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Cornell Student Articles on Topical Affairs

Trade War Collateral: 25 Percent Tariffs on European Wine

Americans may have to cut down on their daily drinking of wine quite soon or find a new favorite wine that doesn’t come from Europe. On the 3rd of October, the administration for president Donald Trump announced 25 percent tariffs on a variety of European products – from wine to cashmere sweaters – effective 15 days later. This is in direct retaliation to the unfair subsidies that the E.U. offers Airbus.

This directly affects the wine and products currently being shipped to American shores. Unless they find a way to divert their wares to a country which is willing to purchase the items, the wineries and other manufacturers will have to bear the costs which is touted as unfair by winemakers. There are those that decided to cancel their shipments altogether, absorbing the logistics fee whereas others raised the prices on their wine. There is a loophole to this tariff, as only wines which has an alcohol content of 13 percent or lower will be taxed. It seems one way to beat the tariff is simply to increase the alcohol content in their wines. Furthermore, sparkling wine will not be taxed.

However, many distributors feel that they are being held hostage in a situation that does not involve them. Germany is feeling the most heat as more than half of their annual orders come from America but at this rate, they feel that their customers will look to other distributors in other countries where the prices are more affordable – a luxury they can no longer afford due to the newly imposed tariffs.

“Why should we be punished?” is the clear sentiment of many winemakers but on the other side of the world, America feels the same weight of unfairness. More than a decade ago, the country made its complaints against the E.U’s favoritism of Airbus and causing its American rival, Boeing, to suffer losses. America is simply taking a stand against the inequality and fighting for similar treatment. However, the same can be said of America and the unfair subsidy they afford their airline company and E.U. has already lodged a complaint with the WTO (World Trade Organization) which would be reviewed in 2020 at the earliest.

While many wineries decide to take their business elsewhere, there are also those such as Beaujolais wineries that are fighting to stay in the American market, believing that there is potential there and they were willing to absorb the excesses for now, confident in a reinstatement of the normal tariffs and making a profit when that time comes, if ever.

With the uncertainty of Brexit hovering over E.U. and the unsteady economy of China over the political unrest in Hong Kong, their wine orders are already down by half. Now they have to contend with Trump’s new 25 perfect tariff and paired with what the country is currently going through, it is not a good look for the economy. They are hoping that this will blow over soon so trading can resume as normal and not at the expense of any industry. Talks are currently underway and the two countries are negotiating a fair solution.

E.U. trade commissioner, Cecilia Malmström retaliated against the tariffs, saying that “imposing tariffs on each other serves nobody’s long term interest” and continues to call for a sit down between the two countries to come to a conclusive and beneficial agreement to both parties.

This tension between America and Europe has been mounting since Trump took the presidency, and the economy is the one taking the hit. There will be no winners in this war, as both the American market and the European market will be affected. The vendors are the ones who will be affected and the economy, in turn, will suffer. Fifteen associations from both the United States and Europe have called for an immediate end to “this farcity”, saying that this game that they are playing is costing as many at 8000 jobs in the American alcohol sector, calling the alcoholic industry collateral damage “in trade disputes that have nothing to do with the beverage sector”.

What Trump’s administration might not have thought through is that they just made wine, cheese and other European products a lot more inaccessible and expensive for their citizens. While they can find substitutes from other countries, it would not be the same as there are no other countries that make cheese quite like the Germans, French or Italians – top producers (1.8 billion per annum) who are all based in Europe. Despite only affecting a small portion of the total trade between the two countries, it’s the latest in the escalation of power play between them. Back in 2018, Trump imposed tariffs on steel an aluminium and the E.U. retaliated by imposing a 25 perfect tariff on U.S. exports such as whiskey. If they do not come to an amicable understanding soon, they will continue to affect various industries across the board.

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