China has taken drastic steps against European Union (EU) imports, recently imposing anti-dumping taxes on brandy imports from the EU. This move, perceived as retaliation by France, follows the EU's decision to apply significant tariffs on Chinese electric vehicles (EVs). The situation escalates what has already been described as growing tensions between the two economic giants.
According to China's Ministry of Commerce, the new measures will affect major brands like Hennessy and Remy Martin, which dominate brandy exports to China. The world's largest producer of brandy, France accounted for 99% of the spirit's imports to China, with shipments worth approximately $1.7 billion last year. The ministry claims preliminary investigations determined the EU's brandy dumping threatens substantial damage to China's own producers, prompting the need for protective measures.
Starting from October 11, Chinese importers will have to put down hefty security deposits, ranging from 34.8% to 39% of the import value for European brandy. French cognac producers and trade officials have decried the move, labeling it as catastrophic for the industry. "The French authorities cannot abandon us and leave us alone to deal with Chinese retaliation,” said members of the French cognac lobby group BNIC, urging for the tax to be suspended before it adversely impacts the market.
The ramifications of this tax will likely extend beyond brandy. Analysts predict the increase will raise prices for consumers significantly, possibly leading to decreased volumes sold and harming the already struggling market. Shares of companies such as LVMH and Remy Cointreau saw immediate drops of more than 3% and 8% respectively following the announcement. The broader European luxury food and beverage sector could also feel the strain as these tariffs take effect.
The timing of this escalation is telling. Just days earlier, the EU had approved tariffs on Chinese-made electric vehicles, reaching up to 45% alongside existing duties. French Trade Minister Sophie Primas has called China's new tax "retaliatory" and completely unacceptable, arguing it contradicts international trade agreements. She remarked, "We believe these measures are unfounded, and we are determined to defend EU industry against the abuse of trade defense instruments." This sentiment is echoed by the European Commission, which plans to challenge the tax at the World Trade Organization (WTO).
China's Ministry of Commerce has also hinted at potential future tariffs on other EU imports including cars, pork, and dairy products, signaling this may be just the beginning of tit-for-tat exchanges. Businesses, particularly those involved with large-engine vehicles from Germany, which import were valued at around $1.2 billion last year, could soon find themselves targeted. German manufacturers like Volkswagen, Porsche, and Mercedes-Benz have seen their stock prices decline amid fears of similar punitive actions as those facing the brandy industry.
With estimates indicating brandy imports to China already down by 40% year-on-year as of August, experts are urging for resolution. Despite fierce discussions on both sides, the EU's assessment of Chinese subsidies for its EV sector which instigated the tariffs has not quelled tensions. The EU conducted investigations to ascertain whether these subsidies significantly impacted its own manufacturers.
Both sides have expressed dissatisfaction with each other's trade moves—China contends the EU's actions are protectionist and unjust, labeling them "unfair, non-compliant, and unreasonable," as expressed by their representatives. Meanwhile, EU officials, including Olof Gill, have been vocal about their commitment to defending their industry's interests and maintaining fair trading practices.
Looking forward, the EU aims to navigate these treacherous waters of international trade, hoping to mitigate the impact on their industries, particularly cognac producers devastated by the new Chinese measures. Meanwhile, for Chinese brands, the focus appears to be on mitigating perceived threats to local production and ensuring market stability against foreign imports. The stakes remain high as bilateral trade relations continue to deteriorate due to unresolved tensions over tariffs and economic policies.
