US-China relations: why Californian wines are bubbling back from Trump’s trade war
- Following the outbreak of the US-China trade war, Beijing raised tariffs and taxes on US wine from 48.2 per cent to 93 per cent per bottle
- Since then winemakers have recouped losses by reselling domestically, diversifying markets and cautiously re-entering mainland China
David Kent was initially in disbelief when a trade war between China and the United States broke out in March 2018, leading to the world’s top economic powers slapping tariffs on each other.
When Chinese tariffs hit US wines early that year, the industry veteran figured they would not last and lowered prices on 3,600 cases of wine he was shipping to China.
But within six months, his winery Darcie Kent Vineyards – nestled in the arid mountains about 80km (50 miles) east of San Francisco – quit the Chinese market altogether, as Kent realised he was no longer moving new bottles and customs officials were delaying shipments over labelling glitches.
“It was very difficult,” said Kent, a former executive director with the country’s largest winery, E&J Gallo. “It took a couple of years to get back where we used to be, but we’re there now.”
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Since the initial salvoes of the trade war, many of California’s 4,200 wineries have recouped their losses by reselling domestically, expanding into other countries and capitalising on Chinese tariffs placed on Australian wine, which has made their product more competitive.
As the trade war deepened, the two nations imposed tariffs on US$550 billion worth of goods between them, including US$200 billion on American products.
China raised tariffs and taxes on US wine from 48.2 per cent to 93 per cent per bottle. Wines that once cost US$40 suddenly sold for US$50 or more and importers stopped making new orders, vintners said.
Before the trade dispute in 2017, US wine sales to China totalled about US$80 million a year, said Honore Comfort, international marketing vice-president with the San Francisco-based Wine Institute, an industry advocacy group. Chinese consumers liked the American Cabernets and Petite Sirahs in particular for their drinkability with a range of Chinese foods.
That amount dropped by about US$20 million each year between 2018-20, said Comfort. About 95 per cent of US wine exports are grown in California.
The tariff structure hit cheaper wines in particular, which compete with imports from Australia and Chile, Comfort said.
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“I think it has to do with the fact that the tariffs against Australian wines are even steeper,” Comfort said. “Consumer demand for wine is still there, still strong.”
American wine imports to China grew to US$39 million last year, she said.
Wente Family Estates, located east of San Francisco, counted China as one of its top three markets before 2018. When Beijing declared its first wave of tariffs in 2018, “it was like we hit this pause button” as importers held off on orders, said Michael Parr, the winery’s international sales vice-president.
China raised tariffs again in September 2018. “Then all of a sudden I’m like ‘We’re going in the wrong direction’,” he said.
A third wave of tariffs the following year was the “nail in the coffin”, said Parr, who previously worked as a China-based wine importer. “The trade war and ultimately the trade tariffs really bit into our business,” he said.
Since then, however, the vineyard has redirected the several thousand cases destined for China each year – roughly 20 per cent of the 18,000 cases it exported annually – to other markets, Parr said.
The 140-year-old winery currently ships bottles to 75 countries, with Belgium, the Netherlands, Russia and Scandinavia becoming strong buyers.
This month, Wente got its first inquiry in four years from a China-based wine importer, making Parr feel “optimistic” that mainland consumers are now used to higher prices and have decided to keep drinking anyway.
Rich Chinese are still willing to pay tariff-enhanced prices, Comfort said.
The tariffs are still there, so there’s no incentive to go back
But not every company has been able to diversify so easily. At Page Mill Winery, a 46-year-old Californian vineyard that sells most of its wine domestically, some 40,000 bottles that were set for China remain in storage in the San Francisco Bay Area. Their China-specific labelling makes it hard to sell them at home, winery owner Dane Stark said.
Darcie Kent Vineyard has also had to relabel China-bound products, shifting about 3,000 to 4,000 cases of unsold wine per year onto the domestic market under the Firepit label and selling it through a two-year-old company called Almost Famous Wine Co.
And with no sign of Sino-US trade ties improving, Kent is not looking at returning to China any time soon.
“The tariffs are still there, so there’s no incentive to go back,” he said.
