What do plane parts and import wine prices have in common?
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What do plane parts and import wine prices have in common?

| Dec 18, 2020 | Transactions |

Tariffs theoretically serve the purpose of protecting local or national businesses from others who are not constricted by the same labor laws or production costs. However, it is also a point of gamesmanship where governments tax imports for indirect reasons.

For example, the European Union gave subsidies to Europe-based Airbus SE. In response, the United States took steps to protect Boeing, one of the country’s most profitable exporters. Rather than take a jab at Airbus or elsewhere in the airline industry, the U.S. slapped a 25% tariff on alcoholic beverages, notably wine from France, Germany, Spain, and the United Kingdom under 14% ABV. Wait; what?

Tariffs are often about punishment rather than protection

This international trade lesson makes sense when you look at it more from a supply and demand perspective. Imports of wine 14% and under dropped by 48% in the U.S. total $840 million after the tariff. The wines (which average 13%) are popular, and the U.S. market is lucrative for European wine producers.

What’s the ABV?

Most importers noted the tariff and adjusted. Suddenly they were less interested in the more expensive wines in the 13% range and looked at those just above 14%. Winemakers also took note, pushing up the alcohol levels to avoid the tariff. So the result is that imports for wine over 14% jumped from $150 million to $434 million after the tariff.

The U.S. also slapped tariffs on liqueurs and cordials as well as single malt (not blended) Scotch and Irish whiskeys.

Punishing the wrong people

Sadly, this all means that wine producers and businesses, many of them family-run or small, are footing the bill for a gift to a corporate giant. On the other end, innocent wine and single malt drinkers, sellers and importers are also paying the price. So amid the pandemic with an economic downturn, the tariff hits everyone’s bottom line that much harder.

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