How Chinese Tariffs Soured Australia’s Wine Industry

Premium consumer brands such as Apple, LVMH and, until recently, Australian wines, have been big winners from rising commerce between China and the West.

When things turn sour, however, they can be especially vulnerable too. The sorry state of Australia’s once-thriving wine-export business is a case in point—and a warning about what could happen, if tensions between China and the West spike again.

In 2020, China imposed a 169% tariff on Australian wine, accusing the country’s winemakers of “dumping” their products into China—i.e., selling below normal prices. However, the measure came shortly after Australia had called for an international investigation into the origins of Covid-19. China also imposed restrictions on other Australian goods, including barley and coal.

The results were dramatic: Exports of Australian wine to mainland China were 99% lower in 2023 than in 2019. China was Australia’s top destination for wine in 2019, accounting for nearly 40% of exports. Chinese consumers also skewed toward more premium wines, compared with other top markets such as the U.S. and U.K. Total Australian wine exports, by value, have plunged 35% since 2019.

Some wine destined for Chinese customers probably took a detour through Hong Kong: Australian wine exports to the Chinese semiautonomous city nearly tripled over the same period. But that was far from enough to offset the decline in direct shipments to the mainland.

One lesson is that trade restrictions on consumer goods like wines—especially premium ones that require big investment in sales and marketing to build up brand recognition—often suffer particularly badly in a trade dispute.

Commodities such as barley and coal can be diverted to other countries more easily. Australia, for example, has shipped more coal to India and Japan since China started its unofficial ban in 2020. The process wasn’t painless, but it softened the blow. Total coal-export volumes from Australia fell 14% from 2019 to 2022, before China resumed buying in early 2023—a substantial hit to be sure, but considering that China is far and away the world’s top coal consumer, less bad than one might expect.

Similarly, Australia found new destinations for its barley—including Saudi Arabia and other Middle Eastern countries—after China imposed hefty tariffs in 2020.

Australian winemakers haven’t been so lucky. Accolade Wines, which owns midprice brands such as Hardys, has been saddled with debt as sales dwindled. Last week the winemaker, the second largest in Australia, announced that it would sell itself to a consortium led by private-equity firm Bain Capital.

Shares of market leader Treasury Wine Estates have fallen 40% from their 2019 peak. And its revenue for the fiscal year ended June 2023 is still 14% below the level of four years earlier. Its Penfolds brand was particularly popular among Chinese consumers.

The company has tried to diversify through foreign acquisitions. It bought California’s Frank Family Vineyards in 2021 and DAOU Vineyards a few months ago. Both brands target more affluent wine connoisseurs in the U.S. But buying competitors is a tougher way to diversify than just shipping your product to new markets: The company had to do a share placement last year to finance its DAOU acquisition, which tanked its shares.

Things have been better recently. As the relationship between Australia and China starts to thaw, a review of wine tariffs is on the table. China has removed tariffs on barley and resumed imports of Australian coal.

But more stable ties between China and Western democracies may or may not last. If trade tensions do increase again, miners and farmers will find ways to cope. Purveyors of fine handbags, vintages and the like might not be so lucky.

Write to Jacky Wong at [email protected]