Category Archives: trade wars

Don Melchor & Chile’s Good Value Curse

May 20, 2025 By in Chilean wines, economic crisis, trade wars, wine, wine markets 4 Comments

Sue and I have been looking for the right excuse to open a bottle of Don Melchor, the famous Chilean Cabernet Sauvignon that was named 2024 Wine of the Year by Wine Spectator magazine. Finally, we decided that the act of pulling the cork was excuse enough, and we enjoyed the wine with a nice steak.

Don Melchor is the flagship winery of Concha y Toro, one of the world’s most respected wine producers. The wine was world class, balanced and elegant, and paired perfectly with a dry-aged steak. I admit that I don’t really know what it means to be “wine of the year,” but this wine (and everyone who helped make it) deserves whatever recognition they receive. Bravo!

Message in a Bottle?

You would think that the year’s top wine could be the wine with the highest score, but if you pay attention to these things, you have already noticed that, while all the highlighted wines have high scores, the final rankings are not simply by the numbers.

Sometimes, it seems to me, the people who put together Top 10 or Top 100 lists (and not just Wine Spectator) want to send a message. Sometimes it is to highlight particular regions or to balance Old World and New World recognition. In 2009, in the aftermath of the global financial crisis, for example, a Reserve Cabernet Sauvignon from Columbia Crest was Wine Spectator’s top wine. It was an excellent wine (a friend opened a bottle for us last year), but I think it was chosen in part to send a message that excellent wines didn’t have to cost a fortune (the release price of the Columbia Crest was just $27) or come from Bordeaux or Napa, either.

In the same way, I suspect that the Don Melchor was chosen at least in part to draw attention to Chile’s excellent wines and the fact that they can command high prices. (The Don Melchor we enjoyed was an editorial sample, but the local Total Wine has it in stock for $140.)  Chilean wines have long been filed under “good value,” which is much better than a “bad value” label that some other regions have earned. But I think many producers see good value as a barrier to their quest for higher status. The Wine Spectator award helped in this regard, and the Don Melchor wine has the quality to make the label stick, if you know what I mean.

The Good Value Curse

You can see the good value curse in the numbers. U.S. wine market data in the most recent issue of Wine Business Monthly put the average bottle-equivalent price for Chilean wine at $5.04 for the previous 12 months, lower than the import average of $9.66 and even lower than Australia’s $5.49.

Not surprisingly, measured U.S. sales of Chilean wine are down with the rest of the market, falling 3.6% by volume and 0.3% by value. (These declines are actually less than the overall market’s decline.)

Chile is more dependent on export markets than most other major producing countries, so wine market contractions in the U.S., U.K., and perhaps especially China have been a major blow. Factor in the uncertainty caused by the Trump tariffs and the list of Chilean wine’s challenges grows.

It is, therefore shocking, but perhaps not surprising to see this graph from the OIV database, which shows that the vineyard area in Chile has quite suddenly declined back to levels last seen at the turn of the century. Wine grapes are unprofitable, especially in the O’Higgins region, according to a Department of Agriculture report. Growers are shifting to cherries, citrus, and other crops with better prospects and margins.

Quality and Diversity

Sue and I have sampled many Chilean wines and we have been impressed by both the surprising diversity of wine types and styles and the steady rise in quality. The challenge, or perhaps one of the challenges, is to bring the best of Chile’s wine into sharper focus for consumers who confront a dazzling array of wine choices. Not an easy task, especially in this market environment.

Don Melchor has a role to play here as a sort of beacon to draw consumers closer to the world of quality Chilean wines.

Wine & the Trump Tariffs: A Cloudy Crystal Ball

May 13, 2025 By in economic crisis, Economic impact, trade policy, trade wars, wine, wine markets Leave a comment

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.

Wine, Tariffs, & Globalization

November 17, 2020 By in coronavirus, economic crisis, globalization, recession, trade policy, trade wars, wine, wine exports, wine markets Leave a comment

 

The wine trade has always been as global as transportation technology and political economy have allowed. So it is no surprise that the economist David Ricardo sought to make his theory of international trade based on comparative advantage clear and obvious by choosing an example that all his readers would appreciate — Portuguese wine exchanged for British wool.

A World of Wine

If you want to get a sense of wine’s global reach today I suggest you visit your local upscale supermarket or wine shop and survey the landscape there. I had my university students do this back in 2011 and reported the results in a Wine Economist column.  The local Safeway store carried about 750 wines from a dozen different countries back them, which caught the students by surprise. The store has expanded its wine wall since then, with even more offerings, and the supermarket across the street has an even larger set of wine choices. Globalization delivers a world of wine to your doorstep!

