When it comes to policy changes emanating from Washington, the domestic wine industry's main worry is rightfully the constriction of our labor supply. In addition to renewed efforts to deport unauthorized immigrants and raid employers in our state, there has also been a push to limit the number of H-2A visas available to our farmers. But, if you're looking for more bad news, there's also trade policy.
Today is a big day. For one, Mr. Trump is planning on instituting tariffs on steel and aluminum. In the past, Canada has shown itself eager to retaliate against US trade protectionism by targeting wine imports. Luckily, it seems that Canada and Mexico are to be excluded from the new tariffs. However, the risk remains that other countries may target US wine imports.
Also, if I'm not mistaken, today is one year to the day since Mr. Trump withdrew the US from the Trans-Pacific Partnership. More importantly and more certainly, it is the day that the deal was signed by the remaining 11 TPP countries. This is bad news for our wine exporters. Though the figures aren't in yet, last year probably saw around $120M in wine exports from the US to Japan, Singapore and Vietnam alone. The other 8 TPP countries, (Australia, Brunei, Chile, Malaysia, New Zealand and Peru), are relatively insignificant as export markets, though it's a shame for our wineries to be at a competitive disadvantage in any market. Following is some guesstimation of what may occur in the three larger markets.
Japan's tariffs are somewhat complicated to calculate, but for most wines, it's around $1 per bottle. Chile and Australia are already exempt from this tariff due to bilateral free trade agreements. That means that the worst hit will likely be to our exporters of low-end and middle-market Pinot Noir and Sauvignon Blanc who will now also see New Zealand able to compete at the $1 per bottle competitive advantage. The Japanese market is worth somewhere around $85-100M in annual US wine export value.
Singapore's duty on wine is $88 per liter of actual alcohol. For a 14% wine from California, that's the equivalent of $9.24 per bottle. Without Chile, New Zealand and Australia having to pay this duty, everyone but our top-priced wine producers can kiss much of their market share in Singapore goodbye. Singapore has been a $15M to $20M annual export market for US wines.
Vietnam has maintained a whopping 50% tariff on imported wine. Chile, New Zealand and Australia will no longer have to pay that tariff, allowing them to easily out-compete California wine on value. US wine exports to Vietnam have been roughly $10M-$15M dollars per year.
Now, I don't have enough data at my fingertips to do a credible study of how much market share would be lost due to these changes, but I expect that, based on a Euromonitor-estimated, global price elasticity of demand for wine of -0.2, wine exports to Japan would drop by only a couple of a percent. Singapore may be a market dominated by high-end exports that will suffer less, though that is a guess in the dark. I doubt that Vietnam is similar, though I may be wrong. If I had to throw out a number, I'd guess we'll see a loss of $30M or so in wine exports due to the passage of the TPP without the US. That's somewhere between 1.5-2% of total US wine export value.