California winemakers take case to Trump’s trade hearings

Shawn Donnan
A winery in Glen Ellen, California.
George Rose | Getty Images

In his first few months in office Donald Trump has railed repeatedly against the US trade deficit. But California winemakers would like the president to zoom in on another: the wine deficit.

As the Wine Institute, the California industry body, describes it the US is under assault from French, Spanish and other European wines that for years have been building market share in the US and what is the world's largest wine market by volume. Worse, while oenophiles sing the praises of Russian River Valley Pinot Noirs and Napa Valley Cabernets, many California vintages are being kept out of Europe by aggressive EU rules governing regional varieties such as Burgundy and Champagne and the use of generic terms such as "château" on labels even when they are part of a winery's name.

"It is blatant discrimination against American producers," says Tom LaFaille, the institute's trade representative in Washington.

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The US wine deficit is real. The US exported $1.6bn in wine last year while importing almost $5.8bn, leading to a record $4.1bn deficit, more than 80 per cent of which was with the EU. In 1970 just 11 per cent of US wine sales were of imported wine. By last year that had risen to a third.

But it is also emblematic of something else that Mr Trump — a teetotaller — has uncorked. With his focus on the trade deficit and the launch of an investigation into its causes that will be the subject of its first public hearing on Thursday the president is giving long-running industry gripes a new life.

In a period where global growth has been slow and everybody is kind of vying for their piece of the action, it is a bit dangerous to give the bully pulpit to industries.
Caroline Freund
Critic of the president's deficit obsession at the pro-trade Peterson Institute for International Economics

To the administration and its supporters that is the just product of a president finally addressing years of failed trade policy.

"When my grandchildren . . . talk to their grandchildren, they will say that President Trump permanently reversed the dangerous trajectory of American trade," Robert Lighthizer, the new US trade representative, said after he was sworn in on Monday.

To the president's critics — and most mainstream economists — the focus on the trade deficit amounts to a misdiagnosis of a problem that has as much to do with savings rates, the dollar's reserve currency status and international capital flows as trade, however.

It also eases the way for a wave of "micro-protectionism" that could grow into broader trade conflicts as companies press for action and other countries retaliate, says Caroline Freund, a critic of the president's deficit obsession at the pro-trade Peterson Institute for International Economics.

"In a period where global growth has been slow and everybody is kind of vying for their piece of the action it is a bit dangerous to give the bully pulpit to industries," she says.

Big business groups such as the US Chamber of Commerce have been arguing forcefully against using the trade deficit as a proxy for the health of the US economy.

"The chamber disagrees with the contention that the goods trade deficit is an appropriate gauge of whether a particular set of trade policies — or trade agreements — is delivering benefits to the American people," its staff wrote in their submission to the deficit investigation.

But plenty of business people also welcome Mr Trump's focus.

Kathie Thomas founded Auburn Manufacturing, an industrial textiles company that produces heat-resistant alternatives to asbestos, with a partner in 1979 and for years did good business. Then in the 2000s she watched Chinese companies enter the market, undercut her and take away business.

Her response was unusual for a company with just 50 employees: she hired lawyers and from her headquarters in Mechanic Falls, Maine, brought an anti-dumping case that she won last year, resulting in heavy tariffs being applied to competing Chinese products.

But her battle is not over and at Thursday's hearing she plans to call for more to be done to protect her industry and others like it that she argues are important to national security (one of her biggest clients is the US military).

Ms Thomas did not vote for Mr Trump. She does not agree with his campaign threats to rip up trade deals or impose broad tariffs on imports. But she does want more to be done to enforce trade laws.

"We would not be in this mess that we are in with people feeling disenfranchised . . . if we had protected our own industries a little better," she says.

The story of the US wine deficit is in part one of winemakers not keeping up with rising consumption. Consumers bought almost 400m cases of wine last year. California winemakers, who account for more than 80 per cent of US production, shipped 285m.

For the US wine industry, says Mr LaFaille, the answer to closing the deficit lies in opening export markets. Mr Trump, who owns a Virginia winery, should "aggressively rebut" European efforts to limit the use of names such as "Champagne" around the world, he says. The administration should also revive transatlantic trade negotiations with the EU and press Canada to remove its restrictions on wine imports in a renegotiation of the North American Free Trade Agreement.

But the industry, Mr LaFaille says, is against some of Mr Trump's more aggressive proposed methods. "We are most definitely not in favour of an increase in US tariffs on foreign wine."