US to impose 25% tariff on European wine, cheese, etc.

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AndrewH
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Re: US to impose 25% tariff on European wine, cheese, etc.

#601 Post by AndrewH » December 4th, 2019, 6:18 am

Nola Palomar wrote:
December 3rd, 2019, 6:18 pm
D@vid Bu3ker wrote:
December 3rd, 2019, 6:11 pm
Although most of those planes will likely be built in Alabama, so it’s not all bad for the USA.
OMG help me here... We importers are faced with a 25% VAT Tariff because Spain, France and etc provided subsidies to AirBus because they were unfair to Boeing. Boeing produces a plane that crashes over and over. So now the US is buying Airbus planes, but because they are going to be made in Alabama...it's all good????
Well, how about taxing US Champagne and French Cheese eaters because France is taxing Google? I hope Google uses some of its $billions to give us coupons for Champagne discounts.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#602 Post by D@vid Bu3ker » December 4th, 2019, 6:25 am

Well that would be virtually impossible to implement and likely illegal, but... ;)
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Re: US to impose 25% tariff on European wine, cheese, etc.

#603 Post by Brian G r a f s t r o m » December 4th, 2019, 7:08 am

Oh no. 100% tariff on Champagne will,.potentially, sink Envoyer, for example. At the very least, Greg will have to quickly re-think whatbhis offerings will be. N

And incredibly sad that this would be the end of small.growers in our market, which would bring my Champagne purchases back to about zero.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#604 Post by Victor Hong » December 4th, 2019, 7:49 am

Brian G r a f s t r o m wrote:
December 4th, 2019, 7:08 am
Oh no. 100% tariff on Champagne will,.potentially, sink Envoyer, for example. At the very least, Greg will have to quickly re-think whatbhis offerings will be. N

And incredibly sad that this would be the end of small.growers in our market, which would bring my Champagne purchases back to about zero.
You can resort to American-made fizzy alcoholic drinks, like beer. [snort.gif] None of that fake Frenchie stuff. No more fake Frenchie First!
Everybody knows that our own stuff is much better. In fact, it's perfect. Everybody knows that. Everybody supports tariffs.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#605 Post by D@vid Bu3ker » December 4th, 2019, 8:07 am

Careful Victor...
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Re: US to impose 25% tariff on European wine, cheese, etc.

#606 Post by John Morris » December 4th, 2019, 8:36 am

joeduncan wrote:
December 3rd, 2019, 4:13 pm
In the case where Champagne gets hit with a 100% tariff, I won't buy a single bottle, and I suspect others will be the same. That'd hit those businesses pretty hard. Less drastically, the existing 25% tariff is still going to reduce consumer demand drastically.
It won't mean that the retail price doubles. As was discussed far up thread, the tariff is imposed on the value at the time of import, which would typically be half or so of the retail price. So, a Champagne that currently retails at $100 might face a $50 duty (100% of $50 import value). If the importer, distributor and retailer each takes the same dollar profit (albeit a lower percentage), it would retail for $150. But, basic economics tells you that demand will be reduced, so the middlemen will end up lowering their profits to keep the final retail price down in order to increase sales volume. They'll end up making less profit to preserve what they can, consumers will end up buying less Champagne, but it won't kill all sales.

Bottom line, it's very unlikely that this will lead to anything like a doubling in prices; maybe not even a 50% increase.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#607 Post by Dennis Borczon » December 4th, 2019, 8:46 am

Well I have hunkered down with lots of Champagne for now to last through the current madness. California alternatives are not too shabby, but the still don't quite rival most of the elite producers. When Cali can produce a bubbly that tastes like Krug 164, then I am all in ..

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Re: US to impose 25% tariff on European wine, cheese, etc.

