Trump’s trade war worries North Coast wineries

President Donald Trump’s trade war with China over steel and aluminum imports has had reverberations across the country, from Iowa soybean farms to Harley-Davidson motorcycles made in Wisconsin.

The international trade spat is now threatening vintners across the North Coast who are attempting to make inroads into China, the world’s biggest market with 1.4 billion residents. Beijing is threatening a 25 percent tariff on U.S. wine imports next month on top of a 15 percent tariff it already imposed in April in retaliation for U.S. tariffs on its steel products.

“The category of California wine is trendy and popular there, and it is really resonating with the younger consumer,” said Linsey Gallagher, director of international marketing at the Wine Institute, the main trade group that represents California wineries.

“It’s so frustrating because, in theory, this high-level trade dispute doesn’t have anything to do with wine,” Gallagher added.

Even with the April tariff, U.S. wine exports rose 14 percent, to $38.4 million, in the first half of 2018, according to the Wine Institute. But vintners fear any additional levies will make U.S. wine too expensive for Chinese distributors to stock, compared to wine from other countries. If the new levies take effect, overall taxes and tariffs for U.S. wine into China will be almost 100 percent, Gallagher noted.

Napa Valley’s Girard Winery is a perfect example of the dangers that local vintners face in the trade dispute. Its 2014 vintage cabernet sauvignon was served at a dinner last year hosted by Trump for Chinese President Xi Jinping.

In the aftermath, sales of Girard climbed in China, said Pat Roney, chief executive officer of Vintage Wine Estates, the Santa Rosa company that owns the label.

Girard has still been able to compete with the 15 percent tariff from April, Roney said. But another 25 percent? “It would kill it,” he said.

China is the fifth-largest market for U.S. wineries, which shipped $77 million in wine to China last year. While that amount is far behind the European Union’s $553 million and Canada’s $444 million in purchases, wineries and other U.S. companies are drawn by the potential of the Chinese market. Western influences, from pop culture to food and drink, have taken hold among young Chinese professionals. For example, Stone Brewing Co. of Escondido just opened up its newest taproom in Shanghai because of the opportunity.

That potential is what took Hank Wetzel, co-founder of Alexander Valley Vineyards in Healdsburg, to a wine trade show in Shanghai last November. He met with a distributor in an attempt to crack into the Shanghai market, a couple whom he referred to by their Americanized names of “Jack and Rosie.”

“They are buying higher-end wine products. That’s why they are interested,” Wetzel said of local wineries. Cabernet sauvignon wines from Wetzel’s winery start at around $25 per bottle and can go as high as $150. “I think there is a real opportunity there. The couple I met were keen on doing business.”

The winery produces about 190,000 cases annually, with about 2 percent exported to foreign countries, mostly to Canada. “I never thought there was an opportunity to sell wine outside the country,” Wetzel said. “I’m beginning to change my thinking on that.”

He noted the Chinese couple were interested in both Harlan Estate and Screaming Eagle - the most expensive Napa Valley producers of collectible cabernet sauvignon - and he promised to take them to those places when the couple visits Wetzel’s winery next month.

“As the talks on tariffs became bigger and bigger, their desire became weaker and weaker,” Wetzel noted.

The newly imposed tariffs have aided both Australian and Chilean wineries that want to grow in the Chinese market as well. Chilean wines are already shipped free of tariffs into China, and Australian wines will be next year. Australian wine shipments into China have increased 55 percent by value within the past 12 months as of June, while Chilean wines rose 30 percent from 2016 to 2017.

“The opening of free trade between trading partners has led to explosive growth in those countries’ respective wine industries,” said Damien Wilson, the Hamel Family faculty chair in wine business at Sonoma State University, in an email.

Trump, meanwhile, has eschewed trade agreements, including pulling the United States out of the Trans-Pacific Partnership, an agreement that rewrote new international commerce rules for 12 Pacific Rim countries. That pact would have lowered U.S. wine tariffs into Japan, the fourth-largest market for American wines at $94 million in sales in 2017.

David Fischer, chief operating officer of Ramey Wine Cellars in Healdsburg, said he postponed a visit to China this fall because of the uncertainty, but he looks to be back in the future. French wines are the most favored by Chinese consumers right now, but U.S. wines are gaining ground, especially among consumers age 45 and younger, he said.

“California wines are new for them,” he said.

Ramey exported 2,850 cases worldwide last year, with 40 cases to Hong Kong and 180 cases to China. “Both are a small but still important part of our overall export program,” Fischer noted.

A local winery must find a good Chinese distributor if it wants to make any strides into the market. Higher tariffs will make it harder for those distributors to do business with U.S. vintners or take on new American clients, Fischer said.

The goal is not to expect immediate returns, he said, but to establish the groundwork to grow in the future when the market finally starts taking off.

“We’re totally playing the long game,” Fischer said. “I’m trying to lay the groundwork for (winery owner David Ramey’s) children.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.