How will Trump’s “beautiful tariffs” impact wine investors?
American fine wines held in bond in the UK are likely to become “truly valuable” if Donald Trump carries out his threat to impose 200% tariffs on EU wines, although the effect on Bordeaux, Champagne and Italian wines may be more brutal.
The White House is currently drawing up plans to impose tariffs on imports to the US worth $trillions to come into play April 2nd. Apparently, in the last week alone the US levies have raised around $800billion (£616billion) from metal imports from China, Canada and Mexico leaving the global steel and aluminium industries frantically dealing with order cancellations and falling prices as suppliers compete to find new buyers for stock previously due to be delivered to the US.
The EU meanwhile awaits Trump’s final decision on the threat of 200% tariffs. No doubt the trans-Atlantic negotiators are at it 24/7 but what is likely to be the effect of increased tariffs on fine wine for investors?
In my recent interview with the drinks business following Trump’s announcement on EU tariffs, I shared my opinion that US wines already held in bond in the UK, including notable icons such as Opus One, Screaming Eagle, Harlan Estate, Promontory and Scarecrow, are likely to see a large uplift on the secondary market as they will be ahead of any potential tariff costs for EU and UK suppliers.
There are a lot of back vintages of these wines held in the UK in bond, and these could prove to be a “tremendous” investment over the next few years, with EU and UK suppliers looking for a source of Napa legends from within the EU and UK, rather than incurring tariffs by importing from the US.
Trump has made no mention yet of Australian wine tariffs, which could have potential implications for the likes of Penfold Grange, but should his agenda stretch this far owners of this label could also benefit.
Disruption creates opportunity
Whatever the agenda now, whether its war & peace, trade or the recalibration of US government systems, Trump is a disruptor and the world has to deal with it. Change creates opportunity, it is why investors come to companies like ours. We are here to identify and appraise those opportunities to help wine investors achieve and maintain growth in an unpredictable environment.
Having a diversified portfolio is important at any time and in the coming months the benefits of holding American wines already in the UK will become apparent.
Any regions left out of tariff negotiations will have an uplift and I have a strong feeling that Australian wine may have a bit of a comeback. They have already benefited from the removal of the Chinese tariffs.
However, the knock-on effect of any EU tariff action by the US is likely to be less favourable for French and Italian wines, as we can see from the impact of the previous round of the increased levy during Trump’s first term, when Bordeaux and Burgundy were largely affected.
Following the imposition of 25% tariffs on French wine and spirits in 2019, French exports to the US dropped by 14% in 2020. Meanwhile Italian wines and Champagne, which were exempt from this tariff action, saw a major boost in demand and value.
The threatened 200% tariffs are yet to be confirmed and we don’t know whether they are expected to apply to all EU wines, Champagnes and sprits.
We calculate that if the Trump administration does implement 200% tariffs, French still wine could lose 70% to 90% of sales to the US. Champagne would also have a major decline, and if Italy is included there would be a similar impact on sales across the pond. American investment wines would see massive price hikes for EU consumers.
However, it is possible that any tariffs on wine will eventually come in below the currently mooted level of 200%. We have already witnessed the 47th President climb down on his initial imposition of tariffs on Canada and Mexico from 50% to 25%.
Our View
We expect tariffs on Eurpean wines are likely to be similar to the 25% level imposed in October 2019, even if this time around, Italy and Champagne won’t be spared, as they were then. Europe’s response to that will be key to the overall impact on the market and fine wine values.
The pending Bordeaux 2024 En Primeur campaign is particularly sensitive to pricing dynamics. If the chateaux and their agents price to engage the market this may help compensate for any likely reduced demand from the significant US buyer base. US buyers may also see buying attractively priced en primeur as a potential opportunity as the wine will remain off-shore aging in barrel at the chateaux for at least two years.
Finally, current buyers of US investment wines already in bond in the UK or Europe will not be impacted by the tariff hike right now and can still buy at market lows. Once tariffs come into play, likely in April, we expect prices will move. Owners of US wines are likely to see price growth as they become rarer as EU and UK merchants buy 'locally' to avoid inflated import charges.
To find out more about the current market opportunities, contact our expert team on 0203 384 2262 .