China Strategically Prepares for Potential Retaliation in Ongoing Trade Dispute with EU, Says Citi Analysts
In the latest development of the trade dispute between China and the European Union (EU), experts at Citi have noted that China is tactically gearing up for potential retaliation while maintaining a cautious approach.
After the EU imposed provisional tariffs on Chinese electric vehicles (EVs) on July 4, 2024, China has responded with a focus on negotiation while also indicating readiness to retaliate if necessary, according to a recent Citi report.
The bank revealed that China's initial retaliatory actions include targeted investigations into brandy and pork imports from the EU. The Ministry of Commerce (MofCom) has launched an anti-dumping investigation into brandy imports from the EU, with a specific emphasis on France, which dominates China's brandy imports.
Despite this, Citi predicts that any potential tariffs on brandy are unlikely to significantly impact China's alcohol market, especially after the recent resumption of imports from Australia following the lifting of tariffs in 2021.
Similarly, an anti-dumping investigation into EU pork imports is currently underway. China, being the world's largest pork consumer, imported $6.9 billion worth of pork in 2023, almost half of which came from the EU.
The investigation is targeting major suppliers like Spain, the Netherlands, Denmark, and France. Despite having enough domestic supply and a consumer price index in deflation, any tariffs on pork could be used by China as leverage in negotiations, according to Citi.
Furthermore, Citi highlights that China has launched a comprehensive investigation into EU trade practices and barriers, impacting products such as railway locomotives, photovoltaics, wind power, and security equipment.
This investigation, expected to continue until mid-April 2025, is seen as China's response to previous EU inquiries into Chinese subsidies and market access.
Overall, Citi believes that China's strategic approach indicates a preference for negotiation over escalation. As a major surplus economy, China aims to avoid disconnecting from global markets and supply chains.
According to Citi, Beijing is likely to offer reasonable concessions in trade discussions with the EU while maintaining a measured response until the situation potentially escalates.
In summary, Citi suggests that China has various retaliatory options in the ongoing trade dispute with the EU, ranging from targeted investigations to broader trade barrier probes. However, the primary focus remains on negotiation, with the goal of resolving disputes amicably while preparing for any potential outcomes.
