China retaliates against EU tariffs with brandy tax

China has hit back at the European Union with new taxes on European brandy imports, a move seen as retaliation for the EU’s recent imposition of steep tariffs on Chinese-made electric vehicles.

The Chinese commerce ministry has described the tax as an “anti-dumping” measure designed to protect domestic producers from significant harm caused by European imports.

The European Commission has vowed to challenge the new taxes at the World Trade Organization (WTO), calling the move an “abuse” of trade defence measures. French Trade Minister Sophie Primas characterised the brandy tax as retaliatory, calling it “unacceptable” and a breach of international trade rules.

The new tariffs will have a particularly harsh impact on France, which accounts for 99% of brandy exported to China. Major French brands like Hennessy and Remy Martin are expected to be hit hard by the move, with industry experts warning of “catastrophic” consequences. The French cognac lobby group BNIC urged French authorities and the EU to intervene, stating that brandy producers are caught in the middle of a dispute unrelated to their industry.

Shares of luxury brands involved in the production of brandy tumbled after the announcement. LVMH, which produces Hennessy, saw a drop of over 3%, while Remy Cointreau, the company behind Remy Martin, fell more than 8%. Analysts have warned that the tariffs could result in a 20% price increase for Chinese consumers, leading to a potential 20% decline in sales volumes and revenue for suppliers.

The dispute escalates tensions between the EU and China, following the EU’s decision to impose tariffs of up to 35% on Chinese electric vehicles. In response, China has signaled it is considering further tariffs on other European products, including cars, pork, and dairy. Shares in German carmakers, including Volkswagen, Porsche, Mercedes-Benz, and BMW, also fell amid concerns that they may be targeted next.