Why is President Donald Trump suddenly concerned about getting U.S. wine into Europe?
“France charges us a lot for the wine. And yet we charge them very little for French wine,” Trump told CNBC on Monday, promising that he would “do something” about that.
The president argues he wants to right long-standing wrongs against the asymmetric tariffs of the European Union, whose pernicious effects are amplified by the undervaluation of the euro.
However, the truth is in all likelihood more prosaic: it’s because his own trade policies have just closed off the U.S. wine industry’s fastest-growing export market: China.
The effects of tit-for-tat
U.S. wine exports to China had more than doubled in the 10 years to 2017. Then the trade war started. China raised tariffs on U.S. wine imports of 10% in April last year and a further 15% in September in retaliation to U.S. measures. As of June 1, when the U.S. slapped tariffs on another $125 billion of Chinese goods, China upped its tariff on U.S. wine 15% again. The total import tariff on U.S. wine entering China is now 93%, according to The Wine Institute, an industry association.
“This is the third Chinese tariff increase on U.S. wine in the past 14 months, and with each additional round, it becomes more and more difficult to compete in the fastest-growing wine market in the world,” said Wine Institute President and CEO Robert P. Koch at the time. “It is imperative to resolve this dispute as soon as possible, so that our wineries do not suffer long-term market loss.”
The damage has been swift and serious. U.S. wine exports to China fell 13% by volume last year, and 25% by value, something that suggests producers have been cutting prices to defend market share. If so, that would support Trump’s argument that the pain of tariffs is felt more by exporters than importers—an irony that won’t be lost on Sonoma Valley.
The Wine Institute said in an e-mailed statement that, for some time, there has been an ongoing shift to shipping in bulk, which may partly explain why values fell more than volume. But it added that many wineries are still figuring out how to respond to the tariffs.
“We will know more in three to six months as wineries work with their importers and accounts and see what the real ramifications are in the marketplace,” spokeswoman Gladys Horiuchi said.
A new tariff target
With a quick resolution to the U.S-China trade dispute seemingly not at the top of anyone’s agenda, Trump appears to have come to the conclusion that the best way to remedy the damage done by tariffs is: more tariffs, just in difference places.
In targeting Europe, the president has an easy case to make. Trade in wine between the EU and U.S. is highly uneven: EU exports to the U.S. totaled some $4.5 billion in 2017, more than eight times U.S. exports to Europe of $553 million. And the EU charges higher tariffs on U.S. wine—some 11 to 29 cents a bottle, according to the Wine Institute –– than vice versa: between 5.3 and 12.7 cents a bottle, according to the International Trade Commission. That said, U.S. import tariffs on wine imported in bulk (i.e., non-bottled) are higher than European ones.
In other ways, too, the global trade in wine bears more resemblance to Trump’s perception of trade as a zero-sum game than trade in many other products. Global consumption has been steady at 245 million hectoliters a year for the last decade, as growth in markets such as China and the U.S. has been offset by falling consumption in Europe. The big rise in European production last year—over 20% in the Big Three of France, Italy and Spain—will almost certainly be reflected in this year’s global market share data, and their gains will likely come at the expense of U.S. producers. No prizes for guessing who will replace Californians in the Chinese market, at least.
But Trump’s diagnosis overlooks other vital factors: California was historically slow to export its best wines (as with most other wine-growers, the temptation to keep the best stuff back for oneself is hard to resist), and by the time it started to push its premium wines in Europe, it was already having to dispute the space with other New World producers such as Argentina, Chile and Australia. By then, European consumption was already starting to decline due to generational shifts in tastes, with more young Europeans drinking beer or spirits, or no alcohol at all.
This makes the tripling of U.S. exports to France in the last decade an achievement to be celebrated, rather than prima facie evidence of some anti-American conspiracy. The feat is all the more remarkable for the fact that wholesale export prices for U.S. wines were—until last year—second only to French ones in expense, according to the international industry association OIV.
Lastly, the tariff-based explanation of imbalances in the wine trade ignores the phenomenal, centuries-old brand power of regions such as Burgundy, Bordeaux or Chianti. To the average European consumer, belief in the superiority of such names is a deep-rooted cultural reflex rather than a rational or empirical decision—and one validated by vestigial cultural cringes across the Atlantic. After all, who wouldn’t have thought just a teensy bit less of Hannibal Lecter if he had eaten the census taker’s liver with some fava beans and a nice Turning Leaf?
This story has been updated to reflect a statement from The Wine Institute on the decrease in the value of U.S. exports to China.
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