#608 Post by joeduncan » December 4th, 2019, 8:50 am

John Morris wrote:
December 4th, 2019, 8:36 am
joeduncan wrote:
December 3rd, 2019, 4:13 pm
In the case where Champagne gets hit with a 100% tariff, I won't buy a single bottle, and I suspect others will be the same. That'd hit those businesses pretty hard. Less drastically, the existing 25% tariff is still going to reduce consumer demand drastically.
It won't mean that the retail price doubles. As was discussed far up thread, the tariff is imposed on the value at the time of import, which would typically be half or so of the retail price. So, a Champagne that currently retails at $100 might face a $50 duty (100% of $50 import value). If the importer, distributor and retailer each takes the same dollar profit (albeit a lower percentage), it would retail for $150. But, basic economics tells you that demand will be reduced, so the middlemen will end up lowering their profits to keep the final retail price down in order to increase sales volume. They'll end up making less profit to preserve what they can, consumers will end up buying less Champagne, but it won't kill all sales.

Bottom line, it's very unlikely that this will lead to anything like a doubling in prices; maybe not even a 50% increase.
The loss of profits will also kill some of these businesses that rely heavily on this, which was what i was responding to. Some combo of reduced demand and reduced power unit profit is going to be disastrous with a 100% tariff at import.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#609 Post by John Morris » December 4th, 2019, 8:57 am

I know the Brits are huge Champagne lovers, so I was curious to look up the export markets for it and see if the US even matters to the French. It does.

The US is the number one export market by value, at about 21% of exports (€586 million of €2.8 billion). The US skews toward higher-end Champagne, though, so the US accounts for only about 15% of bottles exported:
Champagne export markets - official chart.JPG
Another statistic: The big Champagne houses account for 87% of exports.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#610 Post by A Songeur » December 4th, 2019, 9:03 am

Apparently the Chinese have not (yet) bought into Champagne....

With global warming...Champagne exports to UK will crash down... as Sussex bubbly may take over...
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Re: US to impose 25% tariff on European wine, cheese, etc.

#611 Post by Neal.Mollen » December 4th, 2019, 9:09 am

D@vid Bu3ker wrote:
December 4th, 2019, 8:07 am
Careful Victor...
Fortunately, trade wars are good and easy to win, so this shouldn't last too long.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#612 Post by RichardFlack » December 4th, 2019, 9:11 am

John Morris wrote:
December 4th, 2019, 8:36 am
joeduncan wrote:
December 3rd, 2019, 4:13 pm
In the case where Champagne gets hit with a 100% tariff, I won't buy a single bottle, and I suspect others will be the same. That'd hit those businesses pretty hard. Less drastically, the existing 25% tariff is still going to reduce consumer demand drastically.
It won't mean that the retail price doubles. As was discussed far up thread, the tariff is imposed on the value at the time of import, which would typically be half or so of the retail price. So, a Champagne that currently retails at $100 might face a $50 duty (100% of $50 import value). If the importer, distributor and retailer each takes the same dollar profit (albeit a lower percentage), it would retail for $150. But, basic economics tells you that demand will be reduced, so the middlemen will end up lowering their profits to keep the final retail price down in order to increase sales volume. They'll end up making less profit to preserve what they can, consumers will end up buying less Champagne, but it won't kill all sales.

Bottom line, it's very unlikely that this will lead to anything like a doubling in prices; maybe not even a 50% increase.
That makes perfect sense to me. However, I think I’ve seen other posts though that imply that each entity would seek to maintain the same gross margins in other words they expect the same markup on taxes as on other costs. Perhaps I misunderstood. Superficially, that would make no sense. I have no practical knowledge of US wine retail and tax payments etc but presumably their are different cases of cash flow timing (pure retail sale off the shelf versus consignment or pre-order or whatever). So there possibly are some small timing costs involved in fronting the Feds their money in advance of the ultimate sale. But these are pretty small at today’s interest rates.

This is not to diminish the impact of of say 55% increase on sales or of a lower increase on viability of business.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#613 Post by D@vid Bu3ker » December 4th, 2019, 9:39 am

I did this for the 25% tariff a few months ago, but if people do not alter margins the price to the consumer doubles with the 100% tariff.
Capture.JPG
Capture.JPG (17 KiB) Viewed 1462 times
If any tier lowers its margins post-tariff then things will not be so dire.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#614 Post by John Morris » December 4th, 2019, 9:50 am

We went through this all many pages back.

Yes, if everyone insists on maintaining their current profit margins (in percentage terms), the retail price would double. But that is a big If and very unlikely.

