Tariff, Tariff, Tariff! Wine, USA, Europe and Italy: what will be happen?
and what happened in 2019
After the USA elections, the Italian wine industry (but not only) is wondering what will happen after the probable introduction of Trump's tariffs on Italian wine. The new/old president wants to put import tariffs on practically everything that is not built, extracted, or produced within the United States, as he already did in 2019.
Numbers and Scenarios
With duties on wine and pasta, Americans will pay 10% more for their bottle of Chianti or Bordeaux. The same will happen for penne rigate or ready-made ragù, and we in Europe will perhaps sell a little less. The US alcohol sector has started to ask itself some questions, and so has the European one. Chris Swonger, president of the Distilled Spirits Council of the US (Discus), said the industry is ready to work with the new government, stressing the importance of the sector. It should also be noted that the old duties have not actually been eliminated, but only suspended until March 2025.
Those tariffs could be reinstated, on the same goods as in 2019, and any changes will have to be approved by the Senate (with a Republican majority). I will try to give some numbers to frame the situation, particularly on Trump's tariffs on wine, of course.
Italy is the third largest exporter of agri-food products and beverages to the United States, after Mexico and Canada, and in 2023 this brought a total value of 7.3 billion dollars, 6.6 billion euros. In the first seven months of 2024, exports were at 4.6 billion dollars, equal to 4.3 billion euros, slightly down on 2023 but mainly due to inflation and exchange rate variations. Our wine exports to the US reached 2.1 billion dollars. Other significant products include olive oil (706 million), sauces (633 million), pasta (597 million), and cheese (468 million). Prosecco alone made 430 million euros in 2023. In 2023, Italy's total exports to the US were 67.3 billion euros, compared to 25.2 billion euros of imported goods. During Trump's first term, tariffs were introduced on goods imported from Europe and China; the excuse was a fight between Boeing and Airbus. But what happened in that period? Tariffs were introduced in 2019, we were exporting about 44 billion euros to the US, and according to ICE, the institute for foreign trade, the results of the tariffs were a slight decrease, between 2 and 5 billion.
USA Export and Import
The most penalized Italian product was cheese, you may remember, it seemed that in the US they no longer ate Italian cheese.
The following year there was COVID, we all ate and drank much more, the delivery sector naturally benefited the most, and vertical marketplaces. Most restaurants, on the other hand, had significant consequences, disastrous for some.
But in general, food and wine were not greatly penalized by the give, compared to other products, especially steel and aluminum. So, in 2019, Italy didn't fare too badly compared to other European countries. France had a worse time than us for agri-food, also discounting the fact that it has higher prices than ours. With Trump's tariffs on wine, our exports could actually decrease a little, we'll see about those for the rest of the agri-food sector.
In 2023, US wine exports decreased by 16%, a total of 1 billion and 200 million dollars. For years, US wine exports have been declining in volume, reaching 2 million hectoliters compared to 4 before 2020. The main market is Canada, followed by the United Kingdom, where however the decline in exports has been greater. Together these two countries account for almost half of US wine exports, behind China and then Japan and Korea. Asia is still the best market for wine from the United States, certainly better than in Europe.
Consequences?
Constellation Brands shares fell 3.5% in the last week of November. The president-elect confirmed that he fully intends to impose 25% tariffs on Mexican imports once he takes office. Constellation imports all of its beer from Mexico, the most famous brands being Modelo and Corona. Beer accounted for 86% of Constellation's sales in the first half of its fiscal year. Furthermore, Constellation has invested several billion dollars over the years to increase its production capacity.
In his previous term, Trump proposed 5% tariffs on Mexican imports, with the intention of raising taxes to 25%. Those duties were not implemented, and in 2020 Trump signed a new trade agreement with Mexico and Canada, as the previous one had expired. However, this is already proving to be an executive, the American one I mean, much more rigid than the other time, much more MAGA than before.
Let's see the new appointments of the next US government. The Treasury will go to Scott Bessent, a 62-year-old billionaire, founder of the investment company Key Square Capital Management and Chief Investment Officer at Soros Fund Management from 2011 to 2015. During Trump's election campaign, Bessent always supported the policy on duties and tariff increases.
As secretary of commerce we will find Jamieson Greer, former chief of staff to the then secretary of commerce, in favor of tariffs thanks to which, he says, he intends to reduce the American deficit. He could be the one to represent the USA at meetings of international bodies, such as the World Trade Organization. He is not much loved by Elon Musk.
Economist Kevin Hasset will instead become director of the National Economic Council, tasked with helping Americans who have been battered, Trump's words, by the inflation created by the Biden administration. Tax cuts and a return to a state of equity in foreign trade, given that the whole world has always taken advantage of US weakness. So he said. He is not entirely in favor of tariffs, at least in short, he is slightly doubtful, at least in some of his past statements, and not even really opposed to an agreed share of immigrants, a point that could cost him ratification by the Senate.
So the story of Trump's tariffs on wine and everything else is still in the making. It could just be a demonstration of force, showing muscle in short, before the actual negotiations. It’s for sure that Europe, and Italy in particular, will have to make a move to improve their commercial autonomy.