A possible US$70,000 tariff bill has America’s largest limoncello maker on edge

Phil Mastroianni and Fabrizia Spirits are facing a $70,000 tariff question. (Fabrizia Spirits via CNN Newsource)

Thousands of litres of Italian sparkling wine, ordered before U.S. President Donald Trump’s tariff threats, are on a boat headed to the United States. Before the wine is unloaded and handed to its recipients, they may need to pay a tariff bill big enough to put a kid through college.

Small business owners say they’re paralyzed with indecision because of the escalating trade war – both real and threatened – as tariff spats spill into every aspect of their productions and sales. None of them know how soon the United States might resolve tensions with Canada, or make good on threats to impose a 200 per cent tariff on EU alcohol.

President Trump threated the massive retaliatory tariffs on European alcoholic beverages after the EU proposed higher tariffs on American whiskey among other products. That in turn, was in response to the U.S. imposing a 25 per cent tariff on steel and aluminum imports.

The EU is delaying the retaliatory tariffs to allow for time to negotiate, something American winemakers and liquor makers are hoping results in deescalating a trade war they never wanted any part of.

Still, it’s unclear when – or if – Trump will ease off his 200 per cent tariff threat. It’s a U.S.$70,000 question for Phil Mastroianni.

When life gives you lemons

Mastroianni founded limoncello brand Fabrizia Spirits in 2009 with his brother—using a family recipe in their parents’ garage. Fabrizia is now the largest U.S. producer of limoncello, and this year Mastroianni expects the company will peel one million lemons to make their drinks including the original spirit and canned cocktails.

Fabrizia depends on Sicilian imports to make their drinks. They get all their Syracusa lemons from one family in Sicily. And in January the company ordered $35,000 worth of sparkling wine from a Sicilian winemaker to be delivered in Boston in April to produce an upcoming Fabrizia limoncello spritzer.

But much has changed since January. If President Trump follows through on a 200 per cent tariff on European alcohol, Fabrizia could be staring at a $70,000 tariff bill on top of the cost of the wine itself. Now the Mastroiannis are scrambling for contingency plans if the tariffs do come to pass — like letting the shipment be unloaded somewhere outside the United States, which would avoid a tariff but require logistical challenges like using someone else’s tanks for storage.

“We’ve even thought, ‘Maybe we’ll just turn the thing around and say take it back,’” Mastroianni said.

If Fabrizia is stuck with the massive bill, Mastroianni said the business will survive, but they’ll need to cut back on marketing budgets or employee raises. The company has also joined the “Toasts Not Tariffs” coalition, a group of largely small businesses in the industry fighting against U.S., EU and UK tariffs on alcohol.

Mastroianni remains hopeful, however. “I think one thing that’s clear is President Trump is a dealmaker, and we’re thinking that the 200 per cent tariff might just be a negotiating chip. And we’re hoping that he’ll help strike a deal that leaves wine and spirits out of it.”

Changing drinking habits

Because of the trade war that Trump’s tariffs have ignited, U.S. companies that export alcoholic beverages are also uncertain about what comes next.

Natalie Collins, president of the California Association of Winegrape Growers, said vintners in the Napa and Sonoma regions are not seeing their contracts with local wineries renewed after the existing ones expire.

“There aren’t a lot of purchasing decisions being made,” Collins said. But now that spring is coming, growers have their own decisions to make, namely: whether to prune, or to invest money into a growing season with no guarantee they’ll sell those grapes.

One family-owned winery in Sonoma County told CNN it has hundreds of cases of wine in its warehouse, already packaged for Canada with the specific required glass and labeling in order to sell in that country. But it’s going nowhere, as American wine and liquor have been pulled off of Canadian shelves.

It’s a huge blow to American vintners, who have counted on Canada as the United States’ biggest market for wine exports, making up 35 per cent of exports, or $435 million worth of wine.

It’s yet another challenge for California’s storied wine industry, which has already come under pressure. Younger generations are opting for healthier choices and drinking less alcohol, and inflation has meant less disposable income among wine drinkers. Climate change has affected grape growing. Compliance costs for California grape growers have soared 64 per cent in seven years to $1,600 per acre.

In other ways, however, the tariffs may help balance the playing field for California wines, Collins said.

She added that the European wine industry is heavily subsidized by the EU, so their wines are less expensive for consumers and thus pose significant competition.

Even if the tariffs are short-lived, Collins said, she hopes they start a wider conversation about how to help relieve domestic wine production costs.

Stockpiling

In the meantime, though, European alcohol sales are on the rise as American consumers rush to stockpile their favorite drinks from the continent ahead of potential price hikes.

Wine delivery website and app Vivino saw more than a 30 per cent spike in sales of French and Italian wines right after Trump announced the possible tariffs, said CEO Morten Heuing.

Heuing sees the tariffs as a lose-lose situation with ripple effects: “(Consumers) are going to change habits, they’re going to go out and eat dinner less in restaurants, and they’re going to choose cheaper options,” he said. “Restaurants will lay off sommeliers because there isn’t any point…if half the wine that you have on your wine list isn’t affordable for consumers anymore.”

Since last Thursday’s announcement, Wine.com sales have been split 72 per cent imported and 28 per cent domestic, compared to last year’s average of 60 per cent and 40 per cent, said founder Michael Osborn. Younger customers in particular seek international wines, he said, and he worries that if European wines become unaffordable, these buyers won’t find suitable alternatives in American vintages.

“I’m fearful there wouldn’t be a tradeoff…There’s not a lot of interchangeability. These are unique growing regions that don’t have a corollary necessarily, one for one, domestic versus imports,” Osborn said.

Collins does not necessarily believe that will happen. She said a lot of it comes down to price, and many people will choose wine that is more affordable, wherever it comes from.

But the larger problem now is finding certainty in a sea of unknowns. The resulting paralysis of not shipping out wine to Canada or not starting new contracts with grape growers has hurt the industry.

“Damage is already done,” Collins said.

Natasha Chen, CNN