America trade war with China has some lessons for Brexit
US wine exports to China grew by 14% from January to June despite an acrimonious trade war between the two trade superpowers. The rise was despite, or even because of, an increase in duty for US wines to China rising by 15% in April. China may also impose a 25% tariff on US wines later in the year if the trade war does not abate.
It is expected that sales of the increasingly less-competitive US wines will fall. The surprising growth in exports was driven by a short term build up in stocks before the duty price increased.
As the UK draws closer to a hard Brexit a similar situation could occur. There are currently two key outcomes to Brexit negotiations.
The first is that a Brexit deal is done and the UK moves to a transition period that will not affect trade for at least another two years.
The second option is a hard Brexit, where no deal is done and the UK reverts immediately to the World Trade Organisation rules. This is likely to result in a rise in tariffs, and more importantly the reintroduction of border checks. The government will probably waive most border checks in the short term to minimise disruption, however there is a risk that if they don't, there will be stock and supply problems.
As we get closer and a no deal becomes more likely, UK wholesalers and retailers, like their Chinese counterparts, will increase stocks of European wines to help minimise disruption. This will see a short-term boost to EU wines sales into the UK. But a decrease in some EU wines as they substitute them with more reliable non-EU wines.
