Tariff suspension a boost for Bordeaux en primeurs
The wine industry received welcome news on Friday when the US and the EU agreed to suspend all tariffs related to the Airbus-Boeing trade dispute. Importantly, this removes the 25% US tariff imposed on a wide range of European wines. Although the suspension is for a temporary period of four months, the two sides will continue negotiations targeting a permanent settlement to a dispute that has clouded trade relations for years.
“We believe that this step de-escalates trade tensions and will provide some much-needed confidence for US buyers and lovers of European wines who have been worried about potential increase of tariffs,” explained Cult Wines’ Investment Director Olivier Staub.
Fine wine markets had already started the year on a strong note. Hope had risen in recent months of improved trade relations following Joe Biden’s election as US president. However, with coronavirus and other priorities looming large for the new administration, many were prepared for the tariffs to remain for the near term. Therefore, Friday’s news came as somewhat of a surprise and could trigger a jump in interest for the wines that had been impacted.
The timing is especially favourable for Bordeaux. The next few months will feature the en primeur releases of the 2020 vintage, the most important event in the annual fine wine calendar that has a significant impact on the wider market pricing. Bordeaux’s regional performance had shown resilience in the face of the tariffs with a 5.65% 12-month return (as of 28 Feb 2021), according to Liv-Ex. However, Bordeaux’s share of the fine wine trade dropped alongside sharp declines in wider French wine and spirit exports to the US. The removal of tariffs for at least the next four months could release pent up demand from across the pond just as the new 2020 wines are released en primeur.
“The tariffs had affected US buying in the last two en primeur campaigns due to the lack of clarity about future import costs at the time of delivery of the wines once bottled,” explained Staub. “The suspension of tariffs coupled the recent renewed strength of the US dollar versus the euro could mean strong US participation in the upcoming Bordeaux 2020 campaign.”
Other impacted regions will also welcome the news. A major theme in the fine market over the past year has been its geographic diversification. However, as the US broadened the scope of the wine tariffs, the development of some of these growing regions would have faced mounting headwinds. The US initially announced a 25% tariff on still wine of up to 14% alcohol coming from France, Germany, Spain or the UK in late 2019. The US increased the range of wines to include all still wines from France and Germany in January of this year. The removal of this hurdle, especially if it becomes permanent, could clear the way for additional strong growth from regions such as Rhone, one of 2020’s top performers, in the year ahead.