A potential trade war between the United States and China could hurt Paso Robles winemakers trying to tap into international markets and Central Coast home builders who rely on Asian materials.
President Donald Trump’s intensifying trade dispute with China is starting to hit some of California’s premier industries. Experts warn that if the conflict escalates, more and more of the state’s businesses – and regular people – will feel the impact.
On March 22, China threatened to slap tariffs on a handful of American products in retaliation for up to $60 billion in tariffs the White House levied against Beijing earlier in the day. Among the U.S. products facing a 15 percent tariff hike: wine and fruit, two of California’s top agricultural exports.
The next day, the San Francisco-based Wine Institute, which represents the California wine industry, warned in a statement the tariffs “could have a significant negative impact on the future growth of wine exports to China,” which is “one of the fastest-growing wine markets in the world.”
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According to the Wine Institute, the value of U.S. wine exports to China and Hong Kong have increased 450 percent in the past decade. In 2017, alone, the U.S. sold $197 million worth of wine to China.
California wine had an export value of $1.49 billion in 2016, second only to almonds, according to the California Department of Food and Agriculture.
Wine produced in the state represents 97 percent of all American wine sold abroad.
Wine Institute CEO Robert P. “Bobby” Koch noted that “a number of our foreign competitors will soon have tariff-free access to the Chinese market” thanks to free trade agreements.
“This, combined with additional punitive tariffs on California wine, could result in lost market share for years to come,” he said.
A handful of Paso Robles-area wineries export their products to international markets. For most San Luis Obispo County winemakers, exports don't make up a large portion of their total sales, although some are looking to increase their presence in the Chinese market.
Niels Udsen, co-owner of Castoro Cellars in Templeton, said his winery exports about 800 cases of wine to China per year. He said he's waiting to see whether China will actually raise its tariff before he gets nervous.
"I don't like it," he said. "But I'm not sure how it will affect us."
CaliPaso Winery in Paso Robles exports a significant chunk of its wine to customers in China — about 30 to 40 percent, according to CEO Jeff Wu.
If the tariff hike goes into effect, Wu said he expects to see ordering drop a bit, but said the winery's international sales remain strong and its domestic sales are growing.
In spite of the tariff, "the quality of the U.S. wines remains the same," Wu said.
Justin Tooley, general manager of Broken Earth Winery in Paso Robles, said his business would like to sell more wine in China — an additional tariff would make an already difficult market even harder to break into.
"Yes, it's going to be significant," Tooley said. "It's going to make things harder."
Tooley said countries like France and Australia dominate China's wine market because they can ship their products much more quickly and already pay lower tariffs.
Wine shipped from the Paso Robles area takes about three months to get to China, while products sent from Europe or Australia can get there in about two weeks, he said.
Plus, most American wineries must hire a broker to help them negotiate the Chinese market, which adds to the cost of doing business there.
Even so, Tooley said he'd like Broken Earth to be sold in China. Less than 5 percent of the winery's products are currently exported to the country.
"We want to be there," Tooley said. "It's a huge market."
Builders also worried
Winemakers aren’t the only ones getting nervous about the White House’s aggressive trade moves in recent weeks.
The president announced at the beginning of March he would impose a 25 percent tariff on steel and a 10 percent tariff on aluminum to protect those industries from cheap imports from abroad, mostly from China.
Last Thursday night, the White House revealed it was granting a temporary exemption to allies in the European Union, Argentina, Australia, Brazil and South Korea. The Trump administration had previously exempted Canada and Mexico, citing ongoing talks to rewrite the North American Free Trade Agreement.
Even with those exemptions, the tariff on steel is expected to drive up the price of the material, regardless of origin. And that has the construction industry — one of the biggest consumers of steel of any sector — bracing for fallout.
California can ill-afford a slowdown in new home-building, but that may well be another indirect result of the tariffs. While steel isn’t a major component in single-family homes, it is widely used for building large apartment complexes or mixed-use buildings. And developers factor in construction prices in deciding if and how to build.
Andrew Hackleman, executive director of the Home Builders Association of the Central Coast, said his members are already planning for price increases.
"The increases will have an impact on the cost of a home, but it is too early to tell by how much," he said in an email. "However, it is just one more thing moving cost in the wrong direction for affordability."