Trade Wars: The Chinese Empire Strikes Back
We reported yesterday that Europe, in a surprising escalation of global trade wars, announced it would impose solar-panel duties against China in one week, with the terms rapidly deteriorating over the next three months. It took China less than one day to retaliate. What's worse the retaliation is aimed at Europe's already weakest - the PIIGS - by targeting not hard German machinery exports but something far more prosaic: French, Spanish and Italian wine.
Reuters reports that "in a step targeting southern European states such as France and Italy that back the duties but largely sparing north European opponents such as Germany, Beijing said it launched an anti-dumping and anti-subsidy probe into sales of European wine. The Chinese ministry said the government had begun the probe into EU wines at the request of Chinese wine makers.
"The Commerce Ministry has already received an application from the domestic wine industry, which accuses wines imported from Europe of entering China's market by use of unfair trade tactics such as dumping and subsidies," it said in a statement.
"We have noted the quick rise in wine imports from the EU in recent years, and we will handle the investigation in accordance with the law."
The move appeared largely symbolic and less severe than if China had targeted hi-tech exports such as Airbus aircraft, made by Toulouse-based European aerospace group EADS.
Beijing imported 430 million liters of wine last year, of which more than two-thirds came from the EU, according to Chinese customs figures. Imports from France alone came to 170 million liters.
Short Diageo and Pernod?
China is the third biggest export market for French wines and spirits by value, worth 1 billion euros ($1.31 billion) in 2012 or nine percent of Paris' wine and spirits exports, according to the FEVS producers' federation.
Jim Boyce, who runs the wine blog grapewallofchina.com, said Chinese manufacturers have been upset about alleged dumping for a while.
It appears Spain's recent export stability is about to be monkeyhammered:
"The big issue was all this Spanish wine flowing in here at incredibly low prices," he said.
And should the trade war escalate, things are about to get far, far worse for Europe:
The European Union is China's most important trading partner, while for the EU, China is second only to the United States. Chinese exports of goods to the 27-member bloc totaled 290 billion euros ($376 billion) last year, with 144 billion euros going the other way.
Wine sales are only a fraction of overall exports to the rising Asian economic powerhouse but the move raises the risk of more tit-for-tat trade barriers.
The EU now has 31 ongoing trade investigations, 18 of them involving China. The largest to date is that into 21 billion euros of imports from China of solar panels, cells and wafers.
The EU says it has evidence that Chinese firms are selling solar panels below cost - a practice known as dumping. But the initial duty of 11.8 percent announced on Tuesday by European Trade Commissioner Karel De Gucht was far below the average 47 percent that had been planned.
China's Commerce Ministry said it took note of the lower initial rate, but called on the EU to "show more sincerity and flexibility to find a resolution both sides can accept through consultations".
Then again, in a centrally-planned world where the only "growth" is currency dilution who needs trade: Ben and Mario can just print it, right?