Business Maverick

Business Maverick

China hints at retaliation in trade clash with Europe

China hints at retaliation in trade clash with Europe
Pedestrians on the Bund across from commercial buildings in Pudong's Lujiazui Financial District in Shanghai, China, on Monday, April 15, 2024. (Photo: Raul Ariano/Bloomberg)

Beijing has hinted it could retaliate against the European Union in a trade dispute that shows signs of escalating the same way as China’s contest with the US. 

If the EU keeps pursuing investigations into Chinese firms then China will “very likely have to take a series of measures to hit back,” said a post on Yuyuan Tantian, a social media account linked to China’s state media. Beijing has regularly used such channels as a way of signalling its thinking about trade.

The EU is investigating Chinese subsidies across a range of industries, threatening tariffs for electric carmakers and keeping firms out of rail and energy tenders. President Xi Jinping visited Europe this month seeking to dissuade the bloc from going down the same path as the US, which last week announced new charges on some imports from China — raising concerns in Beijing that American allies may follow suit.

The Chinese state-media post didn’t specify any countermeasures, but it quoted a lawyer who noted that the EU relies on China as a buyer of agricultural goods such as wine and dairy, as well as aircraft. The Chinese Chamber of Commerce to the European Union echoed the warning, saying that “European wine and dairy products may find themselves caught in the crossfire.”

Chinese action in such areas would likely have a limited economic impact to start with, as those three industries only comprise about 3% of Chinese imports from Europe in the past year.

Still, if the two sides start tariffing each other or using other means to curb trade and investment, it would increase risks for companies around the world that are already having to deal with the effects of the US-China trade dispute. 

Read more: EU Firms’ Appetite for China Investment Sinks to Record Low

“There’s likely to be a much larger puzzle with many more moving parts,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy in Brussels. For now, China’s signalling via social media and trade groups is “a threat that the government would be able to walk away from” without appearing to back down, he said.

History suggests that food and beverages are at high risk of being targeted in a trade tit-for-tat. China in the past has blocked Australian wine and barley, fruit from the Philippines and salmon from Norway among other cases, citing grounds like food safety or anti-dumping. 

If China moves against European exports, it could open doors for other producers. France is the largest European exporter of wine to China. But China’s wine imports have been shrinking for years, and it recently removed punitive tariffs on Australian wine.

This past weekend, China announced a probe into alleged dumping of chemicals by the EU, as well as the US and others. In January China launched an anti-dumping investigation into EU liquors including cognac – an issue that came up during Xi’s talks in France.

EU leaders say the bloc’s industries are at risk from China’s subsidised production, and don’t enjoy fair access to Chinese markets. Some members have been cautious about responding with tariffs, but European Commission chief Ursula von der Leyen said after meeting Xi that Europe is prepared to deploy all the tools available.

The investigations that have upset Beijing include a probe into EV producers, which could lead to tariffs as early as July, as well as inquiries that led Chinese firms to pull out of tenders to provide solar energy in Romania and trains in Bulgaria.

Europe supports its farmers with tens of billions of euros in subsidies every year, and has sought to keep agriculture apart from broader trade disputes.

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