If sales fell by more than 50% after prices double, the middlemen would end up making less money than they do at current prices and sales volumes. So the natural response is to lower percentage margins to reduce the falloff in volume. And, to the extent that the businesses have fixed costs (rent, salaries), they don't need to maintain their percentage margin; they just need to take in the same number of dollars.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#615 Post by D@vid Bu3ker » December 4th, 2019, 9:53 am

Which is why I added my line about lowering margins.

What I don't want is what we had earlier, when people did not grasp the basic math.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#616 Post by Victor Hong » December 4th, 2019, 10:12 am

D@vid Bu3ker wrote:
December 4th, 2019, 9:39 am
I did this for the 25% tariff a few months ago, but if people do not alter margins the price to the consumer doubles with the 100% tariff.

Capture.JPG

If any tier lowers its margins post-tariff then things will not be so dire.
Note that the tariff-elevated price will be subject to accordingly extra sales taxes.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#617 Post by D@vid Bu3ker » December 4th, 2019, 10:13 am

Doesn't change the basic math, as the original price was subject to the same percentage tax.

Math is math. Wine geeks do not get special math.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#618 Post by Victor Hong » December 4th, 2019, 10:15 am

D@vid Bu3ker wrote:
December 4th, 2019, 10:13 am
Doesn't change the basic math, as the original price was subject to the same percentage tax.

Math is math. Wine geeks do not get special math.
Agreed. My point is that consumers may need to pay sales tax on the tariff itself. Awful.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#619 Post by D@vid Bu3ker » December 4th, 2019, 10:21 am

Don’t you rent wine?
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Re: US to impose 25% tariff on European wine, cheese, etc.

#620 Post by Victor Hong » December 4th, 2019, 10:27 am

D@vid Bu3ker wrote:
December 4th, 2019, 10:21 am
Don’t you rent wine?
We all do.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#621 Post by D@vid Bu3ker » December 4th, 2019, 10:30 am

At least we agree on that.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#622 Post by Kris Patten » December 4th, 2019, 1:47 pm

D@vid Bu3ker wrote:
December 4th, 2019, 9:39 am
I did this for the 25% tariff a few months ago, but if people do not alter margins the price to the consumer doubles with the 100% tariff.

Capture.JPG

If any tier lowers its margins post-tariff then things will not be so dire.
David,

Your math is off. A retailer margin of 30% means you take their acquisition cost and divide it by 0.7. Same at the other tiers.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#623 Post by Dave English » December 4th, 2019, 2:09 pm

John Morris wrote:
December 4th, 2019, 8:57 am
I know the Brits are huge Champagne lovers, so I was curious to look up the export markets for it and see if the US even matters to the French. It does.

The US is the number one export market by value, at about 21% of exports (€586 million of €2.8 billion). The US skews toward higher-end Champagne, though, so the US accounts for only about 15% of bottles exported:
Champagne export markets - official chart.JPG

Another statistic: The big Champagne houses account for 87% of exports.
Australia has 25M people the US has 330M... we drink one third the amount you do...come on USA those are rookie numbers!! :-)

Waits for someone from Belgium with 11M to pipe up...

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Re: US to impose 25% tariff on European wine, cheese, etc.

#624 Post by Neal.Mollen » December 4th, 2019, 2:17 pm

D@vid Bu3ker wrote:
December 4th, 2019, 10:13 am
Math is math.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#625 Post by D@vid Bu3ker » December 4th, 2019, 2:25 pm

Kris Patten wrote:
December 4th, 2019, 1:47 pm
D@vid Bu3ker wrote:
December 4th, 2019, 9:39 am
I did this for the 25% tariff a few months ago, but if people do not alter margins the price to the consumer doubles with the 100% tariff.

Capture.JPG

If any tier lowers its margins post-tariff then things will not be so dire.
David,

Your math is off. A retailer margin of 30% means you take their acquisition cost and divide it by 0.7. Same at the other tiers.
I am talking markup, not margin.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#626 Post by J.Vizuete » December 4th, 2019, 2:50 pm

Please forgive a terribly selfish question, but I'm curious, do these tariffs apply to individuals bringing wine back to the states on personal travel? I have read the thread and appreciate the potential impacts on importers like Dan's, but at what level do they apply? 2 bottles in your luggage? A case in a checked bag? A small purchase through a foreign retailer then shipped through a private postal service? Thanks in advance and please pardon my ignorance
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Re: US to impose 25% tariff on European wine, cheese, etc.

