Germany and China's trade relationship is feeling the heat of rising tensions, especially over electric vehicles (EVs) and brandy imports. On Tuesday, China, responding to the EU's recent tariffs on its electric vehicle exports, announced provisional tariffs on European brandy ranging from 30.6% to 39%. This move came just days after the European Union (EU) approved tariffs on Chinese-made EVs, signaling the latest escalation in communication between the two powers.
Beijing's decision to impose tariffs on luxury drinks like Remy Martin and other European brandies marks not just a cross-border trade issue, but also highlights the delicate balance of international economics at play. The EU's action aimed at curbing perceived unfair advantages enjoyed by Chinese manufacturers through hefty government subsidies, deemed to be distorting market conditions.
The spirits industry, particularly valuable to French exports, finds itself caught squarely in this crossfire. "We are extremely concerned about the ramifications this could have on our exports and our brand image." said Raphael Delpech, director general of the National Interprofessional Cognac Bureau. France stands as the biggest exporter of high-end liquors to China, exporting brandy and cognac valued at €773 million last year, making it significantly dependent on Chinese markets.
The stakes have risen significantly for French producers. The announcement from the Chinese government sent ripples through the market, with shares from major spirits companies dropping. Remy Cointreau and Pernod Ricard both reported steep declines following the announcement. Delpech lamented how critically their sector was being impacted, stating, "It seems the French authorities have abandoned us without any justifiable reason. It’s hard for us to fathom how our industry is being put at risk like this."
This trade spat has risen over the years but heightened dramatically following the European Union’s greenlighting of tariffs on Chinese electric vehicles, which can go up to 35.3%. Beijing counters with this retaliatory move, underscoring how interconnected and yet fragile these international relationships can be. Both China and the EU have launched investigations on each other's products as import activity continues to face scrutiny.
President Emmanuel Macron of France, during recent dialogues with Chinese President Xi Jinping, expressed gratitude toward China's earlier restraint concerning cognac tariffs, hoping to maintain friendly relations. Nevertheless, this goodwill seems to be faltering under the weight of economic retaliation. A report by Daxue Consulting reflects the increasing importance of French alcoholic beverages as symbols of status among Chinese consumers, particularly at social gatherings:
"French liquors are not just drinks—they represent success and sophistication within Chinese society. Our alcohol sales need to reflect this unique character."
Cognac remains one of the pride of French artisanship and is often linked with high-status events and lavish dinners. The reported tariffs only threaten to cloud this significant market, where France enjoys commanding leverage with nearly 98.8% of the hard liquor market share.
While the French cognac industry reels, the EU continues to build pressure on China saying officials will conduct more thorough investigations on Chinese domestic subsidies for sectors beyond just electric vehicles, such as dairy and pork products. This was met with immediate responses from Beijing, which affirmed its intent to protect Chinese industries through all legal means necessary.
Equally significant, Chinese customs will require new guarantees on imports of EU brandy based on calculations of customs-approved prices and existing taxes, indicating how conclusively intertwined the fates of these two regions have become. The risk of losing footholds and heightened scrutiny could fill any future collaborations with hurdles, leading many to contemplate just how much longer they can pursue economic partnerships without compromising their respective interests.
The day-to-day ramifications for French exporters now loom large with these tax impositions. Should profits erode, the potential consequences include laying off employees and shrinking production facilities. French producers echo similar sentiments among markets worldwide: they’re feeling the heat not just from China but as part of broader global uncertainty surrounding international trade.
So, as EU nations and China jockey for positions on the trade chessboard, everyone is watching closely, especially as seasonal events like Chinese New Year approach—often peak times for alcohol sales there. While the thirst for French brandy remains, it begs the question: can diplomatic relations press through tariffs still, to keep the relationship mutually beneficial? The immediate future made far less certain by trade wars may just depend on how the dialogue continues to evolve.
