California Wineries Brace for Bottle Shock as US-China Trade War Escalates
All week, the United States and China have been going back forth, threatening to impose tariffs on each other's goods. Friday morning, the trade war escalated once again, with China saying it was ready to strike back "forcefully" at the new U.S. tariffs.
Among the products that could feel the burn of a 25 percent tax in China are California exports, including fruits and wine. It's just a proposal at this point, but already it's shaking up the market.
"We have been working very hard and growing our presence and educating people on wine and Napa Valley and our brand for over ten years now," said Stephanie Honig, who is in charge of international sales at Honig Wines in Napa Valley. "We go about once a year and work with our importer and try to get the brand visible in the Chinese market."
Honig Wines markets a premium Cabernet Sauvignon. The Chinese clientele they go after are what they call "aspirational buyers," someone who, as Honig described, flies coach but is looking to fly business class. Or drives a BMW but is looking to trade up to a Rolls-Royce.
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"Someone who steps out and says, 'Okay, I want to buy a nice bottle of wine, but it's not nothing. I'm spending money on it,'" Honig said.
While the size of the market is small, the appetite there is sizable.
"People are very interested. It's still a small portion of the market, and there's a lot of room for growth," Honig explained. "Our wine, for example, our Napa Valley Cabernet Sauvignon, is our most widely sold wine in China. And if you purchase it here in our tasting room, you would pay $50 a bottle. If you purchase it in China, it's about $100 a bottle."
If the threatened tariffs go through, China would see the cost of those bottles increase to $115 to $120. Honig said that would be quite a blow for her winery and other vineyards like it, especially considering the competition.
"It's a huge problem because obviously China is open to wines from all over the world, and people from Australia and New Zealand are very connected to that market. So, as those tariffs go to zero and ours increase, the gap just widens so much more and we become so much less competitive in that market, so it's a step back."
But despite the hardships the possible tariff may bring on, Honig said there are no plans to de-emphasize the company's focus on its Chinese clients.
"You don't want to leave a market or discontinue your presence because it's very hard to get back in," Honig said. "You want to keep your relationships, keep your presence. Some people have loyalty and have the means to continue to support. We'll all be there when we come out on the other side."