For centuries, wine and spirits have been a bridge between cultures, economies, and industries. But a proposed 200 percent tariff on European wine and spirits threatens to disrupt this delicate balance—not by hurting European producers, but by dealing a devastating blow to American businesses that rely on imports for their survival. From small family-owned distributors to independent restaurants and retailers, the financial impact of such tariffs would be widespread and severe.
On Wednesday, March 12, a roundtable discussion led by Ben Aneff, co-owner of Tribeca Wine Merchants in New York and President of the U.S. Wine Trade Alliance, gathered key voices from the wine and hospitality industries to discuss the consequences of these proposed tariffs. Their message was clear: tariffs on imported wine don’t just affect what’s on store shelves or restaurant menus. They threaten an entire economic ecosystem, where the majority of the financial benefits of selling European wine actually stay in the U.S. Through the lens of industry experts and business owners, this article explores why these tariffs are not only counterproductive but also pose a major risk to American jobs and businesses.
Understanding the U.S. Wine Business Model
Unlike other industries, the wine and spirits sector in the U.S. operates under a three-tier system, a legal framework established after Prohibition. Under this system, imported wines must pass through three layers of businesses before reaching the consumer: importers, distributors, and retailers or restaurants. This structure means that a large share of the economic benefit of selling imported wine actually stays within the U.S.
“For every $1 spent on a bottle of European wine, $4.52 goes to U.S. businesses,” said Aneff. “That’s a key reason why these tariffs would have an outsized impact on American businesses, rather than on the European wineries they are ostensibly meant to target.”
The Three-Tier System and Why It Matters
The three-tier system was designed to regulate alcohol sales and prevent monopolies, but it also creates a unique economic structure in which American businesses handle nearly every stage of the sale of imported wine. Unlike industries where foreign producers can sell directly to consumers, European wine producers must go through U.S. importers and distributors, keeping a significant portion of the revenue within American hands.
This system was established when Prohibition was repealed in 1933, giving states the authority to regulate alcohol sales. In response, each state implemented the three-tier system, which remains in effect today and has even been upheld as sacrosanct by the U.S. Supreme Court.
Aneff explained that the system has profound implications for how wine moves through the market. “The three-tier system makes it illegal for a retailer, or restaurateurs, to buy wine directly from a producer,” he said. “Instead, all wine must go through a distributor.”
Here’s how it works:
- A French or Italian winery cannot sell directly to a U.S. restaurant or retailer.
- Instead, the winery must sell to a U.S. importer, typically a small, family-owned business.
- That importer must then sell to a U.S. distributor, who carries wines from multiple producers and manages supply to different states.
- Finally, the distributor sells the wine to restaurants, wine shops, and other retailers, who in turn sell to consumers.
“This means that most of the profit from selling European wine stays in the U.S., with multiple small businesses benefiting along the way,” Aneff emphasized. “So when you impose a tariff on imported wine, it’s not the European winery that’s getting hurt—it’s all the American businesses in that chain that rely on these sales.”
Aneff also pointed out that other industries don’t face the same restrictions. “If a French fashion house wants to sell clothes in the U.S., they can open a store in New York or Dallas and take home 100% of the profits. That’s not the case with wine, which makes tariffs uniquely damaging to small American businesses.”
The Impact on U.S. Restaurants and Retailers
Restaurants, particularly independent establishments, rely on wine and spirits sales as a primary profit driver. Andy Fortgang, co-owner of Portland’s Le Pigeon and Canard restaurants, explained how tight the margins already are.
“The restaurants I co-own operate at margins of four to nine percent. Our largest profit center is beverage sales,” Fortgang noted. “If we lose that due to tariffs, we have no choice but to either cut jobs or close altogether.”
Similarly, Lisa Perini, owner of Perini Ranch Steakhouse in Texas, emphasized that wine is integral to the overall dining experience. “It’s not just about profitability,” she explained. “When customers come in for a steak, they expect a good selection of wines. A steakhouse without wine would be unimaginable.”
Perini refers to the economics of a $50 ribeye steak, explaining that 50% of the cost is tied to food, 40% goes to labor and overhead, and only about 10% is actual profit. With such slim margins on food, restaurants rely heavily on wine and spirits sales to remain viable. If tariffs dramatically increase the cost of imported wine, that revenue stream shrinks, putting restaurants in a precarious financial position. “Restaurants need wine sales to offset rising costs in food and labor,” Perini noted. “Without it, our business model simply doesn’t work.”