#627 Post by joeduncan » December 4th, 2019, 3:16 pm

J.Vizuete wrote:
December 4th, 2019, 2:50 pm
Please forgive a terribly selfish question, but I'm curious, do these tariffs apply to individuals bringing wine back to the states on personal travel? I have read the thread and appreciate the potential impacts on importers like Dan's, but at what level do they apply? 2 bottles in your luggage? A case in a checked bag? A small purchase through a foreign retailer then shipped through a private postal service? Thanks in advance and please pardon my ignorance
Theoretically yes, all importation.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#628 Post by JonathanG » December 4th, 2019, 3:45 pm

Sotheby just sent out an email to everyone that made 2017 and 2018 futures purchases from them. Basically they are going to hold them in France for an indeterminate period (probably till the tariffs go away or until the lawyers tell them they can pass the charge to the consumer!)

Full text below.

In October 2019, a 25% ad valorem tariff was announced for still wine from France, Germany and Spain. If this remains in effect, your 2017 and/or 2018 Bordeaux Futures may be affected. Bordeaux Futures 2016 arrived to the US before the tariff was implemented.  


We do not know how long this tariff may be in effect. Until we have a better understanding of the situation, we will hold your Futures order(s) at a professional storage facility in Bordeaux at our cost. The wines will be in a temperature-controlled warehouse and be in bond (duty-free).

We will continue to the monitor the situation and keep you informed of any changes. Should you have questions, please contact
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Re: US to impose 25% tariff on European wine, cheese, etc.

#629 Post by D@vid Bu3ker » December 4th, 2019, 4:01 pm

J.Vizuete wrote:
December 4th, 2019, 2:50 pm
Please forgive a terribly selfish question, but I'm curious, do these tariffs apply to individuals bringing wine back to the states on personal travel? I have read the thread and appreciate the potential impacts on importers like Dan's, but at what level do they apply? 2 bottles in your luggage? A case in a checked bag? A small purchase through a foreign retailer then shipped through a private postal service? Thanks in advance and please pardon my ignorance
Yes, although if you are under the duty free allowances they likely won’t bug you. If you have two cases it’s more likely to attract attention.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#630 Post by D@vid Bu3ker » December 4th, 2019, 4:02 pm

Kris Patten wrote:
December 4th, 2019, 1:47 pm
D@vid Bu3ker wrote:
December 4th, 2019, 9:39 am
I did this for the 25% tariff a few months ago, but if people do not alter margins the price to the consumer doubles with the 100% tariff.

Capture.JPG

If any tier lowers its margins post-tariff then things will not be so dire.
David,

Your math is off. A retailer margin of 30% means you take their acquisition cost and divide it by 0.7. Same at the other tiers.
And it does not matter anyway. If margin percentages remain the same the price doubles with a 100% tariff.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#631 Post by Kris Patten » December 4th, 2019, 4:49 pm

D@vid Bu3ker wrote:
December 4th, 2019, 4:02 pm
Kris Patten wrote:
December 4th, 2019, 1:47 pm
D@vid Bu3ker wrote:
December 4th, 2019, 9:39 am
I did this for the 25% tariff a few months ago, but if people do not alter margins the price to the consumer doubles with the 100% tariff.

Capture.JPG

If any tier lowers its margins post-tariff then things will not be so dire.
David,

Your math is off. A retailer margin of 30% means you take their acquisition cost and divide it by 0.7. Same at the other tiers.
And it does not matter anyway. If margin percentages remain the same the price doubles with a 100% tariff.
It does matter as your example is a $145 retail bottle, not $110 and while no one wants to pay 2x, and there will be margin absorbed along the path, minus most retailers, so the prior 3 tiers will eat costs, the difference between a $220 and $290 before State sales tax if your State has that, is a big deal.

This is obviously far more punitive to higher ticket goods outside of trophies where the markup at retail are never a standard 30% for those, but market price.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#632 Post by D@vid Bu3ker » December 4th, 2019, 4:51 pm

Either way it’s 2x.

