EU-China Trade Tensions: Wine Industry Faces Uncertain Future Amid Retaliatory Tariffs

The European Union's decision to impose tariffs on Chinese electric vehicles could provoke significant retaliation from China, directly impacting European wine exports.

With China lifting tariffs on Australian wine, European wineries face substantial financial losses and market disruption.

The European Union (EU) has recently announced provisional plans to impose tariffs of up to 38.1% on Chinese electric vehicles (EVs). This move aims to curb the influx of significantly cheaper Chinese EVs, which threaten the competitiveness of European-made electric cars. The decision has sparked fears of retaliation from China, potentially escalating into a broader trade war that could impact various European sectors, including pork, dairy products, brandy, wine, and luxury goods. 

EU's Tariffs on Chinese EVs

The EU's decision stems from concerns that Chinese automakers benefit from substantial government subsidies, enabling them to undercut European competitors. Key Chinese automakers like Geely, BYD, and SAIC could face tariffs ranging from 17.4% to 38.1%. Other Chinese EV producers could also see tariffs between 21% and 38.1%, depending on their cooperation with EU investigations.

The tariffs, expected to match the level of Chinese government subsidies, are set to take effect from July 4, pending the conclusion of discussions with Chinese authorities. The EU's move underscores its commitment to protecting its automotive industry from what it perceives as unfair competition. 

Potential Chinese Retaliation

China has responded strongly to the EU's tariff announcement, labeling it as protectionism and vowing to defend its interests. Chinese foreign ministry spokesperson Lin Jian urged the EU to reconsider its stance and resolve the issue through dialogue. The prospect of retaliatory tariffs from China looms large, with several European sectors potentially at risk.

1. Brandy and Alcoholic Beverages: China has already initiated an anti-dumping investigation into EU brandy imports, targeting major companies like Pernod Ricard and Remy Cointreau. Should the EU proceed with the EV tariffs, brandy and other alcoholic beverages could face significant duties.
2. Pork and Dairy Products: The EU's food industry is particularly vulnerable, as China has previously used food tariffs as a retaliatory measure. European pork and dairy producers are bracing for potential anti-dumping or anti-subsidy investigations, which could disrupt trade even if ultimately unfounded. The EU was China's second-largest import partner in 2023, with significant imports of dairy products like cream, whey powder, and fresh milk.
3. Wine Industry: Furthermore, China's retaliatory measures directly target European wine. Following the announcement of potential retaliatory tariffs in May, the Chinese government lifted its years-long ban on Australian wine, imposing an import tariff of 0%, compared to the usual 14%. This action suggests that China would not only replace European wine with Australian but also encourage importers to bring in Australian wine by removing all import barriers. For the wine industry, this development is a significant concern. European wineries, particularly those in France, Spain, and Italy, have invested heavily in building their brands in the Chinese market. The sudden imposition of high tariffs could disrupt these efforts and lead to substantial financial losses.
4. Luxury Goods: The EU's luxury sector could also be hit hard. China is a major market for European luxury brands such as LVMH, Gucci, and Prada. With the luxury market already facing post-pandemic challenges due to rising living costs and interest rates, additional tariffs could further dampen demand.

Implications and Strategic Responses

The potential for a full-blown trade war poses significant risks for both the EU and China. For the EU, retaliatory tariffs on critical sectors could lead to economic disruptions and increased costs for consumers. For China, imposing tariffs on European food, wine, and luxury goods could harm its own economy, given the significant import volumes from the EU.

• Alternative Suppliers: Should a trade war escalate, countries like New Zealand and Australia could benefit by filling the gap left by reduced EU exports. New Zealand, already China's largest dairy supplier, and Australia could see increased demand for their products. The Australian wine industry, in particular, stands to gain from the recent lifting of tariffs by China.
• Impact on Critical Minerals: China controls a significant portion of the global supply of critical minerals essential for the EU's green transition. Any restriction on these exports, similar to past actions against Japan, could severely impact the EU's efforts to achieve its environmental goals.
• Economic and Political Negotiations: Both the EU and China have strong incentives to avoid a prolonged trade war. Diplomatic efforts and negotiations will be crucial in finding a resolution that addresses the EU's concerns about unfair competition while mitigating the risk of retaliatory measures from China.

Conclusion

The EU's decision to impose tariffs on Chinese electric vehicles marks a significant escalation in trade tensions. While aimed at protecting European industries, it risks triggering a broader trade conflict with China. Key sectors such as pork, dairy, brandy, wine, and luxury goods are particularly vulnerable to Chinese retaliation. The recent lifting of tariffs on Australian wine by China highlights the strategic moves being made in this brewing trade war. The coming months will be critical as both sides navigate these economic and political challenges, seeking to avoid a full-scale trade war that could have far-reaching consequences for global trade dynamics.

Source: EuroNews, Vinetur