China hits back with US$60bn tariffs on US goods

American wine’s prospects in China have been met with another huge blow this week, as the Chinese government announced that it will levy an additional 10% tariff on American wines on top of the previously announced 15%, threatening American wine’s already meagre share in the lucrative Chinese market.

The decision was announced on 18 September as part of the Chinese government’s retaliation against the Trump administration following the US President’s decision to further enforce sanctions on US$200 billion worth of Chinese exports to the US, starting from next Monday.

Wine is among roughly 5,207 products valued at US$60 billion that are being targeted by the Chinese government. In addition to wine, other alcoholic beverages including beer, distilled spirits are also subject to the additional 10% tax hike. The new tariff – an additional 5% to 10% –  is expected to take effect on 24 September, according to a statement from Ministry of Finance.

This means that American wines exported to China would face up to a 39% import duty alone, with the normal 14% import tariff and the additional 15% announced in April and the 10% announced this week. Added to the existing VAT and excise taxes on imported wines, American wine exports to China are subject to about 80% taxes, much higher than the average 48% levied on regular imported wines.

This would put in American wines at a great disadvantage, especially when compared to Australian or Chilean wines as both countries enjoy tariff reduction thanks to Free Trade Agreements.

“The new retaliatory tariff on the US products announced on 18 September will come to effect on 24 September. By that time, the comprehensive tax on wines imported from the US will be 79.16% in total. It would make it more challenging for US wines’ development in the highly competitive wine market in China,” commented Yoshi Shibuya, CEO of ASC Fine Wines, when asked by dbHK. 

This is echoed by Torres China, another leading wine importer in mainland China. “After the double hike this year in taxes, the prospects for the success of our American wines in China are narrowing fast. Not only because they will lack value for money but also due to an ongoing political/social view on American products in general. This year we have already seen many of our agents lacking interest in them,” Alberto Fernandez, managing partner of Torres China, told dbHK. The company distributes its own Marimar Estate in Sonoma, and also Ste. Michelle Estate wines and Francis Ford Coppola from the US.

However, Yoshi stressed in order to limit the impact of the punitive tariffs, American wine producers need to work closely with local importers. “Since the trade conflict between the US and China started, we have worked tirelessly with our US suppliers to ensure their wines would remain competitive. Clearly, we need to work even harder now for that objective. ASC’s portfolio consists of fine wines from 16 countries. The impact on ASC ourselves would be limited but we will make sure our US suppliers’ interests in this market will not be jeopardised. It needs collective efforts from both importers and producers,” he added. 

Majority of wines produced in the US come from California, and currently US wine exports to China only account for around 3% in the mainland market.

The escalating trade war between the world’s two biggest economies also stoked fear that China is devaluing its currency to boost exports, which would not only affect American wine but also other New World wines. The Chinese renminbi has lost more than 8% of its value against the US dollar since mid-March amid the escalating trade war and slower economic growth at home, according to China’s Caijing. This has, however, been dismissed by the Chinese premier Li Keqiang this week at the World Economic Forum’s conference in Tianjin.

Although the San Francisco-based Wine Institute announced earlier this week that American wine exports to China grew in the first half of the year, but the impact of the tariff is set to play out in the second half of the year.

The two countries’ ongoing tit-for-tat trade war is looking to expand with Trump already warning that the US would threaten to tax the remaining US$267 billion of Chinese imports.

China would have a hard time matching the number, as the country’s imports from the US only totals around US$130 billion, while Chinese exports to the US stands at around US$500 billion.