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Trump's wine tariff threats are giving France's Macron a headache

Existing US tariffs on wine from Europe aren't that much lower than the EU's levies on American wine: The gap is about 5 to 15 cents per bottle

Bloomberg 

US President Donald Trump
US President Donald Trump

US President has taken aim at France’s most famous export: wine. His threats to slap higher import tariffs on grands crus, champagnes and the like in retaliation to a new French tax on big tech firms have left Didier Guillaume, France’s Agriculture Minister, apoplectic. It’s an “absurd” and “stupid” response, he fumed, to a legitimate attempt by a sovereign state to get the likes of Amazon.com Inc. and Apple Inc. pay their fair share in France.

Plenty of people will raise a glass to that analysis. Governments across the world have balked at the aggressively "efficient" corporate structures of tech multinationals, which pay next to nothing in tax thanks to legal loopholes that aren’t easy to close. Even Trump excoriated Amazon in a tweet last year, saying the company paid “little or no taxes” and put unfair pressure on retailers. Attacking France for doing something about it is pretty hypocritical; hiking wine tariffs is downright hostile.

But while France’s position is understandable, it won’t make resolving the dispute any easier. President Emmanuel Macron’s administration has clearly struck a nerve with a 3% digital tax that breaks fiscal taboos. It’s based on sales rather than profits and has been structured to spare a lot of French firms. Trump and Amazon CEO Jeff Bezos, despite their past disagreements, now seem determined to make France pay. Amazon is passing the tax on to its French vendors; Trump is threatening to pass it on to French vineyards. So much for global consensus.

The complexity of the French levy shows how hard it is to tax America’s key export of time-sucking algorithms and digital butlers. There’s a basic difficulty in policing digital revenues in a single country. Europe’s exports are easier to target. Trump has taken aim at German automobiles, Spanish olives and now French wine – key pressure points that will be felt during trade negotiations. The wine ocean sloshes one way: At 1.7 billion euros annually, French wine exports to the US are about three times as big as US wine exports to the EU as a whole.

It wouldn’t take much to pinch the wine surplus. Existing US tariffs on wine from Europe aren’t that much lower than the EU’s levies on American wine: The gap is about 5 to 15 cents per bottle. But French export costs could also be pushed up by a weaker US dollar -- which is what Trump seems to be aiming for by pressuring the Federal Reserve to cut interest rates. Wine that’s already expensive, like the kind that spills out of Angelina Jolie and Brad Pitt’s Provence estate, will ride it out. But if an $8 or $9 bottle crosses the $10 mark, French wines may stop flying off the shelves. Shares of Pernod-Ricard SA have fallen in sympathy.

There’s always a slim chance French wine could become the tipple of the Trump-and-tech resistance. But the lack of domestic blowback is notable: Democrats from wine country have been loudly encouraging Trump to defend US booze. Even though he doesn’t drink, Trump argued American wines are better than French wines just because of “the way they look,” a view Guillaume unsurprisingly dismissed.

Whatever the outcome, the French wine industry faces some headaches. After a brutal summer that scorched vineyards across France, this could not have come at a worse time. Meanwhile, the millennial generation has turned away from Bordeaux towards beer and colorful, Instagrammable cocktails. Wines in the US with social-media cache are often neither French nor tasteful: Influencer Josh Ostrovsky, who goes by “The Fat Jew,” recently launched a canned California rose brand that he recommended pairing with candy.

But industry luminaries think the standoff will fizzle. Edouard des Inards of winery Vins Des As is hopeful that this is more a case of Trump barking rather than biting – he’s failed to follow through on such threats in the past. And there’s goodwill that Macron can tap. Earlier this month, Trump praised a recent deal to open the EU to more hormone-free US beef. Maybe Macron could talk Trump down over a slice of freshly-imported filet mignon at the Palais de l’Elysee.

First Published: Sat, August 10 2019. 20:17 IST
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