Amid the ongoing trade dispute between China and the European Union, analysts at Citigroup said in a note this week that China is strategically preparing for potential retaliation while maintaining a cautious stance.
Following the EU’s imposition of temporary tariffs on Chinese electric vehicles on July 4, 2024, China has responded cautiously, focusing on negotiation but also signaling its readiness to retaliate if necessary, according to a recent Citi note.
The bank said China’s initial retaliatory measures include targeted investigations into imports of brandy and pork from the European Union. The Ministry of Commerce announced an anti-dumping investigation into imports of brandy from the European Union, with a particular focus on France, which accounts for 99.3% of China’s brandy imports.
However, Citi says any potential tariffs on brandy are expected to have a limited impact on China’s alcohol market, which has recently resumed imports from Australia after tariffs were lifted in 2021.
Similarly, they point out that an anti-dumping investigation is currently underway into pork imports from the European Union. China, the world’s largest consumer of pork, imported $6.9 billion worth of pork in 2023, 47.9% of which came from the EU.
The investigation is said to target major suppliers such as Spain, the Netherlands, Denmark and France. Despite ample domestic supply and a deflationary consumer price index, any pork tariffs could strengthen China’s hand in negotiations, Citigroup says.
In addition, the bank says China has launched a wide-ranging investigation into EU trade practices and barriers, which affect products such as railway locomotives, photovoltaic energy, wind energy and security equipment.
The investigation, which could last until mid-April 2025, mirrors China’s response to previous EU investigations into Chinese subsidies and market access.
Moreover, the bank believes that China’s strategic patience suggests that it prefers negotiation over escalation. As a large surplus economy, China aims to avoid being cut off from global markets and supply chains.
According to Citigroup, Beijing is likely to make reasonable concessions in trade talks with the EU while maintaining moderate reactions until potential disputes escalate.
In conclusion, Citi believes that China has ample retaliatory options in the trade dispute with the EU, from targeted investigations to broader investigations into trade barriers. However, it feels that its primary focus remains on negotiations, seeking to resolve disputes amicably while being prepared for all eventualities.