What will the impact of Trump tariffs be on fine wine?

American fine wines held in bond in the UK are likely to become “truly valuable” if Donald Trump carries out his threat to impose 200% tariffs on EU wines, according to one fine wine expert – although the effect on Bordeaux, Champagne and Italian wines may be more brutal.

Speaking to the drinks business following last week’s announcement, James Shakeshaft CEO of Vin-X said that US wines that are already held in bond in the UK  – notable icon wines such as Opus One, Screaming Eagle, and Scarecrow – are likely to see a large uplift on the secondary market as they will be ahead of any potential tariff costs for EU and UK suppliers.

There are, he added a lot of back vintages of these wines held in the UK in bond, and these could prove to be a “tremendous” investment over the next few years, with EU and UK suppliers looking f0r a source of Opus One, Screaming Eagle, the Scarecrow from within the EU and UK, rather than incurring tariffs by importing it from America.

He also pointed out that there was no mention of Australian wine tariffs, which could have potential implications for the likes of Penfold Grange, but it was important to take advise.

“These [types of actions] create fluctuations, which creates opportunity – it is why investors come to companies like our, as it is our job to sort out those opportunities to maintain growth in an overall portfolio,” he said. “In an overall portfolio, American wines already in the UK and anything left out of tariff negotiations will have an uplift and I have a strong feeling that Australian wine may have a bit of a comeback. They dropped off with the Asian tariffs but the Chinese tariffs that have now been lifted.”

This was echoed by a recent article in the Sydney Morning Herald, who noted that the US accounts of 40% of Penfolds’ owner Treasury Wine Estates’ earnings – and the share price lifted almost 5% in the immediate aftermath of the US President’s announcement.

However, the knock-on effect is likely to be less favourable for French and Italian wines, he said, citing the impact of President’s previous round of tariffs during his first term, when Bordeaux was one of the major markets affected.

Following the imposition of 25% tariffs on French wine and spirits in 2019, French exports to the US dropped by 14% in 2020. Meanwhile Italian wines and Champagne, which were not subject to any tariffs, saw a major boost across the market. For example Massetto 2010 traded at 73% higher in 2022 than it did in 2020, Shakeshaft said, while Champagne saw an overall uplift of 14%, although many in-demand brands and vintages saw considerably higher uplifts. Salon Mesnil 2002 for example traded 185.7% higher in 2022 than in 2020, according to Liv-ex data.

Currently, it is unknown when – or even if – the  threatened 200% tariffs may kick in and if there will be any exceptions to it to apply to all EU wines, Champagnes and sprits.

“We ran the numbers and if they did implement 200% tariffs, French wine could lose 70% to 90% of sales in the US,” Shakeshaft said. “Champagne would also have a major decline, and if Italy if included… again, [there would be a] similar drop, while Americans would see massive price hikes for consumers.”

However, Shakeshaft argued that it is possible that the planning retaliatory tariffs on wine may eventually come in below the currently mooted level of 200%. He pointed to out for example, that the 47^th President has already climbed down on his initial imposition of tariffs on Canada and Mexico, which originally covered all imports from the two countries at 25%, having introduced several key exemptions.

“We’re predicting something similar happening with wines,” Shakeshaft said. “It feels high if you compare it to other products negotiations on tariffs…. I don’t doubt he’ll put tariffs on, but I don’t think we’ll see the 200%.”

“I think he will come back down to make it a more palatable tariff increase.”

Shakeshaft predicts it may eventually be similar to those seen in October 2019 – even if this time around, Italy and Champagne won’t be spared, as they were then. Back in October 2019, still wine (not over 14% ABV) made in France, Germany, Spain and the UK transported in containers of 2 litres or less and exported to the US were subject to 25% import tariffs, along with Scotch whisky; single malt whiskey from Northern Ireland; and liqueurs made in Germany, Ireland, Italy, Spain and the UK.

 

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