China Investigates EU Cars, Slaps Levy On Brandy As Ties Worsen

China is studying raising tariffs on large-engine vehicles and will start collecting duties on brandy from Europe, escalating a trade spat after the European Union decided to impose tariffs on Chinese electric vehicles.

“China is studying measures including raising the tariffs on imported gasoline cars with a large engine capacity,” the Ministry of Commerce said in a statement on Tuesday, adding it will safeguard the rights of its companies. In a separate statement, the ministry said importers of brandy from the EU will have to pay a deposit of as much as 39% of the value of the brandy effective Oct. 11. 

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. 

Shares of European carmakers and brandy companies tumbled. BMW AG shares fell 3%, while Mercedes-Benz Group AG dropped 2.6%. Remy Cointreau SA slumped more than 8%.

The European Commission must publish the final results of its investigation by the end of this month, after which the tariffs would come into effect. Chinese state media 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.

As for brandy, most of China's imports come from France, which voted for the tariffs on Chinese cars. The statement from the ministry specifically mentioned European spirits makers controlled by Remy Cointreau SA and Pernod Ricard SA, among others.

China announced an anti-dumping probe into European brandy in January this year after the start of the EU investigation into its electric vehicle subsidies. The Asian nation said in August that it found evidence of dumping by European spirits producers in a preliminary probe but withheld levying tariffs then.

The EU had criticized China's investigation into brandy and other goods, with European trade chief Valdis Dombrovskis telling Chinese Commerce Minister Wang Wentao last month that they were “unwarranted, are based on questionable allegations, and lack sufficient evidence.”

Dombrovskis had requested that China end these probes and said Europe would “do its utmost to defend the interests of its industries.”