Tariffs would aid winemakers. Why they’re still in trouble.

Last week, President Donald Trump threatened in a social-media post to impose that levy on alcoholic beverages from the European Union, saying “this will be great for the Wine and Champagne businesses in the U.S." Champagne, Bordeaux, and Barolo, to name just a few, would become much more expensive, likely shifting demand to domestic winemakers and boosting their sales.

“In isolation, a tariff on imported wine would probably help more than harm the U.S. wine industry," says Rob McMillan, a wine-business analyst at Silicon Valley Bank.

The industry has been struggling with falling sales volume in recent years. Not only is inflation hurting demand, there are renewed concerns about the health risks associated with alcohol. Nonalcoholic alternatives such as cannabis are cutting into demand as well.

U.S. total wine sales reached $107 billion in 2023, up 46% from five years ago. But the growth was mostly a result of rising prices. The volume of table wine sold fell to 319 million cases in 2023 from 370 million cases in 2021.

Constellation Brands, the beer, wine, and spirits company, said that while beer sales improved 3% from a year ago in the three months ended in November, sales of wine and spirits tumbled 14%. It cited “weaker consumer demand and continued retailer inventory destocking."

A recent survey of alcohol drinkers across 15 major markets shows that 48% are “actively choosing to drink less" in the past six months, according to IWSR, a data and analytics company for the beverage alcohol industry.

“Whether it is participating in Dry January, heeding warnings from public health officials, substituting with no-alcohol beverages, or seeking out evening or weekend activities that do not involve buying a drink, consumers from across the age and income spectrum are moderating their intake," wrote the group in a March post.

IWSR expects the U.S. alcohol market to be around 9% smaller in 2028 than it was in 2019.

Inventories of wine are high, while there is a glut of grapes left over from the 2024 harvest. That means growers are struggling to sell their fruit due to oversupply, and many have pulled up thousands of acres of vineyards to cut losses.

Many cheaper European wines, often from Spain or Italy, are imported in bulk and mixed into the products from domestic brands. If the cost of those wines rises as a result of the tariffs, some winemakers might have to shift to American supplies.

“If winemakers could use more American grapes instead of imported bulk, that benefits the growers, too," said McMillan.

Tariffs against European imports would also bring “pockets of pain," said McMillan. Although domestic producers have enough supply to fill the gap, many consumers prefer European wines due to their different flavor profiles. The tradition and prestige associated with those wines, especially when it comes to high-end products, add to their appeal.

Smaller importers and distributors that heavily rely on European wines would be hurt. Some might be forced out of business, which could affect sales of domestic wine as well.

“The people that are working with the Europeans to bring their products here, those are American jobs," said McMillan.

That is why even though American winemakers could see some benefits from the tariffs, the U.S. industry has long advocated that wine should not be targeted for retaliation in unrelated disputes.

“The current dispute has never been about wine and these 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," wrote the Wine Institute, a trade group representing Californian winemakers, in a statement last week.

Write to Evie Liu at evie.liu@barrons.com