The last decade or so has seen China emerge as a major market for the global wine industry. While the country doesn’t produce much wine of its own, investors and general consumers have developed more and more of a taste for wine. In fact, we’ve reported on this fact several times in the Xtrawine blog. For a while, it looked like China was going to become one of the world’s largest wine-purchasing nations in fairly short order.
That may still happen.
But there’s an issue that could lead to a slowdown in this growth – tariffs.
The Chinese government has implemented tariffs that apply to many products imported into the country. Sadly, wine is among them. However, these tariffs don’t affect all wine-producing nations. In this article, we dig deeper into what the tariffs mean, the effect they’ve had, and the long-term issues they may cause.
What are Chinese Tariffs?
To understand why tariffs apply to some wine products, we first need to understand what tariffs are.
A tariff is simple.
It’s a fee placed on an item that is exported into a country. That fee is usually collected by the country’s government, essentially making it act like an import tax. Tariff revenue may help to fund several aspects of a country’s economy. In the case of China, the tariffs it’s applying to various products are as much a political weapon as they are a financial one.
We saw this in 2021 when Donald Trump applied tariffs on Chinese goods entering the United States. Tariffs had applied before and had raised $32.9 billion for the United States in 2020. But in 2021, the first year of Trump’s tariffs, that number more than doubled to $85 billion.
The problem with tariffs is that it falls on either the exporter or their customers to pay the fees attached to bringing a product into the country. That creates a problem on two levels.
If the exporter tries to pay the tariff without changing their prices, they may end up destroying their profit margin to the point where it’s not worth exporting the product. Alternatively, the exporter can raise their prices to cover the cost as well as possible. But seeing as tariffs are usually applied on a percentage basis, increasing the costs of goods simply leads to higher tariffs. So, customers suffer because they’re paying more and have less availability. Producers suffer because it becomes much harder for their products to enter the country.
So, what does this have to do with wine?
Similar to the United States’ tariffs on Chinese products, China has placed tariffs on certain products coming from overseas. Specifically, they’re targeting Australian wines.
The Chinese Tariffs on Australian Wines Explained
Mainland China imposed an extremely strict tariff on Australian wines in late 2020. This tariff applies until 2016 and it imposes a fee that can range anywhere from 116% to over 200%, depending on the type of wine.
That’s an astronomical tariff that can lead to a wine costing three times more than it should once it arrives in the country.
Naturally, many Australian producers don’t want to eat those losses. So, they’ve decided not to export any of their products to China. We see this in the figures for the 12 months leading up to the end of June 2022. Exports to China, Macau, and Hong Kong dropped by a staggering 74%, with the extent of this decline leading to an overall 19% decline in Australian wine exports for the same 12-month period.
Chinese tariffs have affected more than the Australian wine industry.
Shipments into mainland China totalled just AU$25 million for the year. Plus, the number of Australian companies willing to do business with China fell off a cliff, going from 1,508 companies in 2021 to just 143 in 2022.
The effects of the tariff are so extensive that Wine Australia announced plans to close its offices in Shanghai. This suggests that Australian producers are expecting to export even fewer bottles into the country in the coming years.
What Does This Mean for the Global Wine Industry?
First of all, it’s important to note that China’s tariffs currently apply to Australian wines. Companies in Italy, France, and other areas of the world pay far lower tariffs, which make trade with China possible.
So, on a global level, China will still receive wines from various countries. However, consumers face fewer choices. And with Australia being one of the closest wine-producing nations to China, they also lose the source of their most cost-effective wines.
But what about the effects on the Australian wine industry?
The loss of Australian wine exports to China had a marked effect on the country’s global exports. Australia’s exports dropped by 19% in total. But this figure doesn’t tell us the whole story.
If China is excluded from the export figures altogether, we actually see that Australia’s wine exports rose by 5%.
This shows us two things:
- China is a major market for Australia, to the point where losing it causes a large decline in overall exports.
- Australia has opportunities in other markets, especially the United States, to make up for some of the shortfall created by Chinese tariffs.
The Final Word
The use of tariffs to punish is a controversial idea. However, China is clearly using it for a reason when it comes to Australia. By implementing tariffs, they place pressure on the Australian government to do what they want in other areas.
When it comes to the global wine industry, China’s tariffs will only have a marked effect on other major players if China enters into trade conflicts with other nations. So far, that hasn’t happened. But we can’t say for certain what the future holds.
On the plus side, China’s tariffs only make it more difficult for Chinese consumers to buy wine. If you’re not based in China, you can still use the Xtrawine website to buy as much Italian wine as you want without worrying about tariffs affecting the price you pay.
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