The value of U.S. wine exports to China dropped by 25% in 2018, when the first retaliatory tariffs hit. California, which accounts for more than 90% of America’s wine sales to other countries, has borne the brunt of the decline. China’s latest round of retaliatory tariffs this year has put the combined tax rate on a bottle of American wine at 93%, pushing prices out of reach for much of the Asian country’s growing middle class. To make up for it, California’s wine producers have begun hiking prices to local consumers.
On the other side of the world, last week, French President Emmanuel Macron officially signed into law a bill that allows the French government to levy special taxes on certain revenue that large U.S. tech companies such as Google, Amazon, Facebook and Apple earn in France. That incensed President Trump, who immediately threatened a trade war of sorts, by imposing retaliatory tariffs on French wines. And now french wines are more expensive than before.
Future Wealth’s View
There are certain things in life that we take for granted to get at a reasonable price – to fill in gas to drive to and from work, to stop and get a coffee or sandwich and among others, to get a glass of wine in the evening or afternoon (if you are to that kind of thing). When the trade war with China and Europe started, most expected goods to cost a little more but were deluded by our President into thinking that all the costs was borne by the other countries and not the US. Of course, that is not true, like most things out of our Presidents’ mouth. Most of the costs have been passed to us – the consumers, and now the final salvo is taxing the glass or bottle of wine.
To have a trade war start to hit wine prices is simply taking it too far. Trump’s rebuttal to why he levied a huge tax on French wines was “I’ve always liked American wines better than French wines — even though I don’t drink wine,” he said. “I just like the way they look, okay?” And there you have it. An incompetent President who does not drink wine spoiling the lives of many who do.
After a nice run in the stock market in expectation of the tax cut by the Fed, the next round of ill thought out trade tariffs on China cut the legs out of the bull market this week. With an unpredictable individual (our dear President) who is constantly altering the landscape of something way more serious than he is capable of handling, it is best for individual investors to stay defensive and take solace in their glass of wine or bottle (if you are into that kind of thing) and lament about the good old days of cheaper wine and a more competent leader.