The Unified Wine & Grape Symposium, North America’s largest wine industry meeting and trade show, is only a few weeks away. I will be in Sacramento to moderate the State of the Industry session, which features an impressive lineup of wine industry experts:

• Jeff Bitter, Allied Grape Growers
• Glenn Proctor, The Ciatti Company
• Stephen Rannekleiv, Rabobank
• Danny Brager, Brager Beverage Alcohol Consulting

The panelists have decades of experience in the wine industry, which informs their analysis of current problems and future prospects. It is a tremendous opportunity to hear what the experts are thinking now and to talk about it with the other attendees.

There are many other sessions at the Unified covering all sorts of topics in winegrowing, winemaking, marketing, and business operations. I am particularly interested in the Thursday general session on Crafting a Positive Narrative: Promoting Wine in the Face of Challenges, which will be moderated by New York Times wine critic Eric Asimov. One of the biggest challenges, of course, is the rising anti-alcohol movement. Telling wine’s positive story is as difficult as it is important in the current environment.

There is something for everyone at the Unified (click here to view the complete program and click here to read the speaker bios). Sue especially appreciates the big trade show where more than 900 exhibitors will highlight what’s new in the wine industry from the biggest machines, smartest technology, and best products and services from vineyard to cellar to bottling line all the way to market.

Always the Age of Uncertainty?

I always start the State of the Industry session with a few remarks to set the stage and this year I have chosen a theme, the Age of Uncertainty. This is a time of great change in the wine industry and change makes people nervous.

Age of Uncertainty? I know what you are thinking. It is always the Age of Uncertainty in the wine business. Growing grapes is risky, making wine is risky, and selling wine is risky. There is no part of the wine business that does not have an uncertain component. Wine is a global business, too, and while global markets create opportunities they also introduce additional layers of risk.

I specialize in international and global wine markets, so I am especially concerned with how international economic policies add more layers of uncertainty to wine business today. We have been told to expect high tariffs (on wine and just about everything else) in 2025. Depending upon how they are structured, and how our trading partners react to them, tariffs can have a number of direct and indirect effects.  There’s a lot at stake and the final outcome is difficult to predict.

Indeed, the International Monetary Fund recently identified the threat of tariffs as a major global economic concern. The possibility of tariffs has driven up long-term borrowing costs around the world, according to the IMF, which will release its new report on the global economy later this week.

And this week’s Economist newspaper highlights uncertainty about tariffs and other policies as a main cause of global instability.

It is easy to see why uncertainty has spread. Will Donald Trump deport millions of people? Nobody knows. But if he succeeds inflation could jump as employers lose workers. The story is similar for tariffs, which would also increase prices. At the same time, potential Chinese counter-measures in a trade war, such as a devaluation of the yuan, could prompt a global deflationary shock.

The rising perceived risk, according to the Economist, helps explain falling bond prices, rising mortgage interest rates, and many other current trends. They say that what you don’t know won’t hurt you, but uncertainty clearly has a cost.

Not by Wine Alone

I know many people who think a tariff on imported wine would benefit American growers and producers and others who strongly oppose the idea. But it is important to remember that we aren’t talking about tariffs just on wine. Although it is hard to know right now (that uncertainty thing), it looks like the new administration will impose tariffs on most imported products from many or most of our trading partners, with the highest tax rates on China, Mexico, and Canada, the countries with whom we trade the most.

Border taxes on such a long list of imports have different effects than a tax on a specific product category like wine. That’s part of the uncertainty problem. U.S. producers may gain from protection from imports but lose from higher costs for imported supplies, equipment, and technology. Labor costs, interest costs, and insurance costs would all likely be pushed higher by rising inflation.

And U.S. tariffs aren’t the end of the story. How will other countries react? Will European nations retaliate with tariffs on U.S. wine? Probably not. I think they’d focus on spirits, not wine. Would Canada target U.S. wine? Yes, I think they might and that’s a problem because Canada is a good market for U.S. wine exports.

The  Dollar Also Rises

President Trump favors a falling dollar value on foreign exchange markets because that would reinforce his trade policy by discouraging imports and promoting exports. But tariffs tend to push the dollar higher as we have seen since the election results were announced. The dollar’s value rises when it sounds like tariffs will be used as a blunt weapon to keep out imports. The dollar falls, however, when the rhetoric suggests tariffs as targeted strategic tools to gain specific concessions. Which way will tariff policy lean in 2025? I don’t know, do you?

How are tariffs and the dollar related? Here’s one way. Tariffs tend to increase inflation, which forces the Federal Reserve to keep interest rates higher than they otherwise would be. This attracts foreign capital that boosts the dollar’s value, making imports cheaper in dollar terms and U.S. exports less competitive abroad.

Immigrant policies are the third element of the Age of Uncertainty for wine in my analysis. It is too soon to know how border controls and deportations might affect labor both generally and in industries such as agriculture and construction that are most exposed. So wine’s Age of Uncertainty is a complicated matter.What’s the bottom line? I’m saving that for the State of the Industry session.

Galbraith’s Uncertainty Principle

Why did I choose this theme for my remarks? The idea was inspired by an old book that strikes me as still relevant today. The Age of Uncertainty is the title of a 1977 BBC/KCTS television series and an accompanying book by the distinguished Harvard economist John Kenneth Galbraith. The book and videos, which survey two hundred years of economic history and the history of economics, were timed to coincide with the 200th anniversary of Adam Smith’s Wealth of Nations.

People tend to remember Galbraith as the sophisticated author, public intellectual, and Harvard professor that he became, but his personal story is more complicated. He grew up on his family’s small Ontario farm and seemed set for a farming career, graduating from Ontario Agricultural College in 1931. But the 1930s were not the best of times for farming and Galbraith soon found himself doing PhD studies in agricultural economics at the University of California and then working for the U.S. federal government’s Agricultural Adjustment Agency (AAA) trying to prop up farm prices.

I don’t think that wine is mentioned even once in Galbraith’s book, but his agricultural background and experiences are easy to trace. The world has changed a lot in the almost 50 years since The Age of Uncertainty first appeared (and nearly 250 years since Wealth of Nations), but American winegrowers and agriculture generally can certainly relate to Galbraith’s story and the concerns he expressed in this book.