As the trade war between China and the European Union (EU) continues, Citibank analysts said in a report this week that China is maintaining a reserved stance while strategically preparing for potential retaliation.
According to a recent Citibank report, China has been responding cautiously since the EU imposed temporary tariffs on Chinese electric vehicles (EVs) on July 4, 2024, focusing on negotiations while signaling a willingness to retaliate if necessary.
The bank explained that China’s initial retaliatory measures included targeted investigations into brandy and pork imports from the EU. The Department of Commerce (MofCom) announced an anti-dumping investigation into brandy imports from the EU, focusing particularly on France, which accounts for 99.3% of China’s brandy imports.
Despite this, Citibank said it expected the impact of the brandy tariffs on China’s alcohol market to be limited, with China recently resuming imports from Australia after lifting the tariffs it imposed in 2021.
Likewise, they explain that an anti-dumping investigation into EU pork imports is underway. China, the world’s largest pork consumer, imported $6.9 billion worth of pork in 2023, 47.9% of which came from the EU.
The survey targets major suppliers such as Spain, the Netherlands, Denmark and France. Despite ample domestic supply and a deflationary consumer price index, tariffs on pork could strengthen China’s position in negotiations, City says.
The World Bank also said China had launched a wide-ranging investigation into the EU’s trade practices and barriers affecting products such as railway locomotives, solar and wind power, and security equipment.
The investigation, which could run until mid-April 2025, reflects China’s response to previous EU investigations into Chinese subsidies and market access.
Moreover, the bank believes that China’s strategic patience indicates a preference for negotiation rather than de-escalation. As a sizable surplus economy, China aims to avoid being isolated from global markets and supply chains.
According to Citibank, Beijing is likely to make reasonable concessions in trade talks with the EU until the dispute escalates, but its response is likely to be cautious.
In conclusion, City believes that China has considerable retaliatory options in its trade dispute with the EU, ranging from targeted investigations to extensive trade barrier investigations. However, they believe that China is primarily focused on negotiations and is prepared for all eventualities, seeking to resolve the dispute amicably.
