The latest victim of Trump's trade war with China? California wine

The vineyards of Hank Wetzel extend as far as the eye can see, an expanse of green hills straddling the Russian Sonoma County River, exploited by generations of Wetzels for half a century.

It's a long way from Shanghai.

Nevertheless, sitting in front of his tasting room, the patriarch of Alexander Valley Vineyards, 68 years old, was scrolling photos of China on his tablet: a photo of his booth at a giant show in Shanghai, crowded with customers . Another Chinese restaurateur tasting wines at a $ 1,000 dinner that he organized. And many of the pandas of the Shanghai Zoo.

When he started exporting his products to China two years ago, Wetzel had high hopes of penetrating his rapidly growing market of imported wines. But today, while President Trump's trade war shows no signs of decline, "the savings in sales there are horrible," he said. "Our importer is keen on our wines, but every $ 15 I sell to him now costs him $ 30. We could soon be bankrupt there. "

Since April 2018, in response to US tariffs, China has imposed retaliatory taxes on $ 110 billion of US imports – products as varied as electronics and soybeans. For wine, taxes and tariffs now stand at a 93% surcharge on every US bottle. This is double the French wine, long favored by wealthy Chinese. At the same time, Australian and Chilean wines, which recently signed free trade agreements with the Asian giant, invade China, which is only 26% taxed.

Global exporters view China as a barely exploited opportunity, given the explosion of its middle class and its growing appetite for the quality and prestige of imported wine. The United States exported $ 1.46 billion worth of wine last year, 95% of which came from California. China was the fifth most important destination after the European Union, Canada, Hong Kong and Japan.

"China was our fastest growing export market," said Honore Comfort, vice president of international marketing at the Wine Institute, a San Francisco-based commercial group. "We're ramping up there, adding promotions to restaurants and developing relationships with major retailers."

But US wine exports to China decreased by 33% in the first half of this year compared to
same period in 2017. As the trade dispute continues, "Chinese importers will buy from a different country," she predicted. "We have been working on building these relationships for two decades. Now all this time is basically a loss. "

In an underground cave at Alexander Valley Vineyards, the air was cool and wet. Seven thousand barrels of oak were stacked three high under the vaulted ceiling. Aging in the interior: a dozen varieties ranging from Chardonnay to Zinfandel.

Outside the cave, a worker quickly moved through rows of barrels, siphoning wine into a glass tube of each of them, tasting the flaws and spitting out every sample. Not far away, in a small warehouse, the bottles were moving along a treadmill, one machine after another, filled them with cabernet sauvignon, clogged them, sealed them with paper. aluminum and were struck on labels before two active women work quickly and pack the finished product in holsters.

Wetzel's was one of the first wineries to establish in Sonoma County and played a key role in establishing the Alexander Valley.
designation. His wines, from Cyrus, a 24-month-old $ 65 cabernet blend, in Gewürz, a $ 15-worth of organic grapes, have won national and international awards.

Over the decades, Wetzel has grown markets in California, Texas, and other US states until he shipped 175,000 cases last year. But he had never looked for business abroad before traveling to China two years ago. While his sons took charge of daily operations and sales, Wetzel and his wife, Linda, who oversees the vineyard's accounting, were looking for a new adventure.

"In twenty years, China could be the largest wine market in the world," said Wetzel. "We want to be ready."
At the Shanghai show, they met Rose and Jack Sun, a young couple who operates Shindy Wine. "It was the kind of small operation I was looking for," recalls Wetzel. "They had an Australian wine, a Chilean and a producer in France. I get more attention as their only American wine. "

During the show, he was struck by the degree of sophistication as hundreds of Chinese people stopped by his booth. Although the vast majority of wine consumed in China is a national low-end product, high-quality imports are gaining social appeal through social media and a new generation of trained sommeliers.

Last fall, Wetzel hosted the Suns in Sonoma County. "We ate meals and drank wine for three days," he said. "We showed them our harvest so that they could return to China and tell our story. We became friends. "

Alexander Valley Vineyards shipped only 750 cases in China last year
– certainly no competition for large wineries such as Gallo and Mondavi, which have been marketed there for decades. "The wine trade is evolving slowly, like a turtle," said Wetzel. "It takes a lot of time to build relationships."

Preserving these connections requires continuous effort.

This week, he will begin his third trip to Shanghai, on the occasion of the opening of the first Costco in China, which bought 250 cases of his wine. In June, while in transit, China imposed its latest tariff of 15%. Costco agreed to absorb half of the increase, the other half to the Suns.

"There is a dinner with Costco's buyer," said Wetzel. "I'm interested to see how they present the products with these high prices."

Wetzel also plans to travel with the Suns to Anhui, a province located west of Shanghai, where they open a wine shop. But with the trade war, "I'm expecting to have enough," he said. "I hope it will not be the end of our relationship, but the atmosphere is currently very ugly. I do not see how things could get worse. "

Other exporters shared the pain. "Even the big wineries that have been trading for several years are extremely discouraged," said Wetzel, who was elected chairman of the board of directors of the Wine Institute in June. "They have lost a lot of business in the last six months."

Dwight Bonewell, director of the West Coast Wine Group in Napa, began exporting relatively cheap wine to China 12 years ago, sourcing grapes from the Central Valley. He sold his own brands and produced private label wines for Chinese companies. With 20 distributors in China, Bonewell was about to ship 43,000 cases this year.

"We thought we were going to have a record year," he said.

He now expects to sell only 7,000 units, a loss of about $ 1 million.

"By the time the tasks have grown, many of our customers have said," We can buy, but you have to absorb the difference. "But we can not do that."

Despite this setback, Bonewell said he would expect his wine originally destined for China to be sold in the US market. "We are not leaving China," he said. "It's a huge market. We will wait for his return. "

Wineries that export more expensive bottles have suffered less tariffs because richer Chinese can better absorb price increases.

"While our exports to China are in volume, they have increased by more than 30% in value since the beginning of the year," offset the tariff, said Ryan Stewart, director of international sales at Foley Family Wines in Santa Rosa, which has vineyards in California, Oregon, Washington and New Zealand. "Our portfolio is more focused on prices and luxury prices."

Nevertheless, he added: "Several discussions with potential new import partners in China have been temporarily suspended."

At Wine Intelligence, a London-based consultancy firm
Chief Operating Officer Richard Halstead points out "the extraordinary amount of money" that Australian and Chilean brands are spending to strengthen their distribution in China. "They are eliminating countries that do not have favorable tariff regimes," he said.

US wine sales to China are a small target of the trade war, compared to motor vehicles, semiconductor components or soybeans: just 1.1 million cases last year out of 56, 7 million cases imported into the world by China. "But wine is often involved in trade disputes because it has a cultural symbolism," Halstead said. "According to China, it is to hit a trading partner who behaves badly where it hurts."

In June, Trump attacked French wine, complaining of allowing entry into the United States virtually duty-free, while France imposes duties on American wine. "It's not fair," he told a TV interviewer.

In Sonoma County, Wetzel said that he had voted for Trump because "he was a businessman … But in the short term, these rates do not work. "

In the meantime, he takes the long run. "I'm going to see my importer with a hat in his hand," he said. "I hate to think that our investment is totally destroyed because of this trade war. But if that's the case, we'll try again in five or ten years. I hope it will happen sooner or later.