Amidst trade tensions, EU must prioritise better

As trade tensions rise between the European Union and China, the imposition of tariffs on European brandy is the latest development in a potentially escalating economic dispute.

What began as an investigation into Chinese subsidies for electric vehicles (EVs) has now drawn European industries into a precarious situation, where retaliatory measures could have far-reaching impacts on various sectors. At a time when Europe faces the risk of broader trade challenges, its policymakers must focus on protecting core industries and maintaining their competitiveness—yet, some internal debates, like the proposal for a harmonised mandatory front-of-pack nutrition labelling, seem out of step with the urgent economic threats on the horizon.

China’s retaliatory measures: the impact on French brandy

China’s decision to impose tariffs on European brandy, with rates as high as 39 percent, was a direct response to the EU’s move to impose duties on Chinese EVs. This measure primarily targets French Cognac producers, such as Remy Martin and Moët Hennessy, and reflects the broader risk of retaliatory actions impacting key European exports. Cognac is a major French export to China, and with tariffs now in place, the industry is bracing for potential losses in a market that accounts for millions of bottles sold annually.

While the EV investigation aimed to address concerns over state subsidies in China, the subsequent actions highlight how easily trade measures can extend beyond their original scope. The risk now is that further sectors could be drawn into this conflict, affecting industries across Europe that depend on China for trade.

Broader trade implications: paint and titanium dioxide

It’s not just luxury goods like Cognac that are feeling the strain of tariffs. European industries, particularly in manufacturing, are increasingly concerned about the potential fallout of anti-dumping measures. For instance, the EU’s investigation into Chinese exports of titanium dioxide (TiO2), a key raw material for paint production, has led to provisional duties of up to 39.7 percent. While these measures aim to protect European TiO2 producers, they have been met with significant resistance from paint manufacturers, who warn that such tariffs could lead to factory closures and push production outside the EU.

European paint producers argue that the tariffs will increase costs, making it harder for them to compete globally. Some, like France’s Océinde, fear that smaller businesses may face bankruptcy if the tariffs are confirmed. The dilemma for the EU is clear: protecting domestic industries from Chinese competition without inadvertently damaging its own producers through higher costs and job losses.

The complexity of trade defence

This situation highlights the complexity of the EU’s trade defence mechanisms. On one hand, the bloc is under pressure to safeguard industries like TiO2 production from Chinese overcapacity, which has surged in recent years. China now produces over 80 percent of the world’s TiO2, and Western producers have struggled to compete. But on the other hand, these tariffs could undermine the competitiveness of downstream industries like paint manufacturing, which rely on affordable raw materials.

The paint industry is just one example of the potential ripple effects of trade disputes. Other sectors, including aerospace, which relies on titanium metals, and agriculture, are also vulnerable to broader economic fallout if trade tensions with China escalate further. The EU finds itself in a delicate balancing act—protecting industries from unfair competition while avoiding policies that could lead to higher production costs and loss of jobs.

Misaligned priorities: Nutri-Score and internal debates

While Europe faces significant external threats to its trade and economic stability, there remains a striking focus on internal debates that seem minor in comparison. One such example is the ongoing discussion around the harmonisation of front of pack labelling (FOP). An example of such a scheme is Nutri-Score, a labelling system purportedly designed to help consumers make healthier dietary choices. Nutri-Score has been criticised for oversimplifying nutrition and penalising traditional foods central to European culinary traditions. The food and drinks industry is the EU’s biggest manufacturing sector in terms of jobs and value added. The EU enjoys a significant trade surplus in food. In the past decade, EU exports of food and drink have doubled to more than 90 billion EUR and contributing to a positive balance of almost 30 billion EUR.

As Europe grapples with the possibility of a trade war with China, it is difficult to justify the continued political capital spent on non-issues like FOP. Nutri-Score represents a distraction from the larger, more immediate challenges facing the continent. The risk is that Europe’s focus on internal regulatory debates could leave it ill-prepared to respond to the external pressures that could reshape its economy.

The need for a strategic response

As trade tensions with China evolve, Europe must prioritise a strategic, coordinated response. The imposition of tariffs on brandy and potential measures affecting other sectors like paint and TiO2 production underscore the risks of an escalating economic dispute. Protecting key industries is essential, but it must be done in a way that maintains Europe’s competitiveness in global markets.

Rather than getting bogged down in internal regulatory debates that furthermore risk harming some of the EU’s most important industries, Europe’s leaders should focus on strengthening trade policies that safeguard industries without causing unnecessary economic harm. This includes maintaining open channels for negotiation with China to prevent further retaliatory actions and ensuring that domestic industries can continue to thrive without the burden of inflated production costs.

In conclusion, the possibility of a broader trade conflict with China presents a clear challenge for Europe. The focus must shift to protecting key industries and maintaining global competitiveness, while internal fruitless debates, like Nutri-Score, should not overshadow the larger, more pressing economic threats. Europe’s ability to navigate this complex trade landscape will determine its economic resilience in the years to come.