, consider the fact that there are nearly 44,000 oil drilling and gas extraction businesses in the US. and 9000 of them are independent producers. The free market should stimulate the competition among them and if excess production develops, exports would ballon. The new export markets will open up new demand and the race for volume will provide the impetus to continue production even if prices diminish as long as it remains above the $50/barrel price. The world wide producers may cut production to shore up the price but that provides the US with the opportunity to gain market share.
Even if this scenario does not occur, there still the chance that if the independents did drive down prices but they still earn acceptable profits, the majors have little option but to continue production at the reduced margins.
Consumers really can’t get hurt regardless of the outcomes. If pump prices drop, consumers save. Those savings will be spent on other products. Delivery fuel cost diminish and retail prices of consumer staples should stabilize or drop. Economy benefits.
Jake from state farm says
@Linda…. You are only in shock that he won in such a landslide because you believed the lies the media and Harris campaign and the Biden administration told to you for the past 4 years and during the campaign. Even Pierre did not believe the hype. How many articles and editorials were there supporting the Harris campaign? He even almost hit the electoral college count on the nose before the election. Stop listening to what the MSM on both dies of the aisle are feeding you.
Joe D says
I certainly hope you are right…but I don’t think these Tariffs have been thought through…unless it’s a BLUFF to get concessions from other countries…but it could all backfire!
Pierre Tristam says
Not almost. Actual.
Jake From State Farm says
I stand corrected sir!!! :)
Sherry says
@jake from sf . . . While I have stated “credentialled facts” regarding trump’s criminal record and immoral behavior, you are suggesting that Kamala Harris must be “pretty bad” to have lost the election to a “Convicted Felon”. And, that it is the Democrats that have a lot to learn. Nice try at trying to twist that logic into anything close to reasonable.
What should we Democrats learn from the trump party?
1. Criminal conduct is now OK?
2. Sexual Assault is now OK?
3. Insurrection is now OK?
4. Lying is now OK?
5. Adultery is now OK?
6. Bigotry/Racism is now OK?
7. Scientific facts are Not OK?
8. Ethics are Not OK?
9. Integrity is Not OK?
10. trump is “Innocent” and has done nothing wrong?
Well, I guess in your mind, the Democrats should just throw their principles and reasoning ability out the window, and “reach the middle”. . . while it’s OK for the extreme right to carry on in their immoral fashion. Why because they won the 4 year Presidency and temporary majorities on Congress? Really? It’s all about winning at all costs now?
Most certainly, “I”, and millions of others like me, will not be giving up our souls and intellect to the maga cult and trump worshippers EVER! Enjoy the next 2-4 years.
Sherry says
@jake from sf. . . I’m surprised that Pierre did not correct your obvious misinformation ; trump most certainly did NOT win by a “landslide”! trump did not even win over 50% of the popular vote: trump received 49.9% and Harris received 48.4%. . . Geez!
Ed P says
Sherry,
Credentialed facts…your mantra.
The January 6 attack on the Capitol was nearly 4 years ago and as of today the DOJ has not convicted anyone of insurrection. As disgraceful as the riot or attack was, the argument that it was an insurrection falls flat. Even the Wall Street Journal agrees.
Don’t you want to be accurate?
Jake from state farm says
It will be ok Sherry. Hang tough. Your denial makes me laugh….. electoral college, popular vote, both houses of congress….. landslide…. get ready Sherry.. remember it is the end of democracy and our republic and jack boots will be high stepping down the streets of DC on the 20th and the internment camps will be open and people rounded up soon. You beleive that so you believe whatever you want.
Joe D says
There’s that RIDICULOUS use of the word “landslide”again. President elect Trump won 49.9% of the popular vote to Vice President Harris’ 48.3%…that’s a win by 1.6%…HARDLY a “LANDSLIDE.”
In fact the only popular votes (according to CNN) that were closer, were during the GREAT DEPRESSION and at the beginning of WORLD WAR II!
Yes Trump won, but he still has to acknowledge that 48.3% of American voters don’t want him in office.
And I can pretty much predict (in my opinion), that within 18 months of “Trump 2.0” taking office, a large group within the 49.9% of voters who wanted to PUNISH the Biden administration for food prices (which are documented now as Food Producers intentional GREED at setting prices …WAY above their increased transportation/wage and supply chain costs)/ gas prices (not set by Biden), and extraordinary issues at the Southern border due to post pandemic and South American political instability…will see the DISASTER they just put in office…AGAIN…based on price increases due to proposed tariffs, incompetent/dangerous cabinet and department head nominations and policies which will large improve life for only the upper 1% of US incomes!
Ed P says
Joe D ,
Captains of industry, tech titans, hedge fund managers, Wall Street pundits, Foreign leaders, the entire Republican Party, and yes 77 million Americans don’t agree with your doomsday predictions.
Even Mitt Romney who is not a Trump fan, believes in his policies and feels the administration will be successful and that Vance will emerge as the 2028 Republican presidential candidate. Doesn’t sound like a failed administration prediction to me.
There’s room for you and everyone else who wants on the Trump Train. All aboard!
Joe D says
No thank you Ed P., I’ll pass on the Trump 2.0 train…the Trump 1.0 train cost me several thousand $ in lost deductions.
Only 1 of us can be right. For the sake of the Country, I HOPE your version is correct, but I doubt it!
18 months into this next administration should tell, on way or the other.
Sherry says
@jake. . . don’t even try to patronize me with your asinine chauvinistic BS! You, and immoral people like you, are most certainly not worth the time it has taken to type this. I am no longer engaging with toxic deplorables. Enjoy swapping your garbage thinking with ed p. . . he’s just your type! LOL! LOL! LOL!
Jake from state farm says
@Sherry – again you prove my point. Someone so terrible as Trump won over your candidate. That would mean the majority of voters in this case, believed your candidate was much worse than Trump. It is really that simple. Put up a better candidate, stop lying about the competency of the current President, and stop calling the other side Nazis’ racists, homophobic… blah blah blah… and maybe you would have had a chance. If the Democrat principles are not in the middle and are as extreme left as what your candidate is, it will be a long time before you have a Dem back in the white house. Merry Christmas Sherry. I hope you have time with family and friends.