The Distributor’s Perspective: A Critical Link in the Supply Chain
Harry Root, co-founder of Grassroots Wine Cellars in South Carolina, provided insight into how distributors play a crucial role in maintaining the health of the U.S. wine industry. His company, a small business that partners with over 600 other businesses, represents 80 U.S. wineries and a significant number of European producers.
“Small business distribution companies like the one my wife and I started 20 years ago rely on imported wine much like restaurants do,” Root explained. “About 60% of our revenue comes from imported wine, and that revenue represents about 75% of our gross profit.”
Root emphasized that these profits allow distributors to support U.S. wineries. “We happily work with small California and Oregon producers, often at a lower margin because we believe in what they’re doing. But without a healthy import system, we lose the ability to financially support these wines in the market.”
The last time tariffs were implemented at 25%, Root’s company saw capital costs spike overnight. “That left us with less money to invest in American producers, less money for our employees, and fewer resources to grow our business,” he said. “Restaurants expect us to provide them with wines they can make a strong profit on, and imported wines allow us to do that while also helping smaller U.S. wineries gain exposure.”
“So small businesses like mine, we hustle, work with producers that are up and coming, such as small California and Oregon wineries, the kind of small business that you want to see succeed,” Root continued. “But we’re able to distribute their wines because we’re also selling Prosecco and other wines from Europe at a much higher margin than we’re charging for these more artisan wineries in the U.S.”
The Canada Tariffs: A Warning for U.S. Businesses
The recent trade dispute between the U.S. and Canada has already demonstrated the consequences of retaliatory tariffs in the wine and spirits industry. In response to a 25% tariff on Canadian imports, six of Canada’s ten provinces—including Ontario, Quebec, Manitoba, British Columbia, New Brunswick, and Nova Scotia—have removed U.S. wines and spirits from shelves, effectively cutting off a major export market for American producers.
Canada is the largest importer of U.S. alcoholic beverages, purchasing $1.1 billion worth of American wine and spirits in 2023. This sudden loss of market access has led to immediate financial consequences for U.S. producers, including Kentucky, which alone exported $43 million worth of whiskey to Canada last year. With no access to Canadian shelves, U.S. businesses now face overproduction, increased storage costs, and the challenge of finding alternative markets, many of which are less lucrative. The Wine & Spirits Wholesalers of America (WSWA) warns that these trade barriers will destabilize supply chains, drive up prices, and threaten U.S. wine and spirits producers.
For Canada, the consequences are also significant. Over 70% of the wine consumed in Canada is imported, with the U.S. traditionally accounting for 10-15% of those imports. With U.S. wines removed from stores, consumers have fewer options, and many Canadian importers are left with unsellable inventory. Many Canadian wine importers operate on consignment, meaning they do not get paid until the product sells. With U.S. products suddenly pulled from shelves, these businesses now face significant financial risk. Additionally, market share is shifting toward France (30-35%) and Italy (20-25%), making it even harder for U.S. wines to regain their foothold even if trade relations improve.
Beyond wine, many American craft breweries and distilleries rely on Canadian barley, a preferred ingredient due to limited U.S. supply and superior quality. If Canadian exports to the U.S. are restricted, production costs for small brewers and distillers will rise, leading to higher consumer prices. Many small producers may be forced to reduce production or even shut down, weakening the U.S. craft beer and spirits market.
The Bigger Picture: Why Tariffs Threaten the Wine Industry
The U.S.-Canada trade dispute is a stark warning of what can happen when trade barriers escalate in the wine and spirits industry. Removing U.S. wines and spirits from Canadian shelves has done more damage than a tariff alone—eliminating an entire export market overnight.
The proposed 200% tariff on European wine and spirits is not a policy that will strengthen American industry—it is one that will cripple it. From independent restaurants and wine retailers to small distributors and even U.S. wineries, the ripple effects of such a tariff would be devastating.
The wine industry is a global ecosystem, and the U.S. wine economy thrives on a balance between domestic and imported products. Disrupting that balance with sweeping tariffs would be a costly mistake—one that America’s small businesses can’t afford.
As Kelby James Russell, winemaker at Apollo’s Praise Winery, noted, wine has been an item of trade for over 6,000 years, connecting people to different cultures and regions. “People don’t just drink wine—they fall in love with it,” he explained. “Anything that limits access to that experience, whether through tariffs or economic barriers, threatens the very essence of what makes wine special.”
While there are clear financial stakes, there is also a cultural and emotional impact. Restricting the availability of European wines doesn’t just hurt businesses—it diminishes the broader experience of wine appreciation and the connections it fosters between producers and consumers around the world.