Pass-Through of Tariffs: Evidence from European Wine Imports

I feel the greatest trick of American politicians is that the term “tariff” tends to be used by most people instead of “import tax”.

I live in South Africa and we have significant import taxes on certain kinds of items, but nobody (aside perhaps from economists/accountants/tax practitioners, etc) calls them tariffs.

It’s not the overseas seller who pays extra for the item to be imported, it’s the importer, paid to the tax man. It’s a tax paid on imports. That cost is ultimately passed on to end buyers, such as myself. Why would I generally refer to it as a tariff except for reasons of pedantry?

Wait, am I reading this wrong. The producer and importer try to soften the impact of the tarrifs only for the retailer to massively increase their prices?

One of the funny things the tariff dispute made public was how in Canada buying wine/beer from other provinces from within Canada is treated like a foreign import by the provinces (causing a huge price markup ala tariffs and tons of paperwork for small vendors). We have lots of internal trade barriers like that which were ironically originally intended to help small players compete.

If you've seen one tariff study, you've seen one tariff study. There are so many factors that end up influencing the end-state of the system. It literally depends on the particular type of good, the producer, producer's market shares both in the country applying the tariff as well as globally, the number of tiers of distribution, margin structures of everybody involved, etc., etc. So, sometimes we see an increase; other times, we little to none.

Surprised noone mentioned refunds going back to the sellers, when in reality customers have paid for it anyways.

"water is wet" kind of study, as tariffs are precisely supposed to increase price for consumers for imported goods... But the last 3 paragraphs are interesting:

- Importers raised the price more than needed (i.e. blame tarifs to increase their profit margin)

- Price increases took one year to fully reflect to the customers, and persisted nearly one year after the tariffs expired.

- chicken-tax-like loopholes implemented wherever possible (for wine apparently it's raising the ABV to more than 14%)

I always look at these authors lines and weep a bit. "Aaron B. Flaaen, Ali Hortaçsu, Felix Tintelnot, Nicolás Urdaneta, Daniel Xu" all researchers at American institutions we are in the middle of incinerating.

Wine and beer, as well as other alcoholic drinks, consumption is way down in the US. Either they jack up prices, or they go out, like a bunch of California wineries have recently. Tariffs are an excuse, not the reason.

The purpose of tariffs, contra Trump warblings about raising money, is to divert expenditure from imports to domestic alternatives. They are a not very effective tool to try and fight the US trade deficit, and in particular, mercantilist policies abroad.

Tariffs only work if the price increases are passed on. To work, they need to change consumer behavior, which means they need to increase prices.

Less French wine going to the US, more for me, yay!

It is almost impossible to order decent cognac (e.g. Chateau Montifaud) from small french manufacturers. Fine Drams for example simply refuses to ship to the US and to deal with tariffs and paperwork.

TL;DR- consumers pay for tariffs. Duh.

As someone adjacent to the wine biz, few things worth noting:

- Their data source is a major wine importer. The economic realities of the majors versus the smaller, boutique importers, or even the larger independent ones, are very different, because of their market position, reach, their clientele, the type (mass-market) product they carry, etc... in addition to the simple financials of having padding and ability to plan long-term. Anecdotally, most of the smaller-to-mid-size importers I know have actually cut their margins, and are hanging on by a thread. For anyone smaller than the two or three very biggest players, the tariffs have been a drag on business at both ends, and for some have been existential. It's driving consolidation as well, which is never good for consumers. Imagine doing a study on the software industry and only talking to Microsoft.

- In the US we have the three tier system (producer -> importer -> distributor -> retailer) and each of those take a cut, obviously, resulting in higher costs. So those tariffs compound at each layer. There are a few exceptions where you can be a "direct import" retailer (e.g. K&L in CA) but these are a small piece of the pie. Don't even get me started on the costs of shipping, the byzantine legal compliance, etc.

- As for the 14% thing; I'm skeptical of their insinuation of causality. Relevant to this study, 2018, 2019 were exceptionally hot growing seasons in most of europe, a trend which has unfortunately continued, which naturally lead to higher ABV, even as critical trends move in the opposite direction.