Tariffs Come Due for Wine Importers

Importers Pay Now, We Pay Later

The item on the invoice was not unexpected, but it was frustrating enough for Alyssa Wolf to vent on social media.

“Received my first tariff invoice,” Wolf, founder and co-owner with her husband, Ian, of Red Wolf Imports in Washington, D.C., wrote. “Customs costs are more than DOUBLE what they would have been with no tariffs. Tariffs are listed as a TAX on my invoice.” She then added, “Tariffs are BAD FOR BUSINESS” and signed off with three letters that succinctly expressed her sentiment towards President Trump.

Build that wall! Photo by Markus Winkler on Unsplash

And Wolf was lucky. The containers of wine she had ordered back in March, from Portugal and South Africa, arrived in port in late July, when tariff levels on each country were 10 percent. If they had arrived two weeks later, she would be paying higher levees of 15 percent and 30 percent, respectively, on the same containers.

Across the U.S., importers are feeling the pinch of Trump’s tariffs, even as political uncertainty — high tariffs threatened, deadlines postponed, various “deals” negotiated — makes planning and operating a business difficult. To further complicate matters, the tariffs come as the U.S. dollar is weakening against the euro and other currencies and anti-American sentiment in foreign markets is at an all-time high.

“I get the point of the tariffs, but in the end, it’s messing with a lot of the supply chain, and it’s not good.” — Eric Platt, Artisans & Vines

Certain basic facts about tariffs get lost in the rhetoric and reporting:

• Tariffs are not paid by the foreign (producing) country, despite what Trump says. They are paid by the U.S. importer and assessed by U.S. Customs and Border Protection (CBP) when the product arrives and before the importer can take possession.

• Tariffs thus are a regressive tax on U.S. businesses, as smaller companies with narrow profit margins are hardest hit.

• Consumers can expect to pay more for imported goods, including wine, though the increases may not correspond precisely with the tariff rates.

“Just wait six months, because the effect of these tariffs is only just beginning to go through the pipeline,” said Harmon Skurnik, co-owner with his brother, Michael, of Skurnik Wines & Spirits in New York City. As importers deplete existing inventory and place new orders, the effects of the tariffs will trickle through to retailers, restaurants and consumers.

“It’s very onerous on importers, our cash flow, our profitability, our ability to make investments and hire people,” Skurnik said.

Skurnik is active in the U.S. Wine Trade Alliance, an association of importers lobbying the Trump administration to include an exemption for wines and spirits in the trade deal being negotiated with the European Union. The argument, he told me, is that because wine is unique to its place of origin, it isn’t a “fungible” product like steel. So while tariffs on foreign steel might make U.S. steel more competitive, because steel is steel, wine is different. “You can’t make Bordeaux or Chablis in the United States,” he explained.

History aside, as readers of a certain age (mine) are probably remembering California Chablis, that’s an argument that makes a certain amount of sense to wine nerds but is unlikely to resonate with anyone else. And indeed, the New York Times reported August 19 that a wine and spirits exemption is not in the draft agreement being finalized with the EU, so we are looking at the probability of 15 percent tariffs on European wines for the foreseeable future.

Importers can mitigate the tariff impact in various ways. They can ask suppliers for a better price, but many importers deal with small, family wineries that also operate on thin margins, so there may not be much leverage there. They could also raise prices on U.S. wines in their portfolio to help make up for the tariffs. This too could prove troublesome, as U.S. wineries are already facing higher costs for imported bottles, corks and winery equipment, amid a strong market slump and public health concerns about alcohol.

Wolf started adding a 5 percent “tariff surcharge” on orders beginning August 1, as a way to recoup some of the tax without factoring an increase into her pricing structure. That way, she explained, she can spread the pain over wines that were already in her inventory and have a clear accounting of the tariffs should they ever be declared illegal. “That’s something I’m not optimistic about,” she acknowledged. And if the tariff on South Africa remains at 30 percent, “there’s no way this surcharge will help.”

Meanwhile, Wolf said she has postponed plans to expand into other markets because she wants to ensure she has enough supply of a popular Vinho Verde to satisfy existing customers. And that premium South African chenin blanc she thought of adding to her portfolio will have to wait.

Eric Platt, managing partner of Artisans & Vines, a D.C.-area importer, said some price increases will be necessary, but he will try to be careful not to test consumers’ patience by going over what he called a “magic price point” that would create sticker shock.

Gauging that stress point for each wine will be tricky, especially in the new tariff economy where consumers will be facing higher prices and may cut back on discretionary purchases such as wine.

“I get the point of the tariffs,” Platt told me, “but in the end, it’s messing with a lot of the supply chain, and it’s not good.”

Restaurants may be especially hard hit by the tariffs, Skurnik said, as their thin profit margins depend heavily on alcohol sales. Given restaurant markups, the tariff increases could be magnified on wine lists.

Wolf said she hopes consumers will keep small businesses in mind.

“I understand if someone’s budget doesn’t allow them to buy wine, but if you want to come by to a free tasting I’m doing at a shop and taste something, please say hi,” she said. “And if you’re going to buy a bottle, consider something that’s not from a big brand. They’re well funded, they’re fine.

“If it’s advertised by a celebrity, maybe try a different brand, somebody a bit smaller. When you make that purchase, it actually does make a difference to multiple small businesses — not just the shop, but the distributor, the importer, all the way back to the winery,” she said. “So yeah, just keep us in mind, too.”