When you double the starting point you double the end.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#633 Post by Brian G r a f s t r o m » December 4th, 2019, 7:25 pm

Stopped in to my local Total Wine today. Found the head wine guy. He confirmed the obvious: prices on Bdx raised bc of tariffs, even on existing stock. I told him TW lost me due to that move, and that I'm far from the only one. Told him.about the negative chatter re: this move on the wine boards. Indicated it was merely customer feedback, to the extent those in power care. He said he would pass the feedback up the chain, fwiw.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#634 Post by Ron Erickson » December 4th, 2019, 9:14 pm

I did the same today. It was a pretty quiet area in the store.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#635 Post by RichardFlack » December 4th, 2019, 9:45 pm

D@vid Bu3ker wrote:
December 4th, 2019, 4:51 pm
Either way it’s 2x.

When you double the starting point you double the end.
With respect, I’m still not clear why the same markup that is applied to the basic wine cost should apply to duties, which are simply passed through from the end consumer to the feds. The business is simply acting as a collection agency. There is no value added for the consumer in regard to those duties, unlike the wine itself , which has been selected, sourced, shipped stored and marketed, all of those activities add value and should rightly generate profit.

So the first order approximation would be that the additional duties should just be added to the price, and not themselves marked up.

I recognise it’s not quite so simple, as timing delays etc could mean some capital is tied up, the impact of that varies depending on futures versus off the shelf etc ie for a few weeks to a few months. So some markup of the additional duties is warranted but it cannot be at anything like the same level as applied to the wine itself.

(All of this ignores what the customer might be willing to pay, which is the real problem here, even when wine is increased in price by say 55%; let alone possible problems from prior futures type sales where the contract might make it difficult to collect additional duties from the end customer).

I think the issue is treating these duties as an additional cost similar to the winemaker charging more for his wine, as opposed to a consumer tax on people who drink French wine, which is what it really is. The former should be marked up*, the latter should not it seems to me (beyond cost of capital).

What am I missing?

Notwithstanding, I perfectly understand that there is a serious problem for anyone selling the affected wines, since the Presidents underlying goal is to choke off sale of those products, and this is bound, if successful, to seriously impact certain businesses. But it would be unfortunate to seek to compound the problem by seeking larger increases than are needed.

* Actually the markup on a price increase would be less than the base markup as it were since some of the business costs are fixed and not value related (rent, salaries etc, possibly shipping).

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Re: US to impose 25% tariff on European wine, cheese, etc.

#636 Post by D@vid Bu3ker » December 5th, 2019, 3:08 am

Richard,

If you read up above, John Morris and I both speak to parties potentially not taking a full markup on the tariff increased price. That being said, the 100% tariff means a doubling of the price to the importer. If markups do not change that means a doubling of the price to the consumer. That is the baseline, worst case scenario.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#637 Post by Alan Rath » December 5th, 2019, 9:45 am

RichardFlack wrote:
December 4th, 2019, 9:45 pm
I think the issue is treating these duties as an additional cost similar to the winemaker charging more for his wine, as opposed to a consumer tax on people who drink French wine, which is what it really is. The former should be marked up*, the latter should not it seems to me (beyond cost of capital).

What am I missing?
I think you're missing that every business will handle this differently. Large businesses (particularly public companies) that need to show certain profit levels may not want to "pass through" the tariff, without marking it up as just another component of cost of goods. OTOH, large businesses are in the best position to absorb some cost in order to try and hold pricing down. We just have to wait and see what they do.

A small business that doesn't run only on margin might be able to more easily pass through the tariff; but at the same time, small business is probably more susceptible to price elasticity, so even holding back on applying their normal margin to the tariff amount might result in price increases that push their sales down so much that they can't make it at all.

In the end, every business - and tier - will handle this in their own way, there are no fixed rules.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#638 Post by RichardFlack » December 5th, 2019, 10:20 am

Alan, agree totally about the practicalities. And in both cases consumers will ultimately limit how much can be passed through.

I was just querying what seemed to be a general assertion that the starting point has to be to fully mark up the additional duties. (would the same thing be done in reverse if hypothetically existing duties were halved?).

