China retaliates against EU tariffs with brandy tax

China has hit back at the European Union by imposing new taxes on imports of European brandy, a move seen as a response to the EU’s recent imposition of heavy tariffs on Chinese-made electric cars.

China’s Ministry of Commerce described the tax as an “anti-dumping” measure aimed at protecting domestic producers from significant damage caused by European imports.

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

The new tariffs will have a particularly harsh impact on France, which accounts for 99% of the brandy exported to China. Major French brands such as Hennessy and Remy Martin are expected to be severely affected by the move, with industry experts warning of “catastrophic” consequences. French cognac lobby group BNIC urged French authorities and the European Union to intervene, noting that brandy producers are caught in the middle of a dispute that has nothing to do with their industry.

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

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