China Imposes Tariffs on European Brandy

| Image Credits: "Remy Martin XO - Louis XIII - Hennessy Paradis" by Simon Aughton

China has introduced tariffs on imports of European brandy, a decision that France has labeled as retaliation for the European Union's recent imposition of significant tariffs on Chinese electric vehicles.

In addition to the brandy tariffs, China is reportedly considering new tariffs on other EU imports, including cars, pork, and dairy products, claiming that the EU's tariffs on its electric vehicles violate global trade rules.

Starting Friday, October 11, importers of EU brandy will be required to pay a levy of up to 39%, just one week after EU member states approved taxing Chinese electric vehicles.

EU PLANS TO CHALLENGE TARIFFS AT WTO

The European Commission announced plans to challenge China's new tariffs at the World Trade Organization (WTO), denouncing it as an "abuse" of trade defense measures. In contrast, China characterized the tariffs as an "anti-dumping" measure designed to protect its domestic producers. According to China’s commerce ministry, the import of brandy poses a threat of "substantial damage" to its local producers. Consequently, importers will now be required to pay "security deposits" on European brandy.

France accounts for an overwhelming 99% of brandy exports to China, and the French cognac lobby group BNIC warned that the tariffs would be "catastrophic" for the industry. The group urged French authorities to intervene, stating, "The French authorities cannot abandon us and leave us alone to deal with Chinese retaliation that has nothing to do with us," and called for the suspension of the tariffs "before it's too late."

French Government stated that the brandy tariffs appear to be a retaliatory measure following the EU's decision to increase tariffs on Chinese electric cars. She described such retaliation as "unacceptable" and a "total contradiction" of international trade rules, emphasizing that France would collaborate with the European Union to take action at the WTO.

MARKET REACTION

The impact of the Chinese tariffs was immediately felt in the stock market, with luxury brand LVMH, producer of Hennessy, seeing shares fall by over 3%, while Remy Cointreau, maker of Rémy Martin, experienced an 8% drop. Analysts at Jefferies estimated that the tariffs could lead to a 20% price increase for consumers, which would likely result in a significant decline in sales volumes for suppliers.

Shares in German car manufacturers, which could also be affected by potential tariff actions from China, saw declines as well, with Volkswagen, Porsche, Mercedes-Benz, and BMW all reporting lower stock prices following the announcement.

SOURCES/ RECOMMENDED READ: 

• China hits back at EU with brandy tax after electric car tariffs (bbc.com)

• China puts tariffs on EU brandy in escalating trade row with Brussels | China | The Guardian