Chrystia Freeland, Wine Tariffs, Ecuador’s Cocoa Boom, Israel Defense Technology

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1:27This is Wall Street Week. I'm David Weston bringing you stories of capitalism. President Trump threatens draconian tariffs on French wines again. What that could mean for the U.S. companies in the business. Plus, you may have to get your favorite chocolate from some new places around the world. And countries are buying more weapons from Israel than ever before, even as many condemn its actions in Gaza. But we start in Europe, as Presidents Trump and Zelensky met this week in Davos, while the war in Ukraine continues apace. Chrystia Freeland is former deputy prime minister and foreign secretary of Canada and recently became an unpaid economic advisor to the Ukrainian president.

2:09She was there for the Trump-Zelensky meeting. So, Chrystia, you spent the week in Davos in part as an unpaid economic advisor to President Zelensky of Ukraine. He had a meeting on Thursday with President Trump. Did you get a readout on that meeting and how it was perceived? So I'm not speaking for Ukraine, David, but as let's say as a friendly observer, what I am hearing and I think what everyone else is hearing from the Ukrainians, from the Americans and indeed from the Europeans is that at this point, the Ukrainians, the Americans and the Europeans are all pretty much on the same page when it comes to this negotiation.

2:54And that's actually a remarkable outcome when you think about how rocky the path has been to get here. So, you know, it feels like there is quite a lot of optimism from Ukrainians, from Americans, from Europeans. And I really think the bottom line is that the ball is in Putin's court. You have been focused for some time on what comes after the war and the economic rebuilding of Ukraine. And you're advising President Zelensky now on that subject. At what point do we make that pivot? I think we need to start making that pivot now. And, you know, I really think, David, you know, for the past four years of war, we have been quite rightly, I think, focused on Ukraine as the virtuous victim.

3:48But I think this is going to be the year when we pivot to seeing the Ukrainians quite differently. And when we start seeing them as a really strong ally, as Europe's military shield, as Europe's arsenal, the country that knows how to build, knows how to wage modern war and knows how to build the weapons for modern war. And in addition to all of that, as a huge economic opportunity. The opportunity has started now. There are a lot of companies in Ukraine investing particularly in defense technology. One investor described defense tech as Ukraine's oil. So the investor said, you know, what oil has been to the Gulf states, defense technology is going to be to Ukraine.

4:39It is now. And when the war ends, that will be even more the case. And I think that's absolutely true. What level and type of investments required first to have Ukraine play that role in the defense area, but then presumably to go beyond that in its economy to have a more diversified economy beyond high tech warfare? here? It's going to take a lot of money. I think the good news is we've seen what happens when countries in the Warsaw Pact in the former Soviet Union reformed their economies and joined the European Union. You know, in 1990, when the Warsaw Pact collapsed, when the Soviet Union collapsed, Poland and Ukraine had roughly the same per capita GDP.

5:27Today, Poland's per capita GDP is five times the per capita GDP of Ukraine. In 2004, you had countries of Eastern Europe and the former Soviet Union join the EU, and those countries saw their GDP triple. One of the most important things about the economic opportunity for Ukraine is that Ukraine is now on a clear path to EU membership. When you say it's going to take a lot of money, how much of that will come from private investment as opposed to governments such as the United States and various European governments? How much is public? How much of it will be private, do you think? There is a lot to rebuild.

6:12And there is a very significant commitment already from the European Union to support Ukraine. The World Bank has been doing a lot. Ukraine right now is negotiating an IMF program of support as well. And it is going to take some public money, some public support from Ukraine's allies around the world. And I think it's very impressive the degree to which the EU is there. And I think people get that. I think people understand that Ukraine is going to need the support to rebuild. The opportunity that I don't think people are fully focusing on right now is there's going to be a tremendous economic opportunity.

6:57And we've seen this story before. Some of the great investment opportunities in the world happened in Poland, in Eastern Europe, when you had the collapse of communism and the building of a market economy and then joining the EU. And you're going to see a version of that happening with Ukraine. Some of it can some of the investment can start now. What I'm hearing from a lot of investors is the big investments are going to come when the war ends and that security is a precondition for major investment. And I think that makes sense. But I think the smart players are starting to look at Ukraine and see this is going to be a place where you can really make some very significant investments, earn some really, really significant returns.

