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The Ministry of Commerce announced that Beijing is considering raising duties on gasoline cars with larger engines, as stated in a release on Tuesday. This announcement coincided with the declaration that importers of EU brandy will be required to pay a deposit of up to 39% starting October 11. Consequently, shares of European companies have experienced a decline.
This move against European automotive and brandy exporters follows the EU's recent decision to implement tariffs as high as 45% on Chinese electric vehicle imports for a duration of five years. Ongoing discussions between the two parties may indicate that China is attempting to exert pressure on Brussels to seek alternatives to these tariffs.
Trade tensions have increasingly strained relations between China and the EU in recent years. Both parties are likely to aim to avoid a trade war, particularly with the upcoming US elections, which could introduce additional global uncertainties.
The potential for new Chinese tariffs on vehicles and other goods could further impact European companies already facing challenges due to a slowdown in the largest economy in Asia.
The European Union plans to contest China's brandy regulations at the World Trade Organization, as stated by the European Commission. Olaf Gill, a spokesperson for the commission, remarked, "We consider these measures to be baseless, and we are committed to protecting EU industries from the misuse of trade defense mechanisms."
Meanwhile, Chinese authorities are facing domestic challenges as they strive to meet their growth objectives for 2024. Last month, Beijing announced interest rate reductions and committed up to $340 billion to bolster the stock market, yet refrained from implementing additional stimulus measures on Tuesday.
Shares of European automotive and beverage companies experienced significant declines, especially those heavily reliant on the Chinese market. BMW AG's stock fell by over 3%, while Mercedes-Benz Group AG saw a decrease of approximately 2%. French distiller Remy Cointreau SA plummeted by as much as 9.3%, and Pernod Ricard SA dropped by 4.6%.
The European Commission is expected to release the final findings of its electric vehicle investigation by the end of this month, after which tariffs will be imposed. Chinese state media and trade organizations have suggested that Beijing might respond to EU actions by increasing tariffs on car imports, marking the first official acknowledgment from the ministry.
Paolo Gentiloni, the EU's economy chief, expressed that he is not concerned about the potential for retaliatory tariff increases.
“We had a serious investigation concerning risks of overproduction in some sectors,” Gentiloni told reporters in Luxembourg. “We took appropriate and very proportional decisions and I don’t think there’s any reason to react to these proportionate decisions with retaliation.”
Germany and Slovakia, both of which opposed the tariffs, stand to be significantly affected if China decides to implement tariffs on car imports. Oliver Blume, the Chief Executive Officer of Volkswagen AG, has indicated that potential Chinese tariffs pose a considerable threat to the German automotive sector, suggesting that the company would encounter substantial challenges in the Chinese marketplace.
Regarding brandy, the majority of China's imports originate from France, a country that supported the tariffs on Chinese automobiles. The ministry's announcement specifically referenced European spirits manufacturers, including Remy Cointreau and Pernod Ricard, among others.
In January of this year, China initiated an anti-dumping investigation into European brandy following the commencement of the EU's inquiry into its electric vehicle subsidies. In August, China reported preliminary findings of dumping by European spirits producers but refrained from imposing tariffs at that time.
China's brandy market is relatively modest, with the country importing nearly $1.8 billion worth of spirits derived from distilled grape wine last year, over 99% of which came from France.
The EU has expressed disapproval of China's investigation into brandy and other products. European trade chief Valdis Dombrovskis conveyed to Chinese Commerce Minister Wang Wentao last month that these actions are "unwarranted, based on questionable allegations, and lack sufficient evidence." Dombrovskis urged China to cease these investigations, asserting that Europe would "do its utmost to defend the interests of its industries."