Wine & the Trump Tariffs: A Cloudy Crystal Ball

I’ve received emails asking me to write about the Trump tariff regime (and other policies) and how they will affect the wine industry. I have resisted so far because there is not enough information on which to base an argument or opinion. There is lots of speculation, but not yet much solid fact.

Beyond Speculation?

“Wine and the Age of Uncertainty” was the title of my remarks at the State of the Industry session at this year’s Unified Wine & Grape Symposium (which I previewed on The Wine Economist a few weeks before the event). Uncertainty is a constant factor in agriculture in general and wine in particular, I argued, but 2025 is different because there are so many unknowns to consider.

I illustrated this point with the slide above. Looking narrowly at the trade situation, there are lots of questions that need answers in order to get beyond speculation. I highlighted a few of the most important ones in red. None of the questions had firm answers back in January and they still don’t today.

So uncertainty prevails in the realm of “known unknowns,” which are the things that you know you don’t know. And that doesn’t even consider the bigger domain of  “unknown unknowns,” which are the things you don’t know you don’t know (but should).

They say that what you don’t know can’t hurt you, but what you don’t know you don’t know can bite you in the butt.

The View from Abroad

How are foreign producers reacting to this unstable trade environment? No surprise, considering all the unknowns, there is no single dominant strategy. A common tactic, both in wine and more generally, has been to get as many products into the country as possible before full tariffs kick in. This will keep the distribution pipeline going at least for a while. It is not a permanent solution, but no one knows what the next step in trade policy might be. Maybe the tariffs will disappear as quickly as they appeared? An import surge buys time even if it comes at a cost.

Sue and I were in Spain last month and we encountered two very different reactions from producers there. Some accepted the fact of tariffs, but were relieved that they would be 10% instead of the 120% rates previously threatened. We can live with 10%, they said, and they are working out the appropriate business model for these circumstances.  The wine industry has lots of problems (see below) and a 10% U.S. tariff is not the most serious of them. Ten percent is the new zero, as some have said, and many accept that so long as they can be sure that that’s what will prevail.

But not everyone agrees with this sentiment. We talked to one producer who said his firm was walking away from the U.S. market. Ten percent, 100 percent, 20 percent, what next? The uncertainty is simply too great to justify long-term investment. There are other markets where the risk-reward equation has a better balance.

Zero-Sum Solution?

Several European producers asked if the tariffs were benefiting U.S. wine producers. That’s a natural question if you think about tariffs and trade as a zero-sum game, where my loss is your gain. But in fact wine seems to be a negative-sum game at the moment as the global industry adjusts to a new normal. Demographic shifts do not favor alcoholic beverages generally. Neither do health concerns.

Economic uncertainty is undermining demand for many categories of luxury goods (and wine, for most people, is more affordable luxury than basic necessity). The threat of tariffs only serves to make the situation worse by raising costs and shrinking the already narrow distribution channel.

One way to think about the situation is in terms of what I call “pie economics.” What’s happening to the market pie? Is it growing or shrinking? What’s happening to your share of the pie? Is it getting bigger or smaller?

When markets are growing, distribution issues are often less important. The growing pie can make up for any small cut in your share. But when the pie is shrinking, the dominant strategy is to focus on share. That’s when zero-sum thinking kicks in. But in the case of tariffs, it is really a negative-sum game because higher import costs can sometimes shrink the pie so much that no one is better off.

The wine market pie was already shrinking, of course, so tariffs just make things worse. How it will turn out, and if anyone will be a winner, is still not clear.

So, wine and tariffs? My crystal ball’s all steamed up. Can’t see a thing. How about yours?

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Some say that economics is the “science of unintended consequences” and a recent Financial Times article bears this out in the case of the Trump tariffs. One of the potential winners of the current trade war, according to the article, might be Vinarchy, which was created when Australia’s Accolade Wines merged with Pernod Ricard’s wine operations to create te world’s second largest specialist wine producer.

Vinarchy’s brands will be subject to tariffs on U.S. sales like everyone else, which is not good news. But the anti-American wine sentiment that the Trump tariffs have stirred up might create opportunities, too. They see openings for Jacob’s Creek in Canada, for example, and Campo Viejo in Mexico and the rest of Latin America, for example,  as consumers look for alternatives to California wine.