Global trade in wine, both bottled and shipped in bulk, is incredibly important to wine producing countries. The largest producers — France, Italy, Spain, Portugal, Argentina, Australia, New Zealand, Chile, South Africa — could not possibly sell all the wine they produce in their domestic markets. The collapse of global wine trade would be a global wine catastrophe.

And the trade in wine isn’t the whole story. Global markets exist for corks, capsules, winemaking services (think “flying winemakers”), and bottles, too. We’ve visited wineries in South Africa, for example, that import glass bottles from Europe and then export the finished wine to the UK, China, and the US. That’s globalization! Chinese glass has an even broader global reach.

Peak Wine Globalization?

By some measures globalization generally — taking into account goods, services, and people — reached a peak about the time of the global financial crisis and has since shrunk as a percentage of global GDP. Global wine resisted the de-globalization trend, however, but perhaps now is catching up.

Some of the macroeconomic drivers of wine imports and exports such as rising disposable incomes and stable exchange rates have been impacted by the Covid recession. And of course Covid restrictions and behavioral changes have negatively affected both on-premise wine sales and travel and tourism vectors, too.

There are attractive pockets and niche markets for wine sales all around the world and smart producers have sought them out. But the three big wine targets in recent years have been the UK, US, and China and each of these has become more challenging.

The UK issue is Brexit and it is shocking that there is so much uncertainty about the nature of future trade arrangements with just a few weeks to go before the exit from the EU is final. Britain’s unsuccessful attempt to navigate the twists and turns of Covid have pushed the country into a recession that is likely to grow worse before it gets better — a bad thing for income- and price-sensitive wine demand. Add to this the possibility of a botched Brexit and you might see Britain’s status in world wine trade diminish substantially.

Tit for Tat

The US market is suffering from Covid and recession problems as well and its own set of trade issues. The Trump trade wars have increased tariffs on wine imports from the EU, for example, but also generated retaliatory tariffs on US exports to China.

Wine has been caught in the crossfire in the Boeing-Airbus trade dispute, as The Wine Curmudgeon recently reported. The WTO has ruled that the US can impose tariffs on EU products in response to Airbus subsidies and that the EU can put tariffs on US products because of subsidies to Boeing. Wine figured prominently on the US tariff list, but the EU plans to focus on US spirits instead of wine, with new duties on vodka, rum, etc. on top of previous tariffs on U.S. bourbon.

How did the US wine industry dodge the tariff bullet in this case? Trade policy is sometimes very personal when you think about it. EU tariffs on US wine would fall heaviest on California producers — think for a moment important politicians from California. (Does the name Nancy come to mind?) Not necessarily someone the EU wants to upset.

Tariffs on US spirits fall heavily on Kentucky bourbon producers. Can you think of an important political leader from Kentucky that EU officials might enjoy roughing up a bit? Maybe some guy named Mitch? Just thinking out loud …

China vs Oz

And then there’s China. Down in Australia there is more than a bit of concern about wine trade with China. China has grown to be Australia’s largest wine export market, so rumors that the Chinese government might impose tariffs on or even ban imports of Aussie wine entirely are serious concerns. It is not clear that the US and UK, the other big export markets, could easily absorb the resulting flood of  unsold wine.

Since tariffs are as political as they are economic, there is hope that, with a changing US administration, the troops in the wine trade wars might stand down and a truce be agreed. This could start with both sides backing down over the Boeing-Airbus duties. That would certainly be a good outcome and I don’t think it is impossible.

No Easy Fixes

But tariffs aren’t the only factor preventing a return to the previous era of wine globalization as noted above, so don’t expect a quick fix. International producers seeking to penetrate the US market in particular need to be aware of how much the on-trade to off-trade shift has changed which wines American consumers buy, where they buy them, and how much they are willing to pay.

The process of restoring wine’s global reach seems likely to be a process and probably a slow one, with some firms and regions more successful than others. The faster the global economy returns to health, the faster the clouds will clear for global wine.

Vino-ligopoly: Zero-Sum Wine Game Strategies

November 10, 2020 By in coronavirus, economic crisis, recession, trade wars, wine, wine markets, wine price 1 Comment

Last week’s Wine Economist column was a thought experiment. What if the Covid recession was a game changer like the oil crisis of the 1970s? Both crises undermined fundamental economic assumptions and generated long-lasting impacts. In particular, drawing upon the work of MIT economist Lester Thurow, the oil crisis changed the nature of the game from positive-sum growth to zero-sum competition for shares of the pie.

