(Bloomberg) — The European Union’s decision to impose tariffs on Chinese electric vehicles has moved the focus to how and when Beijing will retaliate for the escalation in its biggest trade dispute with the bloc in years.
Most Read from Bloomberg
While talks continue, crucial clues may lie in the votes cast by individual EU member states on the EV measures last week. Beijing has previously threatened tariffs on EU brandy imports and launched investigations into pork and dairy products in response to the tariffs — offering a range of options that affect different parts of Europe.
“Those that voted ‘yes’ will certainly be less favorably viewed by Chinese investors,” said Deborah Elms, head of trade policy at the Hinrich Foundation, an Asian-based nonprofit organization that works to advance sustainable global trade.
EU countries voted on Friday to impose the tariffs, with 10 member states in favor, five against and 12 abstaining. The Chinese Ministry of Commerce said the tariffs will rattle the confidence of Chinese enterprises investing in Europe. It pledged to “take all measures” to safeguard the interests of its companies, according to a statement Friday after the vote.
Elms expects additional scrutiny for key sectors like pork and dairy. “Those countries that voted ‘no’ could be receiving more investment as well as potentially avoid or limit challenges to investment operations within China,” she said on Monday.
Pork, Dairy
Pork is likely one of the sectors most vulnerable to China’s response. Beijing has initiated an anti-dumping probe into EU pork imports. Should that lead to tariffs, the impact will be concentrated on major suppliers like Spain — which abstained from the vote — as well as Denmark and the Netherlands, which supported the EV decision.
Dairy is also at risk, with the Netherlands, France and Ireland among key EU suppliers to China.
French cognac producers will be keeping a close eye on how the situation unfolds. Beijing’s probe into brandy from the EU concluded in August that dumping had occurred but chose not to impose provisional duties in a move seen as an effort to de-escalate trade tensions with Europe.
China had hinted that imported cars with large engines could be another target for Beijing’s retaliation. If tariffs were imposed only on European exporters, it would mostly hit Germany and Slovakia, though both countries voted against the EV tariffs.
In a sign German automakers are getting worried, Volkswagen AG Chief Executive Officer Oliver Blume flagged the threat of possible retaliation from Beijing after the tariff vote, saying potential tariffs on German cars would be a blow to the industry and affect brands including Audi, Porsche or Lamborghini.
Brussels and Beijing will keep negotiating to find an alternative to the tariffs. Both parties are exploring whether a deal can be reached on a mechanism to control export prices and volumes in place of the duties.
Elms said China will offer carrots and continue to wield sticks as those talks continue.
Beijing has warned that EU will lose investment from Chinese EV companies and the opportunity to transform its own car industry if the tariffs are adopted. State media urged Europe to show its “sincerity” as both parties hold a new round of negotiations on Oct. 7.
“At this point, I’d say the possibility of reaching some agreement would be rather low,” said Henry Gao, a law professor at Singapore Management University who researches Chinese trade and policies. “If the talks fail, then I won’t be surprised if there are major tit-for-tat retaliations from China.”
–With assistance from Jasmine Ng.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.
