China and European Union (EU), the Chinese government announced that it is considering raising tariffs on gasoline-powered vehicles with large engine capacities and will start collecting duties on brandy imports from Europe. This move follows the EU’s recent decision to impose tariffs on Chinese electric vehicles (EVs), adding another layer of complexity to the trade spat between the two economic giants.
The tension, which had been brewing for months, reached new heights after the European Commission’s announcement of hefty tariffs on Chinese EV imports. In response, China is taking steps to protect its domestic industries, signaling a tit-for-tat trade war that could have wide-ranging implications for the global automotive and luxury goods markets.
On Tuesday, China’s Ministry of Commerce issued a statement that the government is “studying measures including raising the tariffs on imported gasoline cars with a large engine capacity.” This marks a direct countermeasure aimed at European automakers, many of which export high-end, gasoline-powered vehicles to China. The country’s auto market is one of the largest in the world, and a potential increase in tariffs could disrupt the flow of European car exports, harming brands such as BMW, Mercedes-Benz, and Audi.
In a separate but related announcement, the Ministry of Commerce also revealed that it will start collecting duties on brandy imported from the EU. The tariffs, effective October 11, will require importers to pay a deposit of up to 39% of the value of the imported brandy. China had previously initiated an anti-dumping investigation into European brandy in January, and this latest move is seen as a culmination of months of tension in the spirits industry.
The latest developments stem from the EU’s decision last week to impose tariffs of up to 45% on Chinese electric vehicles for five years. European officials argued that China’s electric vehicle manufacturers have benefitted from unfair government subsidies, which have allowed them to dominate the European EV market at the expense of local producers. This move, aimed at leveling the playing field for European carmakers, has been viewed as protectionist by China.
Chinese state media hinted at possible retaliatory actions in recent weeks, with speculations that Beijing could raise tariffs on European car imports. The announcement on Tuesday marks the first official confirmation of these plans, sending a clear signal that China will not stand idly by as the EU targets one of its most important industries.
The impact of China’s announcement was immediate, with European stocks reacting sharply. Shares of some of the largest carmakers in Europe tumbled, as investors weighed the potential fallout of a tariff war with China. BMW AG, one of the top luxury car exporters to China, saw its shares fall 3%, while Mercedes-Benz Group AG experienced a 2.6% drop. The luxury car market, particularly in China, has been a crucial growth area for these companies, and higher tariffs could significantly hinder their profitability in the region.
Luxury spirits companies also faced a significant blow. Remy Cointreau SA, a major producer of high-end brandy, saw its stock price slump by more than 8% on Tuesday following China’s announcement. Pernod Ricard SA, another prominent European spirits maker, could also be affected, as China is a key market for premium liquor sales.
China’s brandy imports are dominated by French producers, with brands like Remy Martin and Hennessy holding a significant share of the market. The decision to target European spirits is widely seen as a calculated move, with France being one of the main proponents of the EU’s tariffs on Chinese electric vehicles. As French companies stand to lose millions in sales, the escalating trade tensions could drive a wedge between France and other EU nations with different economic interests.
The timing of China’s retaliatory actions appears to be a strategic effort to exert pressure on Brussels ahead of key trade talks. The European Commission is expected to release the final results of its investigation into Chinese EV subsidies by the end of this month, after which the tariffs would officially come into effect. Talks between the two sides have continued behind the scenes, with both China and the EU seeking a resolution that would avoid a full-blown trade war.
The Chinese Ministry of Commerce’s latest statements suggest that Beijing is not willing to back down and is prepared to defend its industries vigorously. “China will take all necessary measures to safeguard the rights of its companies,” the ministry said, emphasizing that the country is determined to protect its domestic businesses from what it views as unfair trade practices.
European Trade Commissioner Valdis Dombrovskis, who has been at the forefront of negotiations with China, had previously criticized Beijing’s investigation into European brandy and other goods. In a meeting with Chinese Commerce Minister Wang Wentao last month, Dombrovskis described China’s actions as “unwarranted” and “based on questionable allegations.” Despite this, China has pushed ahead with its anti-dumping investigations, culminating in the tariffs announced on Tuesday.
China’s decision to target European brandy, specifically from France, carries both economic and symbolic weight. France is the largest supplier of premium brandy to China, and its luxury spirits industry stands to lose the most from the new tariffs. The move also highlights the intricacy of global trade disputes, where economic powerhouses use leverage across different industries to gain advantage in negotiations.
China had first initiated an anti-dumping probe into European brandy in January of this year, shortly after the EU announced its investigation into Chinese EV subsidies. At the time, many saw this as a preemptive move by China to counter potential European actions, with brandy becoming a pawn in the larger trade chessboard.
In August, China announced that its preliminary investigation had found evidence of dumping by European spirits producers, but it refrained from levying tariffs at that time. Now, with the EU finalizing its own tariff measures on Chinese electric vehicles, Beijing has decided to escalate the brandy probe into concrete action, adding a new dimension to the trade conflict.
The escalating trade dispute between China and the EU comes at a time when both economies are grappling with significant challenges. For China, the automotive sector is a key driver of economic growth, with its electric vehicle industry leading the charge toward becoming a global powerhouse in green technology. The EU, on the other hand, is trying to protect its domestic carmakers from being overwhelmed by a flood of Chinese imports.
At the heart of this trade dispute are two conflicting goals: Europe’s desire to protect its industries from what it perceives as unfair competition, and China’s ambition to solidify its position as a global leader in the electric vehicle market. While both sides have valid economic interests, the stakes are high, with billions of euros and yuan on the line in sectors ranging from automobiles to luxury goods.
The current conflict could have far-reaching consequences for the global economy, particularly if it escalates into a broader trade war. A prolonged dispute could disrupt supply chains, raise prices for consumers, and reduce trade between two of the world’s largest economies. The automotive and luxury goods sectors are particularly vulnerable, given their reliance on cross-border trade and consumer demand in key markets like China and the EU.
As talks between China and the EU continue, both sides will be keen to avoid an all-out trade war. However, with tariffs now looming on both sides, the possibility of a negotiated solution is becoming increasingly difficult. China’s latest move, targeting both the automotive and spirits industries, indicates that Beijing is willing to push back hard against European actions, even at the risk of further escalation.
For European automakers and brandy producers, the next few weeks will be critical. The European Commission must finalize its decision on Chinese EV tariffs by the end of the month, and any change in policy will likely depend on the outcome of ongoing negotiations. For now, businesses on both sides are bracing for further turbulence, as the trade dispute between China and the EU shows no signs of easing.
As the situation evolves, the global economic landscape may shift, with ripple effects felt across industries and continents. Whether through negotiation or further escalation, the China-EU trade spat will undoubtedly be a defining issue in the months to come.