You are probably right about large public corporations and the metrics that are used to gauge performance. Some investment metrics are rather broad brush shall we say. Retail Companies could probably take credit for growth in the top line from an increase in the duties (if sales don’t decline)!

The underlying problem is treating the duties as a cost rather than a consumer tax prepaid by companies on consumers behalf.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#639 Post by Alan Rath » December 5th, 2019, 10:33 am

RichardFlack wrote:
December 5th, 2019, 10:20 am
The underlying problem is treating the duties as a cost rather than a consumer tax prepaid by companies on consumers behalf.
If the duty were applied at the time of consumer purchase, like sales tax, then you might be right. Unfortunately, it's not, so many/most companies (I predict) will incorporate it as just another cost. OTOH, I made a recent purchase of a prearrival wine, asked about the tariff implications, and was told I wouldn't be responsible for the tariff, no matter what. I guess we'll see, but in that one anecdotal case, that particular company appears to be absorbing the tariff.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#640 Post by RichardFlack » December 5th, 2019, 10:54 am

Alan, perfect example of YMMV! Lucky you.

Yes it’s the timing that’s part of the problem. But just because the duty is prepaid by the importer doesn’t change the fundamentals, just obscures them.
The other problem actually is the lack of disclosure. Dont know how sales taxes are collected in the US but in Canada and Europe they are collected at each stage in the retail chain essentially on the value added at that stage.
But, in Canada, at the final sale the total HST (Canadian for VAT) is disclosed to the customer.
In Europe it’s bundled in but everyone knows what it is and I don’t think any one would look at VAT as part of a company’s top line.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#641 Post by PeterH » December 5th, 2019, 11:03 am

So far there has been a wide range in how tariffs have affected retail prices, masking the eventual result if the tariffs hold long term. Whenever possible, companies built up stock in advance, pre-tariff. Some are holding back on price increases, hoping for a reprieve soon. Some are blending prices, passing on the tariff costs a little at a time. Some companies can source elsewhere.
In the long term, however, companies are going to either find a way to pass on the full cost, or they will switch to other products. Any product subject to stiff tariffs is going to shrink is sales volume. That is the intent of the tariffs. The money collected is a minor consideration, and more than offset by lowered economic activity.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#642 Post by Markus S » December 5th, 2019, 11:09 am

RichardFlack wrote:
December 5th, 2019, 10:20 am
The underlying problem is treating the duties as a cost rather than a consumer tax prepaid by companies on consumers behalf.
I'm not sure I understand the difference, because whether something is called a 'tax' or a 'tariff', it all gets considered into the pricing and becomes 'the price'.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#643 Post by RichardFlack » December 5th, 2019, 11:36 am

The issue is what the markup on taxes (or duties) should be ( versus the good itself); and to repeat this is before consideration of what the market will bear.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#644 Post by PeterH » December 5th, 2019, 11:50 am

Companies will treat tariffs as a cost of goods, because they have to pay those costs and tie up their capital at the time of delivery. Sales taxes are collected at the time of sale, and thus are paid for by the purchaser.

I should add that any intermediate distributor and reseller will see tariffs exactly the same way, as increased cost.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#645 Post by RichardFlack » December 5th, 2019, 12:19 pm

I’m assuming US sales taxes are not on a VAT type system? (In which case there’d be markups at each stage).

I recognise the cost of capital aspect on prepaid taxes. But I’m still struggling to see what those taxes should be marked up at the same rate as the wine itself.

A business should make additional profit just because of an increase in duties (assuming unchanged sales)?

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Re: US to impose 25% tariff on European wine, cheese, etc.

#646 Post by Jonathan Loesberg » December 5th, 2019, 12:43 pm

RichardFlack wrote:
December 5th, 2019, 11:36 am
The issue is what the markup on taxes (or duties) should be ( versus the good itself); and to repeat this is before consideration of what the market will bear.
What the market will bear is the only "should be" in capitalism. From the perspective of the importers and various others along the distribution line, the product costs them what it costs them, regardless of what you call the different elements of what it costs. They will mark it up as they may. Currency fluctuation in some years has been much more than 25%. Sometimes the prices to the consumers here are not driven up nearly as much by a stronger Euro as the percentage of the rise because the market won't bear it and the importers manage to negotiate different prices with their producers or they take less of a margin. Sometimes the drop in the Euro is not fully passed on because, well, you'll still buy the wine and so the importers and distributors can make a larger profit. That part of the price variation is now a tariff doesn't change the situation.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#647 Post by PeterH » December 5th, 2019, 12:54 pm

Let's look at some numbers. You want to assume unchanged sales, but no company has unlimited funds to put into inventory.