7:46Defense tech, I think, is going to be a really, really hot sector in Ukraine. And the smartest players are already there. But I think you're going to see people looking also at agriculture and agri-food. I think you're going to see people looking at forestry. I think you're going to see people looking at technology more generally. Ukraine is a very high-tech society. It's part of the reason that they've been able to do so well in the drone wars. And so I think you're going to see investments in technology more generally, including some technologies going from military use into civilian use, including with AI.

8:20And then I think you're going to see a really big privatization program. Ukraine has 3 ,000 state-owned enterprises. It has a plan to privatize them. So I think this is going to be a version of the emergence of market economies in Eastern Europe in the 1990s at the beginning of this century. and that is going to be a huge opportunity for investors and also really great for the people of Ukraine. We began your week in Davos focused really on Greenland and what President Trump was saying about Greenland and dealing with the Europeans. That seemed to have shifted on Wednesday when President Trump said that they had a framework for an agreement of some sort.

9:02What is the allied reaction? You talked to all of the allies, the European countries. What is the reaction to the drama we saw over Greenland this week? You know, it was a very volatile week. And I think there were a lot of experts here and across Europe who suddenly became experts in Greenland. There were a lot of ups and downs. I would judge the mood of the Europeans to be right now a feeling of relief and that a bullet has been dodged. And I think people are very happy that an off route seems to have been found. But I do think the whole episode has been another has been just the latest wake up call for Europe.

9:51And I think, you know, what the Europeans are feeling more and more is that they have to become united, that they have to strengthen their ability to militarily ability to militarily defend themselves. that they have to strengthen their economies to do that. You know, I would say the most popular writer and philosopher this week in Davos has been the Greek general who wrote about the history of the Peloponnesian Wars. The Athenians said, look, we're stronger than you. We're going to do whatever we want to you. The strong do what they will and the weak suffer what they must. This is the line everyone is repeating.

10:38And Ukraine actually fits in here because I think the Europeans are now seeing Ukraine not just as needing to be defended because the rule of law needs to be defended, not just needing to be defended because Ukraine is on Europe's border. But the Europeans are really starting to see Ukraine as a very important strategic ally. I've heard a lot of people saying, you know, Ukraine actually has the strongest army in Europe. Ukraine has held off the Russians for four years. We need the Ukrainians right now as much as they need us. Coming up, President Trump ended his first year back in office the way he started it.

11:22I'll put a 200 % tariff on his wines and champagnes. Threatening tariffs on European wine. This time because of France's reluctance to join his board of peace. We revisit what that would mean for U.S. producers and distributors if he follows through.

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13:20This is a retelling of a story we've heard before about the bottled poetry we call wine. President Trump put prohibitive tariffs on European wine back on the agenda this week when he lashed out at President Macron for refusing to pony up$1 billion to join the Council for Peace he's putting together to rebuild Gaza. Well, nobody wants him because he's going to be out of office very soon. So, you know, That's all right. What I'll do is if they feel like Costo, I'll put a 200 percent tariff on his wines and champagnes and he'll join. Stocks reacted dramatically with shares of Paris based luxury goods maker LVMH tumbling after the comments.

14:03If it all sounds a bit familiar, that's because it is. Last March, President Trump threatened similar tariffs, prompting our story about the business of wine and what tariffs could mean for the people who make and sell it. People like Victor Schwartz. It's been a mess. In New York, importer Victor Schwartz has spent nearly 40 years supplying restaurants and wine shops with hand-picked bottles from small European vineyards. Now, tariffs threaten to upend the business. It's 20%, then it's 10%, then they threaten 50%. How different is the effect on your business of a 20 versus a 10? I mean, in our industry, end of the day, we might make 5 % as a net profit, 5 % to 10%.

14:49So obviously, we can't afford 10%. We can't afford 20%. But 20 % is really egregious. 20%, I mean, think about what that does. God, you know, it makes a$20 wine, you know,$25 basically, because, you know, there's kind of a multiplier effect as it goes through the system. You know, it's a much bigger impact. And don't forget, when we raise a price, it's not as if the consumer just accepts it. Where do American customers for wine go if they decide the price is too high? I'm not going to buy that. Where are you going to find champagne? Where are you going to find Chateauneuf-du-Pape? Where are you going to find Chianti?

