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Much of American agriculture – Napa’s wine industry included – has felt the impact of the ongoing trade war between the United States and China. Despite the Chinese tariffs on American wine exports, many local vintners say they are looking at the Chinese market through a long-term lens.

Honig Vineyard & Winery began exporting to the Chinese market in 2007, according to Stephanie Honig, the winery’s director of export. By 2016, Honig was working closely with an importer, and their sales in China had reached 1,000 cases. The market accounted for about 2 percent of the winery’s total business, Honig said.

Then came 2017 – and the heightening tension between the two countries that would ultimately give rise to the trade war.

“In 2017, (sales) dropped to 560 cases, and we have sold zero cases in both 2018 and 2019,” Honig said, of the winery’s exports to China.

The winery had previously worked to build relationships with restaurants, individual clients and the press there. It was a significant investment of time and effort, according to Honig.

“It’s unfortunate when you put so much time and effort into building up a market and then it falls off a cliff,” Honig said. “But we’re still not pulling out of the market – (the tariffs) are temporary, and we want to be present when this passes.”

Bruce Cakebread, president of Cakebread Cellars, wrote in an email that Cakebread and the Napa Valley Vintners have “worked hard to introduce Napa Valley wines” into the Chinese market. Cakebread, who described China as “an important market,” wrote that he’d worked together with an importer in China for many years.

“I look forward to the day when we can move forward and sell our wines into China and into many other countries with Free Trade Agreements, and be able to compete on a level playing field with other wine regions around the world,” Cakebread wrote.

China currently places no tariffs on imported wine from countries like Australia, New Zealand and Chile. Tariffs on American wine, however, have risen steadily over the past year as the relationship between the two countries has become increasingly volatile.

Before the trade war, the total tariff and tax on American wine exports to China was 48.2%, according to a press release from the Wine Institute. In April 2018, China imposed a 15 percent tariff on American wine; it imposed another retaliatory 10 percent tariff in September of 2018. The most recent round of tariffs – yet another 15 percent—went into effect on June 1.

That drove the total tariff and tax rate on American wine exports to 93 percent, essentially doubling the price of a bottle for Chinese consumers.

In 2018, total exports of American wine to China fell almost 25 percent, according to the Wine Institute.

Honig said the trade war has impacted the winery even outside of its export business; they’re feeling the squeeze from the mandated tariff on imported Chinese glass containers. A 10 percent tariff was implemented in September of 2018, and an additional 25 percent tariff in May of this year.

It’s difficult to estimate the exact financial impact the tariffs are having on wineries, according to Guy Carl, CFO of Brotemarkle, Davis & Co., a St.Helena-based accounting firm that works with around 120 wineries in the area. Carl estimates that export revenue accounts for less than 10 percent of most of his clients’ inventory, though there is a range.

“Smaller (wineries) don’t do as much international shipping as the larger ones, but there are a few that have developed a niche exporting to a certain area,” Carl said. “China is one of the largest consumer markets in the world and it is – or at least, it was – a good idea to get into it.”

In 2018, the United States imported almost $540 billion worth of Chinese goods and exported just over $120 billion of American goods to China, creating a trade deficit of almost $420 billion. In 2018, the United States exported almost $60 million worth of wine to China; those sales make up a tiny fraction of the trade deficit between the two countries that the Trump Administration has sought to reduce.

“There are other commodity items that are more impacted than (the wine industry) – (for example,) soybean producers in the Midwest,” John Skupny, co-owner of Lang & Reed Wine Company, said. “But wine is often used as a bargaining tool because it’s a high price item.”

As recently as five or six years ago, American businesses received a tax deduction on profits earned from exports, Carl said. Things have since changed drastically, he said – both in trade overall and for the industry itself.

“The wine industry is maturing and become more competitive, and this is one more thing for wineries to navigate,” Carl said.

Despite no immediate end to the trade war in sight, wineries like Honig will keep their eye on the Chinese market. That’s not to say the winery isn’t feeling the sting of the tariffs, Honig said.

“(Wine) is visible, and it’s a sexy, luxurious industry to talk about – but in dollars, it’s an irrelevant number,” she added. “It’s not hurting the Chinese, because they’re buying wine from other places. It’s really hurting agricultural growers and small businesses like us.”

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You can reach Sarah Klearman at (707) 256-2213 or sklearman@napanews.com.