China is studying an increase in tariffs on European vehicles with large engines and will start collecting taxes on cognac, after the European Union decided to impose tariffs on Chinese electric vehicles.
The Chinese Ministry of Commerce reported that Beijing is analyzing the possibility of increasing taxes on gasoline cars with large engines. Shortly before, the ministry announced that importers of European cognac will pay a deposit of up to 39% valid from October 11th. Shares of European companies fell after the announcement.
The measures against European car and cognac exporters follow the EU’s decision last week to impose tariffs of up to 45% on imported Chinese electric vehicles, valid for five years. Negotiations between the two parties continue, and Beijing’s announcements could be an attempt to pressure Brussels to seek an alternative to tariffs.
Trade tensions have put pressure on relations between China and the EU in recent years. A trade war could harm both parties, especially with the US election approaching, which brings more global uncertainty. The prospect of new Chinese tariffs on cars and other products would further affect European companies, already impacted by the slowdown in the Chinese economy.
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The EU will challenge Chinese measures on cognac at the World Trade Organization, according to a statement from the European Commission. “We believe these measures are unfounded and we are determined to defend European industry against the abuse of trade defense instruments,” said Olaf Gill, Commission spokesperson.
Chinese policymakers also face domestic pressure to meet 2024 growth targets. Last month, Beijing announced interest rate cuts and pledged up to $340 billion to support the stock market, but refrained from launching new stimulus. on Tuesday.
Shares of European car and beverage manufacturers plunged, especially those most exposed to the Chinese market. Shares in BMW AG fell more than 3%, while Mercedes-Benz Group AG fell around 2%. French group Remy Cointreau SA fell as much as 9.3%, while Hennessy Cognac owner LVMH Moët Hennessy Louis Vuitton SE fell 6.8% and Pernod Ricard SA fell 4.6%.
France’s cognac industry association, BNIC, stated that “France cannot abandon us and leave us to face Chinese reprisals alone, which do not concern us directly.” According to BNIC, “the impact of these fees would be catastrophic for our industries and regions”.
The European Commission is expected to publish the final results of its investigation into electric vehicles by the end of this month, at which point the tariffs would come into effect. Chinese state media and trade associations have previously suggested that Beijing could raise tariffs on car imports in response to the EU measures, and this is the first official sign of confirmation from the ministry.
Paolo Gentiloni, the EU’s economics chief, said he was not worried about an escalation of retaliatory tariffs. “We have carried out a serious investigation into the risks of overproduction in some sectors,” Gentiloni told reporters in Luxembourg. “We made appropriate and proportionate decisions, and I don’t think there is any reason for retaliatory reactions.”
Germany and Slovakia, which voted against the tariffs, would be the countries most impacted if China imposes duties on automobiles. Volkswagen AG CEO Oliver Blume warned that Chinese tariffs could be particularly damaging to the German car industry, exposing the company to major disadvantages in the Chinese market.
In the case of cognac, the majority of Chinese imports come from France, which voted in favor of tariffs on Chinese cars. The Chinese ministry’s statement specifically mentioned European beverage makers controlled by Remy Cointreau and Pernod Ricard, among others.
In January this year, China opened an anti-dumping investigation into European cognac, shortly after the EU opened an investigation into subsidies for Chinese electric vehicles. In August, the Chinese government reported finding preliminary evidence of dumping by European spirits producers, but chose not to apply tariffs at that time.
China’s brandy industry is relatively small, with the country importing almost $1.8 billion worth of grape spirits last year, with more than 99% coming from France.
The EU has criticized China’s investigation into the cognac and other products, with European trade chief Valdis Dombrovskis telling Chinese trade minister Wang Wentao last month that the investigations were “baseless, based on questionable allegations and lacking evidence enough.” Dombrovskis called for the closure of these investigations and stated that Europe “will do everything possible to defend the interests of its industries.”