15:31You're not going to find it in Oregon or California. A Finger Lakes wine, let's just be clear, is nothing like a Napa Valley wine. Nothing like a wine from southern Italy or northern Italy or the center of Spain, etc. My gist is that these products are so connected to their place. And that's what's wonderful and interesting about wine. Otherwise, there'd be the wine company of the world and it would come out of a spigot. Red, white, rosé, and sparkling. Done, right? But that's not why we love wine. And Americans do love their wine. In 2023, we consumed just under 900 million gallons of it, more than any other country in the world, with a value of over$107 billion.

16:20More than a third of that is shipped in from abroad, making tariffs a real issue for importers. But those in the business say it's not just the imports that will be hit. It's the entire wine ecosystem. Ben Aniff is president of the U.S. Wine Trade Alliance. He has a shop in Tribeca that sells fine wine, which typically goes for over$20 per bottle. Distributors and importers, even those, by the way, that represent U.S. domestic wines, about 75 % of their revenue comes from imported wine. So that's one of the really interesting things about this. On the tariff front, all of the major domestic wine producing organizations, from Wine Institute to Napa Valley Vintners to Wine America, they're all against tariffs on imported wine.

17:11Because they understand their domestic growers, their producers, rely on healthy wine distributors for access to market. Put another way, because state laws prevent domestic vineyards from supplying restaurants and wine shops, they need distributors. And the distributors rely critically on selling imports alongside their domestic wines. That's why those who import fine wines, like Victor Schwartz, and those who sell it to us, like Ben Aniff, have no doubt that tariffs will cripple their business selling both foreign and domestic wines. But there's another part of the business, the value wine business, where a bottle or its equivalent typically costs less than$11.

17:57And producers for this segment, like Stuart Spencer in California's Central Valley, say they need protection from multinational companies bringing in cheap, subsidized imports that force American growers out of business. There is a lot of what we call bulk wine coming in these big 20-foot bladder containers, and it is this bulk wine that is really undercut in California grape growers. There is a lot of talk about the difference between free trade and fair trade. From your experience as a grower, but also from your dealing with Lodi, are there unfairnesses in some of the exports to the United States?

18:35I mean, it's a completely unfair market. I mean, we are competing in a global marketplace. The European Union spends over 2 billion a year between EU money and member state money propping up their wine sector. They are not only paying growers and vintners to distill excess wine and buy it up, but they're also paying them to plant new vineyards. And they spend hundreds of millions of dollars in market promotion all around the world, and the U.S. is the number one target market. They also have trade barriers, so it gets really complex when you get in the weeds, but we are not playing on a level field.

19:10Last year, California wineries, which make nearly 90 % of U.S. wine, were stuck with more than 500 ,000 excess tons of grapes. Now, 77 million gallons of wine are sitting in storage tanks. And you can still see some of the grapes on the vines. We have thousands of acres of grapes that are being torn out right now. And we have small farms and family businesses that are up for sale because there's just not a prospect for them moving forward. My family's been in this for 50 years, and I talked to old-timers that have been in it for multi-generations, and they've never seen it as challenging as we are now.

19:4670 % of all wine sales in this country is controlled by about a handful, five to six large multinational companies. They're bringing wine in bulk. They're blending it in with California wine, up to 25 % and calling it American Appalachian. It's a federal loophole. We have millions of gallons filled up in tanks right now in California that don't have a home, but simultaneously 24 million gallons of bulk wine is poured into California coming in at super low prices and undercutting the California grape grower. Are you in favor of the tariffs that President Trump is talking about? Well, I think if I was to speak to our 700 grape growers that I represent, I think many of them would support the tariffs to help level the playing field.

20:29And I think what we would really hope is this would bring these other trading partners to the table to negotiate fair trade. The challenge we see with what's going on with a lot of the trade negotiations now is wine is just a pawn in a larger story and the issues are about bigger issues. But I think none of us, you know, want to see tariffs in place permanently. I think what we really want to see is really free and fair trade. Some domestic producers, particularly in California, complain about unfairness from Europe because there are subsidies given to vineyards over in Europe. Are tariffs an effective way to deal with that problem?

