EUROPEAN Commission president Ursula von der Leyen and Chinese Premier Li Qiang raised their respective electric vehicle (EV) and liquor investigations during a meeting in Davos on Tuesday (Jan 16), underscoring concern that the new probes risk triggering a broader trade conflict.

Even though they broached the issue, there was no further discussion on either investigation, according to a source familiar with the meeting.

China announced an anti-dumping investigation into imports of brandy and some other wine-based spirits this month, a move seen as retaliation for the EU’s probe into Chinese EV subsidies. Diplomatic ties have already been strained, with the EU criticising Beijing for its failure to condemn Russia’s war in Ukraine and its reluctance to crackdown on Moscow’s attempts to get around Western sanctions. The bloc has also called the trade relationship “imbalanced”.  

Following supply disruptions triggered by the pandemic and the Russian invasion, von der Leyen announced last year an effort to “de-risk” from China, reducing dependencies in industries such as pharmaceuticals, electronics and defence. Beijing has said that would amount to a European decoupling since such a move would discourage Chinese investments in critical domestic infrastructure.

A commission spokesperson declined to comment on whether the probes were discussed, pointing to a statement von der Leyen made after the meeting. A message left with China’s delegation in Davos was not immediately returned. China’s Ministry of Foreign Affairs said that Li called on the EU to be “careful” about imposing trade restrictions and trade remedy measures.

China’s investigation into EU liquor and brandy is the first major public action the country has taken directed at Europe after the EV probe was announced, and is similar to one announced into Australian wine in 2020, when relations with the country deteriorated. China eventually imposed tariffs that ended that lucrative trade, and is only now looking to remove them.

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Companies that do not cooperate with China’s probe would likely face higher tariffs, Bloomberg previously reported. The owner of Hennessy Cognac, LVMH Moet Hennessy Louis Vuitton, is cooperating with Chinese authorities and the EU is also preparing its own submission.

The EU’s recent trade actions towards China have extended beyond EVs. Last month, the bloc also opened anti-dumping probes into Chinese biodiesel and melamine exports. In November, Brussels also imposed provisional anti-dumping duties on imports of some plastics products from China.

It is not clear when China might impose any tariffs on brandy but provisional duties could come as early as March, according to another source familiar with the matter, who also spoke on the condition of anonymity. Provisional tariffs on EVs could come as early as June.

The EU’s trade deficit with China grew to more than US$400 billion last year. European luxury brands or cosmetics companies could be vulnerable if there were to be retaliation, and China is already a huge and growing market for European luxury brands such as L’Oreal and LVMH. The French finance minister pushed for more exports when he visited Beijing in mid-2023.

The vast majority of the spirits covered by the Chinese investigation come from France, which was seen as leading the push for the EU’s investigation.

The EU and China could also discuss the dispute at other meetings, including at the World Trade Organization ministerial meeting next month, according to a source familiar with the plans. BLOOMBERG