FMT
Beijing Strikes Back
China’s Ministry of Commerce announced the introduction of «temporary anti-dumping measures» on brandy produced in the European Union (EU), starting October 11. According to the statement, a «deposit» of between 30.6% and 39% of the product’s value will be required at customs in China. This follows an ongoing investigation into European liquor imports in China since January 5 this year, which was launched in response to a similar European investigation into Chinese electric vehicles. According to the preliminary findings of the Chinese authorities, brandy exports are being dumped and pose a threat to domestic production.
It is worth noting that these findings were made public in late August, but the Chinese authorities were in no hurry to act. Even now, China is giving the Europeans a chance to negotiate; this is not yet a tariff, but a «security deposit». It is clear, however, that the sanctions on brandy are a response to the EU’s decision on October 4 to impose a four-year tariff of 35% of the value of Chinese electric cars (with an additional 10% for all foreign cars, bringing the total tariff to 45%).
Let us recall that Brussels introduced these tariffs in July on a trial basis, postponing the final decision until October 1. The vote was delayed due to disagreements among some European countries, as well as negotiations led by Chinese Commerce Minister Wang Wentao in Brussels. He tried to persuade EU officials not to start a trade war, arguing that it would benefit no one. But his warnings went unheeded, and now Beijing is beginning to retaliate.
One cannot help but notice the thoughtfulness and precision of China’s actions. The response was neither haphazard nor arbitrary in terms of timing or targeted products. The timing is clear. Now to the choice of product — brandy. First, it’s something the Chinese can certainly live without, given their rapidly developing wine industry, as well as Maotai and other strong liquors grouped under the category of baijiu (white alcohol) in China. Maotai is one of the largest companies in China. Most importantly, over 90% of the $1.7 billion in spirits exports to China is French alcohol. These measures will primarily affect French brands such as Hennessy and Remy Martin. Notably, France was one of the main advocates for raising tariffs on Chinese electric vehicles. It’s clear that President Macron is well aware of Beijing’s retaliation. Especially since China had warned Europe in advance, urging them to reconsider and not to start an exchange of «favors». This raises the question of whether the French president is acting under external pressure, drawing parallels with the situation with Russian gas, whose route to Europe was blocked by certain countries, including Germany, effectively committing economic suicide.
On October 8, France’s National Cognac Bureau declared itself «hostage» to the situation created by the EU’s increased tariffs on Chinese electric vehicles and Beijing’s retaliation. «We urge our government to take the necessary steps to put an end to this escalation», the bureau said in a statement also signed by armagnac producers and the Federation of Wine Exporters. The French federation believes that China’s retaliatory measures will have «disastrous consequences for our industry and our regions». As for the official response from Paris, so far the French Trade Minister has promised to work with the EU to take action at the World Trade Organization (WTO) level. Let’s see what else they come up with.
Meanwhile, on October 8, China’s Ministry of Commerce announced that Beijing was also considering measures to raise tariffs on imports of large combustion engine vehicles. In other words, the situation won’t end with French alcohol. Next in line is European pork, the lion’s share of which (over $1 billion) comes from Spain, a country that tactfully abstained from voting on the anti-Chinese tariffs. Next, European cars are in the crosshairs, most of them German. And the amount at stake is significant — $1.2 billion a year.
It’s no coincidence that Germany was among the countries that voted against tariffs on Chinese electric vehicles on October 4, as Bonn fears retaliation. German authorities heeded the pleas of Mercedes, BMW and Volkswagen, which derive more than 25% of their overseas profits from the Chinese market and are strongly opposed to a trade war. BMW CEO Oliver Zipse called the EU vote a «fatal signal for the European automotive industry» and stressed the need for a quick solution through negotiations between the European Commission and China to avoid a trade conflict in which there will be no winners.
German Chancellor Olaf Scholz said on the eve of the vote that pushing foreign products out of the market and narrowing the circle of trading partners was the wrong approach. «More trade with more partners from more countries — that is sensible risk management in an unstable world», he said.
It is worth recalling that over the past year, most European leaders have either visited Beijing or hosted Chinese President Xi Jinping. Each of them individually advocated free trade and dispute settlement, hoping to secure favorable terms for their country from China. However, as we can see, decisions made at the EU level run counter to these efforts and are unlikely to be in line with the national interests of EU member states. This raises questions about the lack of autonomy of European countries on the most sensitive issues. The parallels with the EU’s policy towards Russia are more than apt.
So what now? It seems that we are facing a serious conflict and systemic contradictions that are unlikely to be resolved by simply lifting tariffs. Hungarian Prime Minister Viktor Orbán has said that the EU is heading for an «economic cold war» with China. According to Orbán, goods produced in the EU will struggle to find buyers on the global market «if the world ends up being divided into two blocs». China, as has been reiterated at various levels, will continue to try to resolve issues peacefully and avoid a trade war. After all, according to Chinese customs data, the European Union is China’s second largest trading partner after ASEAN. No one in China wants to destroy this business, which is worth hundreds of billions of euros. But Beijing is also unwilling to follow the lead of EU bureaucrats. So it is likely that individual EU countries will have to dig into their pockets to compensate for the lost profits of Chinese carmakers due to the increased tariffs. The next steps will depend on the European response. But if a full-blown trade war breaks out, it won’t be easy for Europe. Not only could the giants of the European auto industry collapse, but other sectors of European industry, already struggling after the split with Russia, could also be at risk.
Some European leaders justify their actions by saying they are protecting the single market and ensuring a level playing field for domestic and foreign producers. But behind all this is the U.S. strategy of «containing China» and slowing its technological development.