When Joe Biden is sworn in, what could be on the agenda for the Fine Wine market?
An FT article (posted on 22 Sep 2020) quoted Biden's top foreign policy adviser as saying that Biden would end the artificial trade war that President Trump launched against the EU.
As a result of a number of factors, including a WTO ruling against France on support it provides to Airbus, the US imposed a 25% tariff on wines from France, Germany, Spain and the UK with wine alcohol percentage levels below 14%. Bordeaux wines were particularly hit.
Although US retailers initially absorbed the additional costs, the prices to US consumers eventually rose. There are also rumours that some producers even had their wines made in a style that kept them over 14% alcohol to avoid the tariffs.
In 2019, US imports of French wines plunged to just $57.1 million in November from $130 million the month before and fell further in December to $55.7 million when the tariffs began to bite, according to US Census Bureau. The relative absence of US buyers for Bordeaux En Primeur 2019 led us to believe that the tariffs not only have been especially painful to producers at the lower ends of the market but also created US demand pressure for Bordeaux and Burgundy.
We would, however, caution that predicting politics is a bit of a mug's game and with the Senate staying with the Republicans, a Biden administration may move slowly to repeal some of the Trump tariffs. As well, Biden did have a "Buy American" rhetoric on the campaign trail and may have some sympathy with Boeing versus Airbus.
Champagne and Italy, which were not hit by the tariffs saw their respective Liv-ex indexes rising significantly. For example, Liv-ex’s Champagne 50 index has been the top performing region index so far this year, with return of 6.8% to September. Representing the performance of Italian’s top wine, Liv-ex’s Italy 100 also performed well, outperforming the industry benchmark Liv-ex 1000 by 3.7 percentage point year-to-date. Tariffs may also have helped create a greater focus on US fine wine, which hit all time high in trading on Liv-ex in October.
How quickly all these policies could change is still very hard to predict. To wine merchants, one thing can be sure is that Biden has been highly critical of tariffs imposed by Trump and that the reversal of the EU trade tariff is becoming more likely. This could also mean that the chance of US wine merchants re-entering the market purchasing French wines without paying tariffs has improved by a great deal with Joe Biden in the White House.
Ultimately, we do believe that what matters the most is that the threat of higher tariffs on European wine disappear and trade hostilities quieten down, which would go a long way in getting the US buyers back in the game.
Of course, the key is how USD/EUR behaves on the back of the US elections results and the longer-term policies implemented by the new president.
We remain hopeful that trade wars will abate and that US investors and consumers will soon enjoy their French wines again and this could mean a rejuvenated Bordeaux and Burgundy market.
