China has hit back at the European Union with new taxes on imports of European brandy, a move seen as retaliation for the EU’s recent imposition of high tariffs on Chinese-made electric vehicles.
China’s Ministry of Commerce has described the tax as an “anti-dumping measure” aimed at protecting domestic producers from significant damage caused by European imports.
The European Commission has pledged to challenge the new taxes at the World Trade Organization (WTO), calling the move an “abuse” of trade defense measures. French Trade Minister Sophie Primas characterized the brandy tax as retaliatory, calling it “unacceptable” and a violation of international trade rules.
The new tariffs will have a particularly heavy impact on France, which is responsible for 99% of cognac exported to China. Major French brands such as Hennessy and Remy Martin are expected to be hit hard by the measure, with industry experts warning of “catastrophic” consequences. French cognac lobby group BNIC urged French authorities and the EU to intervene, saying brandy producers are in the middle of a dispute unrelated to their sector.
Shares of luxury brands involved in cognac production plummeted after the announcement. LVMH, producer of Hennessy, saw a decline of more than 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% drop in sales volumes and revenues 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 indicated it is considering further tariffs on other European products, including cars, pork and dairy products. Shares of German automakers including Volkswagen, Porsche, Mercedes-Benz and BMW also fell on concerns they could be the next target.