-Analysis-
PARIS — Rarely has the French wine and spirits industry found itself on such rough seas. Four months after China imposed tariffs on cognac ranging from 30% to 38%, France risks seeing its wine and spirits exports targeted by the United States. The convergence of large-scale trade wars would be an unprecedented event, likely to affect the largest groups in the sector.
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These fears, sparked by Donald Trump’s return to the White House, have been ratcheted up several notches in light of the trade war he recently declared with Canada and Mexico. The 25% tariffs on their exports to the United States, decided in defiance of their direct neighbors and their free-trade ties through NAFTA, were admittedly quickly suspended for a month after initial concessions on the fight against drugs.
Still, the U.S. president’s approach has prompted business circles to say that “anything, even the worst, is possible.”
In this new environment, the French wine and spirits industry fears Trump’s forthcoming announcements more than ever. It would be penalized in its biggest market, the most profitable in the world with shipments of 3.6 billion euros ($3.7 billion) in 2023. While still on the campaign trail, Trump made no secret of his determination to reduce U.S. trade deficits with a number of partners, including France.
Painful precedents
All sectors combined, the European Union exported 503.8 billion euros of goods to the U.S. market in 2023, while importing 347.2 billion euros worth of goods from the United States. Trade between the Old Continent and the United States has more than doubled over the past 10 years, according to the European Commission.
An American offensive would come at the worst possible time.
French wine and spirits exports weigh heavily in the French balance of trade, and frequently bear the brunt of trade disputes, the scope of which is completely foreign to them.
There are many examples of this. When China was attacked by Germany for dumping solar panels, it turned to the European Union. It did not take long for Beijing to slap a 25% tax on French wines. It took France more than two years to get out of that predicament — while sacrificing several hundred million euros.
New competition
The relief felt by wine exporters when the tariffs were lifted was short-lived. In its search for new suppliers, China took advantage of this stormy episode with Europe to open its borders to Chilean wines, exempting them from all taxes. A new competitive environment was created, and French wines lost ground while they struggled to settle their dispute.
A few years later, it was again French wines and spirits (Italian too, but to a lesser extent) that bore the brunt of the EU-U.S. conflict over Boeing and Airbus. Trump, then in his first term as president, decided to impose tariffs of 25%. According to the French Federation of Wine and Spirits Exporters, the loss of revenue amounted to 450 million euros.
These tariffs were lifted after two years, but Washington made it clear that they were only suspended and could be reactivated at any time.
Worst possible time
More recently, Beijing and Brussels have been engaged in a trade war over electric cars, with the European Union attacking China for dumping its exports, with the cognac industry bearing the brunt. Officially, China’s retaliatory target is European brandy; cognac and armagnac account for 85% of the sector. Once again, it’s France’s spirits that are taking the hit.
Since October, Beijing has been applying tariffs of between 30% and 38% on cognac exports, with each company penalized to a greater or lesser extent. But none have been spared, including Martell (owned by Pernod Ricard), Rémy Martin (owned by Rémy Cointreau), which is one of the most heavily taxed (38.1%), and Hennessy (39%), which belongs to the luxury group LVMH (owner of Les Echos). Sales in China fell by 16% from January to October last year and by 20% in November alone. In good times, China accounted for up to a quarter of the region’s sales.
An American offensive would therefore come at the worst possible time for the French wine and spirits industry. Red wine is seeing an unprecedented decline, to the extent that leading vineyards have had to uproot thousands of hectares of vines — with no clear prospect for recovery.