Maybe the parallel is off base and maybe the game hasn’t really changed. But let’s think about the future the wine industry in the sort of slow growth, low inflation, high debt economic environment that many see on the horizon, with a focus on gaining market share in a stagnant economy.

Wine’s Zero-Sum Dilemma

Zero-sum market environments are nothing new for wine. As this OIV graph of wine demand volume shows, growth in the global wine market pie was once quite strong. Imagine a trend line for 2000-2007 and you’ll see what I mean.

Now draw a trend line for 2008- 2019. It’s pretty much a flat line, isn’t it?  The picture improves if we look at value and not volume because of the premiumization trend, but the the weight of stagnant volumes is still heavy.

So the focus is on gaining market share or raising margins rather than taking advantage of a growing overall market and this creates winners and losers. New Zealand has been a victor for many years. Marlborough Sauvignon Blanc sales have increased year after year, a trend that has continued in the Covid crisis environment. Imports from other countries have struggled here in the U.S. market with even powerhouse Italy under pressure. But the Kiwi wine wave rolls on.

Trading Spaces: On and Off

Perhaps the most obvious example of Covid’s zero-sum impact on the wine market is in the shift from on-premise to off-premise sales. Bars and restaurants have suffered both because of government restrictions on opening and also because concerned consumers have avoided crowded places in general even when not officially restricted. Wine consumption overall has not changed very much, but where consumption takes place and where products are purchased has shifted significantly.

The shift to off-premise consumption has many impacts, especially for wine companies that have worked very hard to place products on restaurant wine lists and for emerging brands that use on-premise sales to get a foot in the door. Shifting your restaurant sales to shops and supermarkets is not as simple as throwing a switch. Supermarkets especially favor big brands and broad product lines and there is some evidence that consumption patterns have moved in this direction, too.

One important impact of this shift, as I explained in an April 2020 Wine Economist column, is consolidation throughout the supply chain. Consolidation is a trend that extends far beyond the wine sector, of course. In an increasingly zero-sum market environment, large firms want to get even larger both in order to reduce margin-sapping competition and also to be able to negotiate better terms and lower costs. It’s not exactly wine-opoly — more vin0-ligopoly (insider joke for economics majors who remember the difference between monopoly and oligopoly, which is competition among a few big players).

Wine Wars / Price Wars

Econ 101 teaches us that one way that firms try to gain an advantage in a zero-sum game scenario is by cutting prices. This can quickly degenerate into a price war, of course, which is the ultimate negative-sum game for sellers (and a bonanza for consumers), especially if overall demand is price inelastic.

Are we seeing price wars on the wine aisle? As I explained in a May 2020 Wine Economist column, wine prices may be falling and rising at the same time, making it tricky to pick out net effects. If you are like me, your email inbox or Facebook news feed usually contains at least one discount offer from a winery or wine club — sometimes at incredibly low prices.

Looking narrowly at off-premise data, it appears that price premiumization continues. Sales of $25+ wines surged early in the pandemic period, for example. But, as I noted in May, these high price sales replace even higher-priced on-premise purchases at least in part. Those consumers were actually trading down as they shifted from restaurant meals and wine to home consumption. This is not a price war because it is cross-channel consumer behavior, but it will have that feel for wineries that cannot easily shift sales from on- to off-premise markets.

Game Changers

It isn’t easy to win if you think of the market in zero-sum terms (although not everyone agrees on this — President Trump famously proclaimed that trade wars were easy to win). Although there are many different strategies to consider, three stand out in my mind.

The first strategy is to analyze changes in market conditions and focus closely on growth segments. There is no single wine market, so a stagnant environment can a bit like a duck on a lake — quiet on the surface, but turbulent underneath. I wrote about Precept Wine in 2019, for example, highlighting their “Willie Sutton” strategy of putting resources into growth segments.

The second is simple: accept that the game is zero-sum and play hard to win on those terms. This means being very aggressive in terms of cost and price and making sure you are on the winning side was consolidation unfolds. Being big doesn’t guarantee success (small can be beautiful in a profitable niche), but there is no great advantage to being middle-sized.

The final strategy is to try to change the game. If wine vs wine is zero sum, try to shift the game to one with better odds. Don’t sell wine, sell a lifestyle. Don’t sell wine, sell community, culture, celebrity, or culinary connections. Ship the wine, sell the dream. Hitch your wine to a horse that can carry it to new market niches. Product differentiation — that’s what it’s all about.

What’s new about this? Nothing. The most popular wine magazines, for example, have long featured food, travel, and lifestyle as hooks for their wine stories.