21:07I feel really, really tough, really bad for those guys, but a tariff is not going to solve their problem. Farmers that grow grapes to sell until, for instance, grocery store boxed wine, and that's terrific for them, and it's a great product for certain customers. The demand for those products is collapsing. People aren't buying bulk wine the way they used to. Whether tariffs could give some relief to bulk wine producers or not, they certainly would have unintended effects on the American economy overall. You have spent some of your time down in Washington trying to explain to lawmakers, policymakers, exactly what this would mean for the wine business.

21:47What would you want them to understand that maybe they don't understand right now about the business and the effects of tariffs? The United States has been talking about their concerns with respect to a trade deficit. We import more European wines than we sell American wines to Europe, But the reality is we have a huge economic surplus on the sale of European wines in the United States. You know, we import about$5.3 billion worth of wine from the European Union into the United States. But American businesses make almost$23 billion from the sale of those products. Making a big margin on wine for a restaurant, it is not a luxury.

22:29It is an absolute necessity for their very survival. If, in fact, tariffs do get imposed, what are the likely long-term effects on the wine business? Contraction. And you know what that means. Contraction means American businesses closing and firing all their employees. What about the uncertainty itself, quite apart from the tariffs? I mean, I'll tell you, I had phone calls from wine distributors who said, you know my grandfather started this business we were in terrific shape and growing and hiring in January and now I might have to decide if I'm going to close the doors in two weeks you know when they're they're put into this position when their choice is either to pay a tariff that they cannot afford because these are these are small businesses or don't bring in wine don't bring in the wine that represents 75 % of the revenue for your next three or six months.

23:27You know, we had restaurants from South Florida say, in the summertime, we need Sancerre and Rosé. That's what keeps our businesses alive. And there really is no substitute for these products. One of our favorite Riojas. So in your wine store, you have Bordeaux. If you can't get the Bordeaux, will a customer say, that's okay, I'll take the cab? The answer flatly is no. We talk about terroir. It's a word that gets bandied about. It sounds fancy. It's foreign. But it really, all it means, terroir, land, terra, it just means the place, right? It's just geography. Part of terroir is the human element, the culture, the civilization, the people.

24:08The people who've been on this piece of land in southern Italy for multiple generations. They cook certain kinds of food. They make certain kinds of wine that go with those foods. And it's very specific, right? I mean, don't you love to drink an Italian wine when you're having your spaghetti and meat sauce? Schwartz is trying to hold off the administration as the lead plaintiff in a lawsuit challenging the tariffs. The U.S. Court of International Trade ruled in his favor, but the case has been consolidated with Learning Resources v. Trump, the Supreme Court case on the president's use of emergency powers to levy tariffs.

24:45If the tariffs go into effect for European wines, how long will it take before we see it in our lives? You're going to start seeing those prices come now. You're going to start seeing a lot less choice. There are importers and distributors that have halted all of their shipments because they're not sure they can afford to bring them in. Now, at the same time, they have no substitutes for them. They're not buying more domestic wine, for instance. They can't afford to. They need to sell these European wines in order to buy more American wine. In a nutshell, American businesses are incredibly good at selling European wine, and they support huge numbers of jobs in the United States.

25:19Some of the most famous importers actually got into the business because they were in France or Italy during World War II, said, oh my God, I love this. This is what I want to do with my life. And they're classic American entrepreneurial success stories. As a matter of fact, many of the most famous European wines in the world, they're famous today because they were discovered by American wine importers. And they were brought back. They tasted 10 ,000 wines, said these three are the best. And they were right. Funny story, one of the first guys to do that, by the way, was Thomas Jefferson. You know, he went to Burgundy, he bought Mont-Rochet and Merceau-Couture for he and George Washington.

25:56He bought Chateau-Dichemps for he and George Washington. And today, those are still some of the greatest wines on the planet. He had a pretty good palate, I think. And now, ironically, Americans' affinity for European wines, nurtured by the likes of George Washington and Thomas Jefferson, may be challenged by the most recent occupant of their high office. and perhaps make it more difficult for us to enjoy that bottled poetry they discovered 250 years ago in fine French wines.

26:28Next, hot chocolate is a nice treat when it's cold outside, but hotter weather may get in the way of growing the cocoa beans we need for our treats. How a warming planet is creating new winners and losers in the chocolate-growing business.

26:47I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast. Now, every day, we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies, and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.