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China will impose new anti-dumping measures on EU brandy imports, escalating the trade war between Beijing and Brussels just days after the bloc slapped higher tariffs on Chinese electric vehicles.
The move, which will hurt French cognac producers, marked the first in what European capitals fear will be a slew of targeted measures against their industries in retaliation for a decision by the EU on Friday to approve steep tariff increases on Chinese EVs, expanding the biggest trade dispute between China and Europe in a decade.
The Chinese commerce ministry said in a statement on Tuesday that it would require a security deposit from EU brandy importers beginning on Friday.
Shares in French luxury group LVMH, owner of Hennessy cognac, dropped 4.3 per cent in early trading in Paris on Tuesday after the announcement, while Martell owner Pernod Ricard fell 2.7 per cent and Rémy Cointreau nearly 4.8 per cent.
Other luxury stocks also fell, including those of Gucci owner Kering, Hermès, Cartier parent Richemont and Hong Kong-listed Prada, as investors worried that souring EU-China relations could hit other sectors.
Other EU countries are bracing for Beijing to impose additional measures against their prized exports to China in retaliation for the EV tariffs, senior diplomats from across the bloc told the Financial Times.
As the EU-China trade war has expanded from cars to agriculture, Beijing has launched anti-dumping investigations into European dairy and pork imports and lodged a complaint over the EU tariffs with the World Trade Organization.
China’s commerce minister on Tuesday said it was also considering measures targeting heavy engine internal combustion vehicles, which could affect German carmakers in particular.
The EU’s move to increase tariffs on Chinese EVs, which passed last week despite opposition from member states including Germany and Hungary, followed a months-long probe launched by European Commission president Ursula von der Leyen.
EU officials had concluded the tariffs were needed to protect the bloc’s manufacturers from competition from lower-priced, Chinese-made EVs, which they complained were unfairly subsidised by Beijing.
China’s retaliation on Tuesday marked a reversal from its stance in late August, when the commerce ministry handed a reprieve to brandy producers by deciding not to immediately impose new penalties, despite finding that they had dumped their products on the Chinese market.
While Beijing and Brussels have signalled that talks over EV tariffs would continue, the result last week fuelled expectations of retaliation. French car executives and officials were among the crucial backers of the EV investigation, and France voted in favour of higher tariffs.
Beijing has previously slammed the EU’s tariffs on EVs as protectionism, an abuse of international trade practices and undercutting the global fight against climate change.
The commission said at the time that the tariffs were announced in August that its brandy exports to China were in line with World Trade Organization rules and that it would “take all necessary action to defend our EU exporters”. Brussels has also already brought a WTO complaint against China for its threats against dairy imports.
But EU officials said the Chinese response to the EVs tariff increase had been calibrated, adding that they believed Beijing did not want to initiate a tit-for-tat trade war that would hurt its exporters and cost jobs.
“Even with these tariffs Chinese EVs will still be sold in Europe,” said one. “It’s not like the US, which effectively closed its market.”
Additional reporting by Wang Xueqiao in Shanghai and Arjun Neil Alim in Hong Kong
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