‘Banana War’ Offers a Blueprint for Handling Trade Conflicts

Posted June 21, 2018 9:08 p.m. EDT

With China retaliating, U.S. allies reeling and markets skidding, maybe it’s time to take off the gloves in America’s burgeoning trade war.

By taking off the gloves, I mean that literally: a tariff on imported leather gloves would hit China, France, Belgium and Italy, which all are in President Donald Trump’s cross hairs.

And why stop there? Luxury cars, perfume, handbags, wine, spirits and cheese are on a list drawn up by the White House of items that the United States could target for tariffs, according to an outside adviser to Trump with knowledge of the list.

The Trump administration has already imposed 25 percent levies on steel, but few people go out and buy steel bars. Mercedes-Benzes, Lexuses and BMWs are another story — those are recognizable products that plenty of Americans shop for every day. Trump has already floated the possibility of a 25 percent tariff on imported cars, a dagger aimed directly at German and Japanese exporters.

The idea of hitting luxury products has its attractions: It hurts exporting countries but not cost-conscious consumers, who presumably aren’t buying many six-figure bottles of wine.

Although history suggests that no one really wins a trade war, some in the Trump camp cite an exception: the “banana war” waged by the Clinton and Bush administrations against the European Union in the late 1990s and early 2000s.

That conflict started when the European Union imposed tariffs on bananas imported from Latin America — a move that upset the United States because two of the world’s largest banana companies, Chiquita Brands and Dole, were American. (It probably didn’t hurt that Chiquita was a major donor to the Democratic Party.)

But the Europeans backed off after the United States threatened to slap 100 percent tariffs on a total of about $520 million in European luxury exports.

The targeted products included cashmere sweaters from Britain, Pecorino cheese from Italy and handbags from France. Roquefort, the pungent artisanal blue cheese from southwest France, was threatened with especially punitive 300 percent tariffs, prompting angry sheep farmers to storm a McDonald’s in the town of Millau, the center of the Roquefort-producing region.

The Europeans agreed in 2001 to phase out their banana tariffs.

But people involved in the resolution of the banana wars told me that the Trump administration was drawing the wrong conclusion if it thought it could bludgeon America’s allies by unilaterally imposing punishing tariffs. Back then, the United States pursued its banana grievance in the World Trade Organization, where it won a ruling against the European Union that gave Washington the right to impose tariffs. And the subsequent settlement involved years of delicate negotiations and became a model for global cooperation, not confrontation.

Ten years later, the Bush administration actually imposed a 300 percent tariff on Roquefort (along with Spanish hams and Italian mineral water) after the European Union banned the import of hormone-treated beef from the United States. In a compromise, the bloc agreed to expand imports of hormone-free American beef (while keeping the hormone ban), and President Barack Obama scrapped the tariffs.

The European Union also recognizes the bargaining clout to be gained by targeting iconic American consumer brands in trade wars: It is imposing duties on bourbon and Harley-Davidson motorcycles.

To some trade warriors, luxury goods are especially appealing targets because there are readily available U.S.-made substitutes, and affluent customers can afford the higher prices. American consumers may think otherwise.

To assess the potential impact, I reached out to some retailers and residents in Palm Beach, Florida, a hotbed of wealthy Trump supporters, where the valet parking garage at Trump’s Mar-a-Lago club is filled with Mercedes cars and Chanel’s quilted leather handbags are as common as canvas totes. Forbes estimates the average net worth of Palm Beach residents is $29.7 million.

Maurice Amiel, who owns the French Wine Merchant there, told me this week that he had been in the wine trade for 40 years. Although he stocks wines from all over the world, 90 percent of what he sells comes from his native France. Stiff tariffs on French wine “would be terrible,” he said, especially for producers, shippers and retailers like him.

That’s because there’s so much competition among wine retailers that it would be hard to simply pass on the higher cost to consumers. “I’m not going to sell Beaujolais if a tariff causes the price per bottle to go from $20 to $40,” he said, referring to wine from the region just south of Burgundy. “I’d have to absorb a lot of the increase.”

That’s not the case with the high-end “grand crus” produced in Burgundy and Bordeaux. “We have some of the most affluent wine buyers in the world here” in Palm Beach, he said. “If they love the wine they’ll buy it, regardless of price.” They didn’t blink when prices for first-growth Bordeaux in sought-after vintages like 2009 and 2010 climbed above $1,000 a bottle. (A bottle of 2009 Lafite-Rothschild currently goes for $1,595 at Sherry-Lehmann in New York.) As a result, Amiel said, he’d concentrate more on selling first growths and expensive Burgundy.

Amiel’s greatest fear, he said, is that Trump will use tariffs to whip up anti-French, pro-American nationalist fervor. That happened in 2001, after France refused to support the U.S. invasion of Iraq, and many Americans boycotted French products. Amiel’s business barely survived. The United States is France’s largest export market for wine. In 2017 those exports were nearly $3.5 billion.

Mercedes-Benz of Palm Beach is one of the country’s largest dealers. A Mercedes-Benz spokeswoman, Andrea Berg, stressed that tariffs on German luxury cars hurt Americans, not just Europeans.

“We believe in the benefits of free trade and competition,” she said. “Daimler Group subsidiaries have been firmly established in the United States for decades. As employers, exporters and good corporate citizens, they provide billions of dollars in direct and indirect support to the United States economy.”

Mercedes said the United States is the largest market for its Daimler trucks and the second-largest market for Mercedes cars. The company employs 34,000 people in North America, 12 percent of its global workforce, and has a large manufacturing plant in Alabama. On Thursday, the automaker’s parent company, Daimler, warned that its profits were likely to be hurt by the trade war.

Edward Elson, a retail entrepreneur and Palm Beach resident who served as U.S. ambassador to Denmark under President Bill Clinton, agreed with Amiel that even punitive tariffs would have little immediate impact on many Palm Beach residents.

“You see Mercedes everywhere, and all the women carry those handbags,” he said, referring to the ubiquitous Chanels. “To be candid, they don’t care that much about price. People here aren’t going to serve a Beaujolais at a dinner party.”

What would arouse the ire of many Palm Beach residents, he said, would be a trade war that caused a steep decline in stock prices. “Everyone in Palm Beach worries about taxes and their stock portfolios,” he said.