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May 2018 WINES&VINES 13 WINE INDUSTRY NEWS U .S. wineries that have been laboring to im- pro v e t h e ir e x po rt business in China now face an extra hurdle, as the Chi- nese government announced a tariff increase of 15% on American wine imports effective April 2 in retaliation for U.S. trade actions on Chinese steel and aluminum that President Donald Trump or- dered March 8. The cost to enter the mainland China market was already high at 48.2% in tariff and taxes but ef- fective April 2 it rose to 67.7%, which is levied on the price im- porters pay the wineries. In one winery's case the effect was im- mediate, as LangeTwins winery of Lodi, Calif., lost — at least tempo- rarily — an order from a new Chi- nese client for several cases of its high-end Zinfandel. "It's on a wait and see kind of hold," said Joseph Lange, head of i n t e r n a t i o n a l s a l e s f o r t h e 100,000-case winery. "We don't do a lot of business with China, so this is just about the potential. It throws a roadblock in the way for the short term but it may be too early to tell just what effect these increased tariffs will have on our family winery." China is the fifth largest mar- ket for U.S. wine exports when the European Union is considered as one market. China received 1.6 million cases worth $79 million in 2017, according to Department of Commerce data analyzed by Gom- berg Fredrikson & Associates. The value of those exports has in- creased by 449% from a low base since 2007 but dipped from 2016 to 2017. Volume peaked in 2013 with 2 million cases. U.S. exports decreased in 2017 U.S. wines were in sixth place be- hind other countries exporting to China in 2017, led by France with $862 million, Australia with $638 million, then Chile, Spain and Italy. All of these increased their export value in China in 2017 while U.S. value dropped by $2.8 million, paralleling a trend for U.S. exports to all countries, which decreased 5% in value and 8% in volume in 2017, according to California's Wine Institute. However, in terms of price per case sold to China, U.S. wines beat the other seven biggest exporting countries with an average of $49.89 that incorporates both bottled and bulk wines, compared to $41.71 for Germany, $38.29 for Australia and $36.11 for France. "It's certainly a bright spot," said Jon Moramarco of Gomberg Fredrikson. Wine was hardly the only U.S. agricultural product to be targeted by China. Retaliatory tariff in- creases also went into effect for U.S. pork and dozens of types of nuts and fruits. The higher wine tariff is disap- pointing to Wine Institute, other U.S. regional marketing groups and individual wineries. "It's cer- tainly not a good thing," Linsey Gallagher, Wine Institute's vice president of international market- ing, told Wines & Vines. "The play- ing field there already was not level, and this has made it worse." She referred to countries such as Australia and Chile that have negotiated lower tariffs in China recently. Australia's rate decreased to 2.8% this year and will go to 0% in 2019, highlighting China's position as the leading export market for Australian wine and following on a free trade agree- ment the two countries signed in 2015. "China is a very important mar- ket for us and our members have been investing time and money there for the past 10 years," Gal- lagher said. "Sales have increased essentially exponentially. Still, China represents under 5% of our exports, while 30% of our wine goes to Canada, roughly half a bil- lion dollars' worth." Tariff is newest of challenges Honig Vineyard & Winery in Ruth- erford, Calif., ships up to 1,000 cases per year to China, and has been seeking to expand sales in the market for 10 years. "We are very optimistic from a genera- tional perspective, and we are in this business for the long haul," said Michael Honig, president of the 75,000-case Napa Valley op- eration. "We have a building mar- ket there. This increase in tariff is the most recent challenge but there have been other challenges including the crackdown on gift- ing when the new premier came in. "Before that the challenge was building the culture of food, wine and enjoyment. Typically, in China wine was used as a toast to good fortune, a new son in the family and so on, not as a beverage to match and complement the meal. That was originally the biggest challenge. Now they are more in- terested in wine as a beverage and not just something to get inebri- ated from." Honig observed that the tariff on U.S. wine is going in the op- posite direction of many other countries. "Those that have strong agreements with China, their tar- iffs are going away. That's unfor- tunate. There is almost a $400 billion trade deficit with China and that's not good, but with wine only accounting for $80 million dollars of that we are the flea on the back of the elephant. TOP STORY Tariff Hike Complicates Exports to China VALUE OF US WINE EXPORTS 12 months ended December 2017. Source: Gomberg Fredrikson & Associates, U.S. Department of Commerce. AMERICAN WINE EXPORTS TO CHINA 2008 TO 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2.0 1.5 1.0 0.5 0 Millions of Nine Liter Cases Bottled Bulk 0.7 0.9 1.2 1.6 1.7 1.6 1.4 1.0 1.3 1.3 0.4 0.2 0.2 0.2 0.3 0.4 0.5 0.5 0.3 0.3 Source: Gomberg Fredrikson & Associates, U.S. Department of Commerce. Bulk gallonage converted to 9-liter equivalent cases EEC $553 Canada $444 Hong Kong $119 Japan $94 China $79 Other $242