China to Penalize European Brandy Imports, Striking Back at Car Tariffs

Beijing’s action came days after European nations moved toward tariffs on electric vehicles from China, and it included a threat to also hit pork and car imports.

Raising the stakes in a trade dispute with the European Union, the Chinese government said on Tuesday it would impose temporary penalties on brandy from Europe and was mulling broader tariffs on European goods.

China’s Ministry of Commerce issued the brandy measures after member countries of the European Union voted last Friday to proceed with anti-subsidy tariffs on electric cars from China. The ministry said that brandy importers would temporarily be required to post deposits of up to 39 percent on the wholesale value of shipments to China.

The deposits would then be forfeited and become tariffs if China eventually makes the measures permanent. The ministry accused European brandy producers of hurting Chinese producers by dumping brandy at unfairly low prices in the Chinese market.

The action produced an immediate slump in the stocks of big European brandy makers like LVMH, the corporate parent of Moët Hennessy, whose shares fell nearly 4 percent.

The European Commission said in a statement on Tuesday that it would challenge China’s measures on imports of European brandy at the World Trade Organization, which forbids trade retaliation without obtaining the group’s permission. China’s Ministry of Commerce avoided linking its action on brandy to the European Union’s move on electric cars.

“The E.U. takes with utmost seriousness any unfair use of trade defense instruments against any sector of our economy,” the statement said. “Abuse of trade defense for inappropriate reasons is a clear breach of W.T.O. rules.” The commission also said that it would look for ways to support European producers affected by China’s penalties.

European officials have dismissed the dumping accusation as unfounded, pointing out that brandy is often much more expensive in China than in Europe. Spirits Europe, a European trade association, strongly criticized the Chinese action on Tuesday as a “significant additional financial burden,” while calling for negotiations between Brussels and Beijing.

China’s Ministry of Commerce also said that it was mulling whether to impose tariffs on European pork and dairy products, as well as gasoline-powered cars with large engines. Such taxes could hurt big pork exporters like Spain and the Netherlands, as well as Ireland, a leading dairy exporter. The car tariffs could hit Germany, which was outvoted last Friday when it opposed the European Union’s electric car tariffs.

France had led the push over the past year for the electric car tariffs, and almost all the brandy imports penalized by China on Tuesday come from France. The Chinese ministry announced its brandy action within hours of reopening after a weeklong national holiday. It also chose deposit percentages that nearly matched the tariff percentages that the European Union plans to impose on Chinese electric cars.

Trade tensions have been building rapidly between Europe and China this year. European nations have objected to China’s tilt toward Russia during the war in Ukraine and have expressed concern about their wide trade deficits with China.

Five E.U. countries, including Germany and Hungary, voted against the electric vehicle tariffs, with some expressing concern that the tariffs would lead to retaliatory actions.

“If we’re going to have protective taxes on imports, then we have to look at what the consequences of that will be,” said Prime Minister Viktor Orban of Hungary, speaking at a news conference at the European Parliament on Tuesday.

A senior European diplomat, speaking on the condition of anonymity because of the sensitivity of the issue, expected China to have a limited appetite to launch an all-out trade war with Europe. Beijing has concerns about China’s sluggish economy and about U.S. markets becoming more closed to Chinese goods, the diplomat said. But under pressure to take some action, China’s move to target specific sectors, like brandy, seemed like the most obvious path forward, the diplomat said.

European and Chinese officials have said they are continuing to work on an agreement that would address European officials’ concerns about what they say are unfair advantages enjoyed by automakers in China.

China’s Ministry of Commerce said separately on Tuesday that it had asked the W.T.O. to review Turkey’s recent imposition of 40 percent tariffs on electric cars from China. Turkey has begun moving to exempt electric vehicle imports by companies that set up factories in the country — something that BYD, China’s largest maker of electric cars, has pledged to do.