The latest ruling striking down his worldwide 10 percent tariff is a small blessing for a beleaguered wine and spirits industry.
This also counts as good news: the bad news is getting less bad. Wine sales are still dropping, but the rate of decline has slowed.
Moreover, retailers are doing better than wholesalers, according to Rob McMillan, executive vice president of Silicon Valley Bank's wine division. Wholesalers are still stuck with more inventory than they want, but signs that stores might begin taking more of that off their hands are there.
"Retail has better sales velocity, even though they're both negative, than wholesale," McMillan said. "At some point when it does go positive, now you have that pull-through coming through the system."
Things have been so bad at the wholesaler level that major distributor RNDC appears to be imploding, as it is selling off its businesses in several states. That's bad, but it's also often the precursor to a turnaround, McMillan said. (If you are against the ruthlessness of capitalism, you might want to look away now.)
"This is just the beginning of the sorting out problems," McMillan told Wine-Searcher. "You don't need as many employees as you needed before so you have to go through the sifting of employees. You see these sales people for distributors out on the street. The next day, if they can get financing they start their own distributors. This has happened before, where you start to see new distributors from people displaced in the market."
Meanwhile, let's take a quick look at the state of tariffs.
A court slaps down Trump, again
Last week, the Court of International Trade struck down a 10 percent tariff Trump imposed on most of the world in February. Trump took that action immediately after the US Supreme Court said he couldn't impose tariffs willy-nilly on other countries as he had been doing, based on an obscure 1977 trade law called IEEPA.
Global Wine Exports in the Red
This is great news for importers, but for consumers, don't look for prices to drop.
"Despite the headlines, I never did see a huge increase in price at the shelf," said beverage industry consultant Danny Brager. "Generally, it was minimal, as everyone was doing their best to absorb some of the increases along the way so the hit on the consumer wasn't that large. For that reason, I don't think we're going to see any large reduction in price at retail."
That said, importers and distributors who tightened their belts to absorb those increases can feel better about entering the summer with no new tariff threats hanging over their heads. The Trump administration still wants to impose new tariffs, but now it's going to take a while: likely more than a year.
However, California grapegrowers are not among the people celebrating. During the Trump tariff era, large wine companies took advantage of something called a "duty drawback" to import foreign bulk wine and add it to US wines on the bottom supermarket shelf. This issue has split the industry.
Currently wines only need to contain 75 percent American wine to be called "American wine" on the label. The California legislature is considering a bill, AB 1585, that would require any wine produced, bottled or sold in California that says "American wine" to contain 100 percent American wine. The California Association of Winegrape Growers is for it; the Wine Institute, which lobbies for the largest California wineries (and also smaller wineries, in theory), is against it.
"The larger wineries will get refunds on whatever they import, so effectively this becomes a subsidy of the imports," McMillan told Wine-Searcher. "To the extent that we are importing bulk wine, tariffs might actually help the California industry. But in the long run, I don't think tariffs help anybody. They just get passed on to the consumer."
Still, last week's ruling brought an end to the near-worldwide 10 percent tariff two months earlier than expected.
Trump thought – most observers did too – that he could get away with 10 percent tariffs until July under section 122 of the Trade Act of 1974. But the trade court said, nope, the language in that section was written to prevent a run on gold at the US Treasury in an emergency, not to keep the price of bananas, backpacks and everything else you might order from overseas artificially high.
So now the Trump administration is back to the slow process of imposing tariffs the way it did in his first term, using Section 301 of that same trade act to find unfair trade practices. These aren't all that difficult to prove, as most countries support their industries in ways the US does not.
But Section 301 requires hearings and public comment. It might take more than a year for Trump to tariff foreign goods again, and those tariffs will have to be extremely specific both for the type and dollar amounts of goods to be tariffed. Wine and spirits might not end up on those lists in the end because a strong coalition of restaurateurs and retail shops has emerged to argue that tariffs on foreign wine hurt US businesses more, which is not true about almost any other foreign product.
More vineyard sales on the horizon?
Meanwhile, McMillan said that the value of vineyard land might be stabilizing, at least for well-regarded vineyards. As recently as three months ago a lot of vineyards were on the market with no buyers. Now, McMillan said deals are being worked on.
"Now you see industry people finding properties they're looking for," McMillan said. "For some it's a once-in-a-lifetime opportunity to get a property that may never happen again. Bottom feeders are sitting on the sideline waiting for things to get to the bottom. But it's really hard to bottom-feed. I think we're getting close to the point where people sitting on the sidelines with money will want to get into the business."
Last month, wine industry consultants Azur Associates issued an annual report that was a bit sunnier than the flock of industry annual reports issued in January. Azur Associates called the industry's situation not a decline, but a reset that will allow wineries and vineyards to focus on what is working. The report said about property values what McMillan is saying: "We are beginning to see some high-quality buyers emerge, however, only as prices have reset and on their terms."
The Azur Associates report uses the term "The New Reality," a lot, and in a nutshell it's this: the new reality is that no new bad news counts as good news. This has been your good-news wine report for the day.
