Meantime, Australia's wine industry has been making inroads into China and seeing faster growth than some European competitors, due in part to more marketing efforts. It also comes as a result of reduced tariffs through the China-Australia Free Trade Agreement, which went into effect at the end of 2015.
"If U.S. wines are subjected to higher tariffs when imported into China, that would have a direct benefit to other suppliers into that rapidly growing market, especially France and Australia — the two largest suppliers of premium wines to China," said Kym Anderson, a professor of economics at the University of Adelaide in Australia and also executive director of the university's Wine Economics Research Center.
Figures from Wine Australia show the value of wine exports to mainland China grew by 63 percent to a record AUS$848 million (US$652 million) in 2017 and represented about one-third of the total export market for Australia. By comparison, U.S. wine exports in dollars to mainland China fell 3 percent to nearly $79 million in 2017, according to the Wine Institute, a San Francisco-based trade group for the industry.
The new Chinese tariffs follow Congress last year giving the wine industry a break by passing the first wine excise tax reduction in over 80 years.
"The tax reform we had recently helped the wine business because we got a break on our federal taxes," said Corey Beck, CEO of Francis Coppola Winery in California's Sonoma County. "So we were going to use that savings this year for additional stainless steel tanks. But now with the tariff on stainless coming in, our prices have jumped up dramatically. So we have to review if we're going to go ahead with this stainless steel project for tanks."
Even so, China has been a difficult market at times for U.S. wine companies. "China is a challenge for exporting wine, but many of our California and other West Coast wines have been successful in building a market there," said Michael Havens, an export broker with California American Terroirs, a Sonoma-based distributor of U.S. wines to importers in Asia, Europe and other markets. "The compliance burden in China is huge, and documents are extensive and different at different ports."
Regardless, the Wine Institute said the move by the Chinese to add a new 15 percent tariff will increase the total tariff and tax paid on a bottle of U.S. wine imported into China from just over 48 percent to almost 68 percent. It notes that Chile and New Zealand wines enter China tariff-free and only pay a 30 percent combined tax rate while Australian wines will be tariff-free starting in 2019.
"This new increased tariff will have a chilling effect on U.S. wine exports to one of the world's most important markets," said Robert Koch, president and CEO of the Wine Institute. "U.S. producers were already at a disadvantage to many foreign competitors, and this will only exacerbate that problem. We urge a swift resolution to this crisis before long-term damage is done to the U.S. wine industry."