PD Editorial: Tariffs fomenting turmoil in world wine markets

California is on the front lines of President Donald Trump's unwise trade wars, and the wine industry is under fire. A recent report from the Wine Institute blamed a 25% decline in exports to China largely on retaliatory tariffs.

Nationally, wine exports were down about 1.2% in volume and 4.8% in value in 2018 - the lowest value since 2012. That's a good proxy for California's wine industry because the state produces 90% of U.S. wine exports. The Wine Institute attributed the modest decline to the strong dollar, competition with subsidized foreign producers and tariffs imposed in retaliation for Trump's levies on imports from China and other U.S. trading partners.

China isn't everything, but domestic wine producers rightly fear that the longer the trade war endures unresolved, the worse it will get, especially with the potential for new Chinese retaliation.

Without that 25% decline in exports to China, wine exports might have grown last year. China was seen as a real growth opportunity for California winemakers in recent years. The country's burgeoning middle class has been developing a taste for California wines, and exports nearly tripled between 2009 and 2014. Now tariffs are allowing other global wine regions to make inroads as California wines are priced out of reach.

The trade disputes show no clear sign of ending, and there are a multitude of barriers between here and any genuine resolution, most of them residing in the White House.

The sad fact is that our president seems not to understand international trade relationships. The intricacies of those relations and the myriad issues that must be worked out to make them successful have fallen by the wayside under Trump's leadership. This is true of America's relationship with China and with practically every other country.

Trump is driven by a simplistic urge to win that makes finding genuine compromise difficult. That urge grows even stronger as his reelection campaign approaches. In that environment, experts warn that he could ignore much-needed structural reforms in favor of splashy purchase commitments from China.

One small sliver of hope comes, ironically enough, from the Trump administration. The clunkily named United States-Mexico-Canada Agreement negotiated to update and modernize the North American Free Trade Agreement resolves some disputes American winemakers have raised about access to Canadian store shelves. Congress, however, has yet to ratify the deal.

Canada is the second-largest export market for California wine. Canadians last year bought $449 million worth of wine, behind only the $469 million bought by European Union member states. Canada could soon surpass the EU, though. Exports to Canada grew year-over-year in 2018, but exports to the EU declined. If the United Kingdom withdraws from the EU - so-called “Brexit” - then the declines could accelerate in the ensuing chaos.

The lesson for winemakers, who are so important to the economic health of Sonoma and Napa counties, is one of nimbleness in uncertain times. They must be ready to adapt from one growing market to another as presidential trade whims disrupt export relationships.

With so much uncertainty and so little intelligent trade policy coming from Washington these days, California winemakers could be forgiven if they dip a little more heavily than usual into their own wares.

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