In fact, using product differentiation to create and protect a profitable market niche is standard “monopolistic competition” theory.  But now might be a great time to think about what makes your wine’s offer distinctive and what you can do to protect yourself from head-to-head zero-sum competition.

Wine, Covid-19, and the Zero-Sum Dilemma

November 3, 2020 By in coronavirus, economic crisis, globalization, trade wars, wine, wine markets 1 Comment

Last week’s Wine Economist column presented a “Guide for the Overwhelmed” that analyzed the current crisis in terms of its perfect storm of component parts. This week begins a short series of articles that try to put the pieces back together in order to better see the outlines of the future of global wine in the post-Covid era.

Zero Sum Economics

MIT economist Lester Thurow’s 1980 book on The Zero-Sum Society argued that America and the world had reached a turning point. An era of growth, where an expanding social and economic pie made it possible for many to gain without corresponding losses for others, was coming to an end, Thurow argued. This change in the economic environment would have broad and lasting consequences.

Example? Under the right circumstances (which can be tricky), open trade is a recipe for positive-sum growth while protectionist trade wars are zero-sum at best and negative-sum at worst. The 1980s proved to be a fertile decade for trade barriers, competitive currency devaluations, and other protectionist policies.

What caused the sudden shift from positive-sum growth with rising overall living standards to zero-sum stagnation? It was complicated, of course. But the 1980 answer in a single word was oil or rather the oil crises of the 1970s and the higher costs and restricted supplies that resulted.

The world, it seems, had organized itself around the assumption of cheap, plentiful petroleum. Scarcity and higher costs shocked the system in ways that few even imagined and helped set the stage for a generation of stalled living standards and frustrated expectations.

The focus of the zero-sum society, Thurow argued, would shift from equity and growth to distribution and conflict. Everyone would struggle for an increased share of the stagnant or shrinking pie and some would succeed better than others, increasing inequality. I recall that Thurow grew up in Montana and he must have imagined his Big Sky world of open opportunity closing down around him.

Covid Crisis / Oil Crisis

It is easy to see in retrospect that the 21st century B.C. (Before Covid) world was organized around the assumption that people could safely gather together and cheaply move about. Spending on travel and tourism, for example, increased dramatically as a proportion of total expenditure in the past two decades. Wine tourism and cellar door sales were important sources of growth in our industry. The post-Covid world will be different indeed, although just how different and for how long remains to be determined.

Is it reasonable to compare the Covid-19’s world economic shock with the oil crisis of the 1970s and its aftermath? Everyone knows the oil crisis was a game changer. The Covid crisis is different in many ways, so it is not a simple apples-to-apples comparison. From a macroeconomic standpoint, the oil shock was a supply-side event that produced stagflation. The Covid shock is more of a demand side disruption that risks a deflationary cycle. It is obviously too soon to know what the final picture will look like, but I would argue that Covid could prove in the end to be the bigger crisis in the long term.

The New Zero-Sum

Even if you accept that the Covid crisis shock is as serious now as the oil crisis shock was in its today, you might still disagree with the idea that the new world that it is creating will be more zero-sum than in the past, with a greater focus on how the pie is divided than in its growth. Why is the future likely to be a zero-sum environment?

One argument is that many parts of the economy are already zero-sum and that Covid simply magnifies and accelerates existing trends.  The recovery from the initial Covid recession in the U.S., for example, wasn’t the V-shape that many hoped for but more of a K-shape. Some parts of the economy (especially the financial sector) recovered very quickly. Other sectors continue to struggle, a situation made worse by the lack sustained economic stimulus. The rising tide did not lift all boats and the financial pages are full of multi-billion dollar M&A deals as businesses bulk up to grab market share.

If you saw the strong Q3 U.S. GDP figures that were released last week, you might think that the economy has rebounded and will resume previous growth quickly. But those numbers are the result of literally trillions of dollars of stimulus (and debt), which are unlikely to be sustained. And they don’t take into account the Covid second wave tsunami, which seems to be sweeping across the globe.

The second argument for stagnant economic growth can be found in the financial news, where the yield curve hugs the zero axis for at least a five year time-frame and monetary policymakers have pledged their support for the foreseeable future even if fiscal actors hesitate to renew stimulus measures. The overall economy is on life support and monetary authorities who lack the power to shock it back into life are determined to at least prevent flat-lining.

The likely result, according to the most recent Q4 2020 global forecast by the Economic Intelligence Unit, is the “zombification” of the global economy characterized by slow growth, low inflation, and high levels of debt. Does this sound like a zero-sum environment?

