Somm.ai would like to wish you happy holidays (celebrated over some wine, of course). Somm is focused on helping people drink better wines. We really appreciate everyone’s support in using the beta version, and coming back to me with suggestions. If you have any suggestions, please let me know at hello@somm.ai. We hope to launch a very solid product in the upcoming months.

Wine is beautiful for both its intrinsic qualities, and for its context. But perhaps most important is how it brings people together. One major concern for the wine industry is reduced relevance because of its complexity, pretentiousness, and being out-of-fashion with younger drinkers, who opt for cocktails, craft beers, and hard seltzers. We are working very hard to change this.

Unfortunately, today there is another concern that the wine industry is troubled with that will further exacerbate these trends. After a 25% tariff was placed on French, German and Spanish wines, there is discussion of increasing this tariff to 100%, and to encompass the entire EU. Both of these developments are deeply disappointing.

To begin, you will likely already know that the entire issue began as a multi-decade case involving Airbus and Boeing, which are two huge multi-national companies worth a combined $300bn. These two companies occupy effectively the entire market. A reasonable solution between these two entities seems an elegant solution. Why retaliatory measures need to reverberate through random industries and their consumers is unclear. The wine industry is, by contrast, a highly fragmented market, where most wines, especially wines that Somm recommend, are owned and grown by producers. The largest conglomerates are worth some $10bn, and each produce less than 3% of the wine in the world. And although large companies will have better methods to deal with the imposition of taxes, such as rerouting their wines to other markets they are already well established in, smaller producers rely on distributors and importers they do not control.

More painful, perhaps, is that wine scarcely fits the mold of American trade discontent. The traditional trade woes like outsourcing, currency manipulation and theft of intellectual property are hardly relevant in the wine industry. The US wine industry has been an astounding success story, despite still being in its infancy. The majority of the vineyards that featured in the Judgement of Paris, the tasting where American wines defeated French wines and supercharged the growth of US viticulture, were founded in the 1960’s. Since then American wine production has grown to become the fourth largest in the world. More than half of Californian wines are exported.

Americans still run a large trade deficit in wine, since there is fervent demand for European wines. San Francisco, the epicenter of US wine production, lists about one bottle of American wine for every bottle of European wine. Just a little farther away, in Los Angeles, there is only one bottle of American wine for every two bottles of European wine. In New York, the largest wine market in the world, that ratio drops to 1 to 4. We found that larger cities have a more international wine list. It isn’t particularly surprising that larger, metropolitan cities, demand more comprehensive wine lists. Further, larger cities have more aged wines which are less likely to be American. In London, the ratio is 1 to 6; it’s also arguably the most international city.

None of this helps justify why French and Italian restaurants carry no American wines, which seems to be at the heart of the administration’s qualms. In Somm’s analysis of wines, we found that of our favourite 1000 producers, about 20% were from the US. California was the most represented region after Burgundy. It is an unexplained tragedy why French and Italian wine drinkers have warmed so poorly to American wines. It certainly is not because of a tariff differential in the 10s of cents.

Part of the explanation is because the US being a net import market, domestic producers are able to price their wines at an import parity price, which has transport, duties, and importer margins included. That makes their wines more expensive than European counterparts, and less competitive in a net export market like Europe. Napa Cabernet tends to be surprisingly expensive, and part of that is because its prices are lifted by import parity pricing.

Another plausible explanation is nationalistic bias; French wine lists don’t have many Italian wines either, and vice versa. History has its role to play. These countries have had much longer to get accustomed to their own wine and the food pairings that to go with it.

In any case, it would make little sense to set a trade policy based on a country’s drinking habits.

The American wine industry is thriving and does not need a tariff to protect it. Analysis of wine lists show a strong over-representation of American wine on American wine lists, though that advantage becomes smaller in larger cities. Although over half of wines on wine lists come from imports, these imports made their way onto the wine lists because of distinction, not because they were subsidized or are cheaper. Instead, they have an effect of elevating the pricing of America’s top wines.

With the adoption of wine in Asia, wine is an exemplary product in the era of globalization. It is produced and consumed by countries east and west, in the northern and southern hemispheres, and are drunk by the very rich and very poor. It has a history shared by many, and the power to bring people together. Ironically wine plays a part in diplomacy no other food or beverage can, though perhaps less so with the first non-drinking president in a long time. We would hope that trade negotiators have some wine during their dinners, American or otherwise; perhaps it would help them come to a reasonable conclusion.

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