An importer has $100K open to buy, and before tariffs could purchase 500 cases at $200/case.
Tariff raise the cost of the wine to $250/case. Now the importer can afford 400 cases.

He would normally sell the wine at $285, yielding $42,500 in gross margin. ($85x500)
To get that same gross margin, he would have to mark up each case by $106.25 ($42,500/400), making the new price $356.25.

Voila- a 25% increase in the wine price.

Importers have rent, payroll, and other overhead expenses. They need a certain amount of gross margin to net any profit and pay themselves. They may or may not be able to tighten operations, but they have to move product and make that gross margin.
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Re: US to impose 25% tariff on European wine, cheese, etc.

#648 Post by M A T T H A R T L E Y » December 5th, 2019, 1:04 pm

PeterH wrote:
December 5th, 2019, 12:54 pm
Let's look at some numbers. You want to assume unchanged sales, but no company has unlimited funds to put into inventory.

An importer has $100K open to buy, and before tariffs could purchase 500 cases at $200/case.
Tariff raise the cost of the wine to $250/case. Now the importer can afford 400 cases.

He would normally sell the wine at $285, yielding $42,500 in gross margin. ($85x500)
To get that same gross margin, he would have to mark up each case by $106.25 ($42,500/400), making the new price $356.25.

Voila- a 25% increase in the wine price.

Importers have rent, payroll, and other overhead expenses. They need a certain amount of gross margin to net any profit and pay themselves. They may or may not be able to tighten operations, but they have to move product and make that gross margin.
We've already seen a lot of distributors purging items from their portfolio that are impacted by the tariffs (at least ones where the winery was not willing to absord a large portion of the fee)
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Re: US to impose 25% tariff on European wine, cheese, etc.

#649 Post by Nola Palomar » December 5th, 2019, 2:25 pm

RichardFlack wrote:
December 5th, 2019, 12:19 pm
I’m assuming US sales taxes are not on a VAT type system? (In which case there’d be markups at each stage).

I recognise the cost of capital aspect on prepaid taxes. But I’m still struggling to see what those taxes should be marked up at the same rate as the wine itself.

A business should make additional profit just because of an increase in duties (assuming unchanged sales)?
In the US, every State's Liquor control laws are uniquely mandated. it is extremely convoluted and not cookie cutter. These tariffs can be the absolute ruin of many businesses on both sides of the pond. In calculating a companies profit margins is not easy especially when you have a moving target. Just imagine the cost to the importer who ships in a 20ft (10 pallets / container 38,200 lbs) or 40 ft (14 pallets/ container road wt limit 43,900 lbs except DC which is 39,500 lbs) container with these wines that up until Oct 2019 their duties and fees would have been the following: I would venture to say that most of these wines are NOT presold. Yeah the ones folks here may be waiting for, but most importers don't have that type of business model.

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Re: US to impose 25% tariff on European wine, cheese, etc.

#650 Post by Nola Palomar » December 5th, 2019, 2:27 pm

PeterH wrote:
December 5th, 2019, 12:54 pm
Let's look at some numbers. You want to assume unchanged sales, but no company has unlimited funds to put into inventory.

An importer has $100K open to buy, and before tariffs could purchase 500 cases at $200/case.
Tariff raise the cost of the wine to $250/case. Now the importer can afford 400 cases.

He would normally sell the wine at $285, yielding $42,500 in gross margin. ($85x500)
To get that same gross margin, he would have to mark up each case by $106.25 ($42,500/400), making the new price $356.25.

Voila- a 25% increase in the wine price.

Importers have rent, payroll, and other overhead expenses. They need a certain amount of gross margin to net any profit and pay themselves. They may or may not be able to tighten operations, but they have to move product and make that gross margin.
Importing by full container is much less costly than importing LCL. (for logistics of shipping anyway).
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