The Chinese government has announced temporary anti-dumping measures on brandy imported from the European Union in retaliation for the EU imposing tariffs on Chinese electric vehicles. Investors are concerned that luxury goods such as Hermès handbags and Dior high heels could be the next retaliatory targets by Beijing, but analysts suggest that it is unlikely for the Chinese authorities to take such actions.
On Tuesday, Beijing declared that it would impose temporary anti-dumping duties on brandy imported from the EU. Patrice Nordey, CEO of the Shanghai-based consulting firm Trajectry, stated that this move reflects Beijing’s response to the tariffs on electric vehicles. He mentioned that while retaliating against the EU could escalate the trade war, it is unlikely to target luxury goods.
So far, China has imposed anti-dumping measures on brandy, pork, and dairy products from the EU in response to the higher tariffs imposed by the EU on cheap Chinese electric cars flooding the market. These products are crucial industries for France, which advocated for the tariffs on Chinese electric vehicles.
With China’s economy facing challenges, the European luxury goods sector has been experiencing the impact of subdued consumer sentiment in China. The lack of expected stimulus policies announced during a press conference by the National Development and Reform Commission on Tuesday led to a simultaneous drop in Chinese stock prices. In Europe, luxury brands and other Chinese risk asset prices experienced significant declines that day.
Stock prices of companies like LVMH, which sells high-end cognac Hennessy, as well as Hermès, Kering, Ferragamo, and Burberry, dropped by 2% to 6%. Concerns among investors about potential retaliation against luxury brands by China were seen as one of the reasons for the stock market decline.
Jacques Roizen, General Manager of the China Consulting Division at Digital Luxury Group, mentioned that Beijing aims to retain luxury consumption within the country rather than seeing the money flow overseas. He highlighted that retaliating against luxury goods would contradict Beijing’s policies and could lead to price increases for luxury brands in China, potentially driving Chinese consumers to purchase luxury goods abroad.
Despite a slowdown in sales, French brandy exports to China reached $1.7 billion last year, representing 99% of China’s total imports of liquor and €11 billion ($12 billion) worth of European luxury goods were imported by China during the same period.
According to Albert Hu, an economics professor at the China Europe International Business School in Shanghai, the sheer scale of the luxury goods industry makes it unlikely to be a prime target for Beijing’s retaliatory actions given the current circumstances. He emphasized that neither the EU nor China wish to engage in a full-blown trade war due to the economic harm it could cause and indicated that Beijing has been cautious in selecting retaliation targets, demonstrating a desire to continue negotiations with Brussels.
Moreover, the nature of the luxury goods industry itself makes it challenging for China to present a “reasonable” anti-dumping argument. Jelena Sokolova, a senior stock analyst at Morningstar, suggested that logically, labeling a $2,000 handbag as “dumping” would be difficult to substantiate.