China Targets EU Cars, Brandy in Retaliation Over EV Tariffs

(Bloomberg) --

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China is investigating whether to raise tariffs on European large-engine vehicles and will start collecting levies on brandy, escalating a trade spat after the European Union decided to impose tariffs on Chinese electric vehicles.

The Ministry of Commerce said Beijing is looking into increasing duties on imported gasoline cars with a large engine, according to a statement Tuesday, shortly after it announced that importers of EU brandy will have to pay a deposit of as much as 39% from Oct. 11. Shares of European firms slumped.

The action against European car and brandy exporters comes after the EU decided last week to impose tariffs of as high as 45% on imports of Chinese electric vehicles for five years. Talks between the two parties are continuing, and the Chinese announcements may represent an attempt by Beijing to put pressure on Brussels to find an alternative to the tariffs.

Trade tensions have strained China-EU ties in recent years. Both sides would seek to avoid a trade war, especially with the US election looming, which could bring more uncertainty across the world. The prospect of new Chinese tariffs on cars and other products would further hurt European firms already grappling with a slowdown in Asia’s largest economy.

The EU will challenge the Chinese measures on brandy at the World Trade Organization, according to a statement from the European Commission. “We believe that these measures are unfounded, and we are determined to defend EU industry against abuse of trade defence instruments,” Olaf Gill, a commission spokesman, said in the statement.

Chinese policymakers are also under pressure on the domestic front as they battle to reach their growth targets for 2024. Beijing last month announced interest rate cuts and pledged as much as $340 billion to support the stock market, but held back from unleashing more stimulus on Tuesday.

Shares of European carmakers and beverage firms tumbled, particularly those with high exposure to China. BMW AG shares fell more than 3%, while Mercedes-Benz Group AG dropped about 2%. French distiller Remy Cointreau SA sank as much as 9.3% and Pernod Ricard SA dropped 4.6%.

The European Commission must publish the final results of its EV investigation by the end of this month, after which the tariffs would come into effect. Chinese state media and trade groups had hinted that Beijing could raise tariffs on car imports in response to EU moves, and this is the first official confirmation by the ministry.