Wine and the Zero-Sum Economy

It goes without saying that the economic environment I’ve just described is not favorable to the growth of the global wine industry. This is especially true because of the importance of on-premise wine sales, which are most directly affected by the Covid pandemic.

Is the global wine market now zero-sum? And what are the implications if it is? Come back next week for thoughts and speculations.

It’s Going to be Huge: 2020 Unified Wine & Grape Symposium

January 21, 2020 By in climate change, trade wars, Unified Wine & Grape Symposium, wine, wine markets 2 Comments

 

The Unified Wine & Grape Symposium is just a few weeks away (February 4-6 in Sacramento) and I am already excited. The Unified is North America’s largest wine industry event with about 14,000 in attendance for the trade show and seminars.

Bursting at the Seams

The 2020 Unified promises to be bigger and maybe even betterthan ever before. The event has been moved out to the Cal Expo fairgrounds for 2020 while the Sacramento Convention Center is expanded and remodeled — the Unified  simply outgrew the old facilities. The one-year move means even more room than in the past for trade show exhibitors, including outdoor space for big machines and equipment. It’s going to be huge — literally!

And the program organizers have gone to some trouble to expand seminar offerings, too, with 110 speakers divided among about 30 sessions. Something for every need and interest with programs for growers and winemakers, marketing and business management. As has been the case for several years, some of the technical sessions are offered in both English and Spanish.

Labor cost and availability is an important issue in the wine business, so I am interested in one session that examines mechanization in the vineyard and includes a wine tasting. I’m guessing that the audience will be offered the opportunity to see if they can taste the difference between wines made with machine-harvested versus hand-picked grapes. Should be interesting.

State of the Industry

I’ll be moderating and speaking at the “State of the Industry   general session on Wednesday morning. Danny Brager (Nielsen), Steve Fredricks (Turrentine Brokerage), Jean-Marie Cardebot (University of Bordeaux), and Jeff Bitter (Allied Grape Growers) will be joining me on the big stage. A great team with deep understanding of the wine market.

Jeff O’Neill of O’Neill Vintners and Distillers is giving the Tuesday luncheon keynote speech this year and I am looking forward to hearing what he has to say. These are uncertain times for wine in the United States and it is easy to be pessimistic about the future. O’Neill’s company has been remarkably successful in navigating the treacherous seas, taking advantage of favorable winds. Everyone will be looking for lessons and insights they can take back to their businesses.

This is important because one cloud hanging over the meetings is a structural surplus of grapes and wine in some categories. U.S. wine demand is plateauing, which is better than some countries where demand has been falling for years. Overall wine expenditures are still rising even if overall volumes have declined.

The surplus creates a problem that may take years to correct through a combination of rising sales in old markets, development of new markets, and adjusting production capacity. Heidi Scheid is leading a session that will address the issues directly titled Strategies for Managing Through Over-Supply. Should be a standing room crowd.

Trade Wars Shrink the Pie

Trade wars are another concern. President Trump has said that trade wars are good and they are easy to win, but the wine industry has found little to celebrate about being in the center of the battlefield. Having invested years of effort and lots of dollars opening up Chinese markets, for example, many wineries have watched hoped-for opportunities disappear with retaliatory Chinese tariffs on U.S. wines.

It looks like French wine producers have dodged a bullet, avoiding sky-high U.S. tariffs that were threatened as retaliation for France’s digital tax scheme. You might have expected U.S. wine producers to celebrate tariffs on wine imports because some buyers are likely to shift from imports to domestic wines. But this substitution effect is not the only impact the tariffs have.

Prohibitive tariffs on imported wine are more likely to shrink the wine market pie at every stage of the product chain. It is hard to see how retailers or distributors can justify investment in the wine category when overall sales fall and uncertainty about future conditions is high. The uncertainty effect looms especially large, despite the recent wine tariff trade truce. If wine was caught in the trade war cross-fire before, there’s no reason it couldn’t happen again. And truces are by their nature temporary and fragile.

When tariffs work to protect an industry they tend to do so only temporarily and at high cost (struggling Harley-Davidson is a good example of this). But they more often backfire. The recent tariffs meant to protect manufacturing jobs in the U.S., for example, seem to have only accelerated the decline of the manufacturing sector generally because of the complex international interweaving of manufacturing chains and other factors.

Food (and Drink) for Thought

There a lot to think about as the wine industry moves into 2020, so I encourage readers to check out the Unified’s seminar programs and start working on a strategy for the trade show.

I’ve been to a lot of wine meetings both here and abroad, but there’s nothing like the Unified. Hope to see you there.