China has implemented import taxes on European brandy, a move that France believes is in retaliation for the European Union’s recent imposition of heavy tariffs on Chinese electric vehicles.
The European Commission announced plans to challenge China’s decision at the World Trade Organization (WTO), describing it as a misuse of trade defense mechanisms. However, China defended the tax as an “anti-dumping” measure aimed at protecting its local industry.
French brandy producers, including major brands like Hennessy and Remy Martin, have warned that the new duties could have a devastating impact on their business. Shares in brandy companies fell sharply following the announcement.
The decision comes shortly after the EU approved significant tariffs on Chinese-manufactured electric vehicles. In response, China’s commerce ministry stated that brandy imports pose a threat of “substantial damage” to its domestic producers, and as a result, importers will now be required to pay “security deposits” on European brandy.
Additionally, China is evaluating potential tariffs on other EU goods, including cars, pork, and dairy products, arguing that the EU’s actions on Chinese electric vehicles violate global trade regulations.
French Trade Minister Sophie Primas described the brandy tax as a possible retaliatory response to the EU’s tariff measures on Chinese electric vehicles. She called such a response “unacceptable” and a “complete contradiction” of international trade norms, adding that France would cooperate with the EU to pursue the matter through the WTO.
France is responsible for 99% of brandy exports to China, and the French cognac lobby group BNIC has warned that the new tax would be “catastrophic” for the industry. They urged French authorities to intervene, stating, “The French authorities cannot leave us to face this Chinese retaliation alone.”
Following the Chinese announcement, shares of spirits-producing companies took a hit. LVMH, which owns Hennessy, dropped more than 3%, while Remy Cointreau, producer of Remy Martin, saw an over 8% decline.
Analysts at Jefferies project that the tariffs could result in a 20% price increase for consumers, potentially leading to a 20% decline in sales volumes and supplier revenue.
German automakers, which could also be targeted by China’s potential tariffs, saw a similar drop. Shares in Volkswagen, Porsche, Mercedes-Benz, and BMW all fell in response to the news.
