China’s EU reply cuts odds of damaging tit-for-tat
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Yawen Chen
LONDON, Oct 8 (Reuters Breakingviews) -Judging from China’s reaction to Europe’s electric-vehicle (EV) tariffs, Beijing’s trade bureaucrats haven’t fully gotten going yet after last week’s National Holiday. Several days have passed since the European Commission said on Friday that it had received enough support to slap tariffs of up to 45% on imports of Chinese-made EVs. Yet the response from Beijing was well-flagged and relatively muted, including temporary duties on European brandy and probes into a few other products. French cognac makers like Rémy Cointreau RCOP.PA will suffer, but the chances of a spiralling tit-for-tat seem lower.
China’s commerce ministry on Tuesday outlined its response to Europe’s EV move. The immediate reply involves applying a so-called security deposit of between 31% and 39% on brandy imported from the European Union, which effectively amounts to a tariff. Beijing added that previously announced anti-dumping probes on pork products and dairy are ongoing. The Middle Kingdom is also mulling duties on large fuel vehicles, which could mean pricey German sports cars from manufacturers like Porsche.
These measures were already telegraphed, and hardly radical. The common thread is that the penalised imports are either dispensable to ordinary Chinese citizens or easily replaceable. Take brandy. Rémy Cointreau’s Louis XIII brand, whose "standard" bottle costs around $4,350 according to Bernstein analysts, mostly appeals to the super-rich.
On the agricultural side, China imports nearly 30% of its dairy products from European countries such as Germany, Poland, and France, but the People’s Republic could relatively easily switch to New Zealand-made alternatives. Some domestically produced products like pork are already facing weak demand. The implication is that Beijing is only willing to countenance measures that involve minimal Chinese economic pain at home.
That may be because China sees room for further talks, perhaps encouraged by divisions within Europe. Neither Germany nor Spain voted for the EV duties, for example, perhaps explaining why the brandy move mostly hits the French. A statement from the commerce ministry on Friday referred to the EU’s “political will” to resolve the tension through negotiations.
Another explanation is that President Xi Jinping’s more radical possible countermeasures are tricky. In theory, China could cut big-ticket orders from Airbus AIR.PA, eating into the $9 billion of imports of European aircraft, spacecraft and parts annually, based on 2023 data. But given that the only alternative would be to buy planes from U.S. group Boeing BA.N, that looks unlikely. Another option would be to hammer European luxury companies like LVMH LVMH.PA and Kering PRTP.PA, who depend heavily on China. But Beijing hasn’t mentioned that idea yet, which might also run against its attempts to get the economy moving. The upshot, for now, seems relatively hopeful. Xi and China are escalating but keeping the off-ramp firmly in place.
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CONTEXT NEWS
China will impose provisional anti-dumping measures on brandy imports from the European Union, the country’s commerce ministry said on Oct. 8.
The measures will comprise a mandated security deposit ranging from 30.6% to 39% of a product’s import value, the statement said without specifying how the payments would work.
The penalties will vary depending on the brand and will apply from Oct. 11.
China is also carrying out investigations of EU pork and dairy, as well as studying measures such as raising tariffs on imported large fuel vehicles, the statement added.
China said on Oct. 4 that it firmly opposed the EU’s final draft ruling on electric-vehicle tariffs on imports from the People’s Republic. But the Middle Kingdom also noted the political will expressed by the European side to continue to resolve the issue through negotiations.
European cognac makers underperform luxury peers https://reut.rs/3BE8p7R
Editing by Liam Proud and Streisand Neto
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