Grapevine
The 21st century global economy has affected varying changes in wealth profiles across the globe, depending on your GPS location. As a result of the Great Recession, many Americans are facing an uncertain retirement future while a (very) small handful of others have weathered, and prospered from, the tumult of the financial crisis.
In the Asian coordinates of GPS tracking, the Chinese have been exercising their new-found clout. Millions have steady factory jobs that didn’t exist 10 years ago. Others, entrepreneurs in a new quasi-capitalist society, have reaped great wealth from the globalization of manufacturing. These entrepreneurs, the nouveau riche of 21st century China, are mimicking their counterparts in the United States–acquiring exotic cars, luxurious real estate, expensive second residences that rise above the clouds in New York City, designer handbags …and high-end French wines.
The burgeoning class of wealthy Chinese is indulging in conspicuous consumption as voraciously as Americans did during our recent era of irrational exuberance. Their spending habits have reached excessive heights, especially in their newfound love of European wines.
In the last decade, the highest export of French Bordeaux wines has shifted from the United States. There is more Bordeaux, at ever higher prices, being purchased by Chinese buyers than in any other country. This infatuation–some would say obsession–with Bordeaux (and red Burgundy to a lesser extent) has driven up the cost of these wines to historic levels.
But it hasn’t stopped there. Chinese investors are purchasing Bordeaux wineries at a record pace. As the ranks of the Chinese middle and upper class increase at an historic pace, their appetite for all things Western seems insatiable.
Lest one think that there is no such thing as a Chinese speculative bubble, the Chinese government has interceded in the newly minted free trade economy in a somewhat counterintuitive manner.
As the economic recovery lumbers along in the United States, the recession in Western Europe deepens and the unbridled growth of the Chinese economy slows down, strains are beginning to show in the economic relationship between China and its trading partners.
The United States has imposed, or threatened to impose, tariffs on solar panels, auto parts and furniture. China has not retaliated. Now the European Union has imposed similar tariffs on solar panels. But the Chinese have threatened to retaliate. They are investigating the imposition of anti-dumping tariffs on wine imports.
This seems rather counterintuitive to me.
China’s wine consumption has increased dramatically in the last five years, catapulting it to the fifth largest wine-consuming nation, after the United States, Italy, France and Germany. This dramatic growth emphasizes the buying frenzy in China. Why threaten to impose a tariff on this key sector? Perhaps it is politically motivated, rather than economically motivated, a back-door effort to push back the solar panel tariffs. After all, in-country wine production is not driving the wine sector in China. Rather, it is the imports that have driven the growth in consumption.
Why drive up the price to the consternation of Chinese consumers? Why slow the irrational exuberance (and outlandish spending) evident amongst newly minted Chinese middle and upper class consumers?
Here’s the flip side of the imbroglio: EU wine producers have become increasingly dependant on the Chinese market. Exports have risen ten-fold in the last 10 years, principally from France, Spain and Italy. A tariff would hit France the hardest: nearly $500 million in sales. Perhaps as a sign of disunity amongst EU nations, Germany, Great Britain and Spain–who benefit the most from the Chinese wine trade–abstained from the vote on the solar panel tariff imposition.
How will this battle play out? It’s too early to tell. Tariffs and embargoes have been used as economic and political levers for centuries. Wine and politics have a long and tangled interrelationship. I doubt we’ve seen the last of these seemingly contradictory policies and initiatives.
Nick Antonaccio is a 35-year Pleasantville resident. For over 15 years he has conducted wine tastings and lectures. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at nantonaccio@theexaminernews.com or on Twitter @sharingwine.
