Wine & Tariffs
In April, DJT announced sweeping tariffs under his “Liberation Day” executive order, reshaping the U.S. wine market’s landscape. Effective April 5, 2025, a 10% tariff applies to all imported goods, including wine, with additional “reciprocal” tariffs hitting specific countries by April 9, 2025. For wine, the European Union (EU) - a dominant supplier of U.S. imports - faces a total 30% tariff (10% baseline + 20% reciprocal), targeting nations like France, Italy, and Spain. These measures, detailed in a White House fact sheet, aim to address trade imbalances but pose immediate challenges and opportunities for the wine industry.
In contrast, Canadian wine has been granted a crucial exemption under the United States-Mexico-Canada Agreement (USMCA), which shields compliant goods from both the 10% baseline and the reciprocal tariffs. Most Canadian wines - produced entirely in Canada using Canadian grapes - qualify under these rules, enabling them to enter the U.S. market tariff-free as of April 5.
We’ve seen tariffs disrupt supply chains before - think 2019’s 25% EU wine tariffs. Today’s announcement, however, is broader and steeper, demanding a fresh look at its effects on importers, domestic producers, and consumers in 2025.
How Tariffs Will Affect Imported Wine
Cost Increases: A $15 wholesale bottle from Tuscany now carries a $4.50 tariff (30%), landing at $19.50. After distributor (25%) and retailer (35%) markups, it hits $31 retail - up 29% from $24 pre-tariff. For a $50 Champagne, retail jumps from $81 to $104. With the U.S. importing ~$7.5B in wine annually, EU imports alone could see $1.5B-$2B in added costs if volumes hold, per our calculations based on U.S. Census data.
Supply Disruptions: Importers paused EU shipments in March amid tariff fears. Now, with tariffs confirmed, restocking risks shortages by summer - think rosé or Prosecco gaps during peak seasons. Logistics costs could rise $1-$2/bottle as firms scramble.
Consumer Impact: Price hikes may push casual buyers toward cheaper U.S. or tariff-light options (e.g., Chile at 10%). NielsenIQ noted a 2% consumption drop in 2023 - tariffs could accelerate this, especially for EU mid-range wines ($15–$30).
How Tariffs Will Affect Domestic Wine
Indulge me in my game theory discussion. You might expect American winemakers to be popping bottles of California sparkling wine. The classic protectionist case would argue that tariffs on the European Union, U.S.-made wine does have a greater price advantage over Italian Prosecco and French Champagne, thus helping domestic producers. This suggests a zero-sum solution (my loss, your gain). However, I’ve spoken with a few American winemakers who are not thrilled with tariffs because there is no upside.
So, why aren't tariffs likely a big win for American winemakers? what they told us challenges the assumption that tariffs will help domestic industries.
How tariffs damage the wine supply chain
American winemakers' rely a lot on international goods so the costs of all intermediate goods to make wine will increase
There are three critical supplies including corks, glass bottles and barrels.
For corks, the bulk of the world's supply comes from cork oak trees in southwestern Europe and northwestern Africa. More specifically, Portugal exports almost 60% of the world's cork, followed by Spain, which makes almost 20%, according to a cork business industry report. Winemakers could pivot and seal their bottles with screw caps but two problems arise: a) screw tops are made from aluminum and surprise, these are subject to tariffs, and the US imports aluminum primarily from Canada and b) there could be potential brand implications as US consumers still believe that screw tops are for “cheaper” wines, and the practice of sealing with screw tops is not as widely adopted as it is in countries like Australia and New Zealand.
While American wineries have the capacity to produce glass bottles domestically, a significant portion of the wine bottles used in the US are imported from China and Europe, as saving on cost is a primary goal for wineries. In 2024, domestic producers import 70% of their glass. A 20% tariff on EU bottles will add $0.50–$1/bottle and 145% on glass bottles from China will like deter domestic producers from ordering through this channel, which may constrict supply!
Barrels are critical in winemaking style and pose, in my opinion, the biggest problem. French Oak is the most common but even Hungarian and Slovenian oak are becoming more common. American Oak has a drastically different flavor profile imparting flavors of coconut and vanilla versus French Oak for the spiciness (nutmeg, cinnamon and other banking spices). These can run $1,000 or more, depending on size. Not having these styles of oak will drastically change the flavor.
The wine industry already operates on small margins, so if prices on intermediate goods go up, producers will have to pass the cost on to the consumer. However, this poses some challenges.
OK, but WHY can't winemakers just raise their prices?
In theory, the tariffs will make imported wine even more expensive, leaving room for domestic wineries to raise their prices and stay competitive.
But that doesn't mean more people will drink domestic wine, because the substitute for more expensive wine isn't just cheaper wine. It's also beer, cider, hard seltzer, THC or not drinking at all. Americans have been drinking less alcohol in recent years — especially younger Americans. The wine industry has already been fighting with drastically reduced consumption and a globally shrinking market.
If American winemakers raise their prices too much, consumers will probably forgo a bottle of cabernet sauvignon. With a looming recession and wine considered a luxury item versus a necessity, consumers will not splurge for wine.
A chilling effect for distributors
In addition to supply chain challenges, American winemakers will be worried about the their distributor relationships.
Many American wineries — both large and small — rely on distributors to get their products into customers' glasses.
A federal regulation created the "three-tier system" for alcohol (the three tiers being the alcohol makers, the wholesalers and the retailers). This system dates back to the end of Prohibition and it means that the people making alcohol have been prohibited from selling directly to consumers across state lines; the alcohol needs to go through a middleman — a distributor. While states are increasingly allowing winemakers to sell directly to consumers, wineries of all sizes will rely on distributors to sell their wine to retailers, bars and restaurants across state lines. However, distributors aren’t just selling wine from the US. Many rely on importing and selling wine from other countries, especially from Europe. Last year, Americans imported nearly $6 billion of wine from the EU, especially from France, Italy and Spain. In the meantime, U.S. winemakers are concerned that the ultimate tariff numbers, as well as the uncertainty, could threaten their distributors hurt their ability to distribute their own wine in the near term. Distributors could switch their model and only sell American wine, but they would have to find a large number of domestic winemakers to make of the loss of European wines, which would be a daunting task.
Lingering uncertainty
Clearly, tariffs will only hurt the broader wine sector including farmers, vintners, distributors, retailers and the millions of people working across the extended wine supply chain. If tariffs will wind up helping some American winemakers sell more bottles, that would be great. It's also possible that American winemakers will sell more bottles, but at a cost to their own margins. Canada, the U.K. and China have imported the most U.S. wine in recent years. But China now has an additional 125% tariff on American goods. And there have been reports of Canadians taking American alcohol off store shelves.
If the market in the U.S. is flooded with domestic wines, it would be very hard for domestic producers to increase prices. It could be good near term for US consumers that love this style, as we’ll likely see price competition but it could hurt US consumers in the long term. Most domestic wine producers cannot afford to stay in business with a rise in price on intermediate goods and no ability to increase prices. We’d see lack of choice in domestic products, limited international wine inventory, and small wine producers going out of business.
In any case, the dizzying uncertainty over the past 6 weeks has already been disruptive.