Trade Retaliation in Spirits and EVs: Navigating the Sino-EU Tariff Crosshairs

The imposition of 34.9% anti-dumping duties on EU-produced cognac by China's Ministry of Commerce (MOFCOM) marks a pivotal escalation in Sino-European trade tensions. Effective July 5, 2025, these tariffs—ranging from 27.7% to 34.9%—are not merely a regulatory action but a strategic signal of Beijing's willingness to weaponize trade measures. For investors, this development creates a dual opportunity: to capitalize on the reshuffling of global spirits markets and to hedge against risks in EV supply chains entangled in reciprocal tariff crossfires. Below, we dissect the implications and outline actionable strategies.

Strategic Implications for Global Spirits Markets

The 34.9% tariffs on EU cognac directly target France's iconic distillers, including Rémy Cointreau (RCO.PA) and Pernod Ricard (RI.PA), whose exports to China have already plummeted by 17.8% and 25%, respectively. The move is a retaliatory response to the EU's ongoing anti-subsidy investigation into Chinese electric vehicles (EVs), creating a textbook example of trade retaliation as a market catalyst.

Investment Play 1: Short European Distillers, Long Chinese Spirits
The tariffs will accelerate the decline of EU cognac in China, a market that accounted for 30% of France's total cognac exports pre-tariff. Chinese spirits giants like Kweichow Moutai (600519.SS) and Wuliangye (000858.SZ) stand to gain share in premium liquor segments. These firms, already benefiting from domestic consumption recovery, now face reduced foreign competition. Meanwhile, European distillers face margin pressure as they absorb tariffs or pass costs to consumers—a risky move in a market where Chinese competitors are 30-40% cheaper post-tariff.

The EV Link: A Tariff Crosshairs Dilemma

The cognac tariffs are not an isolated incident but part of a broader trade war dynamic. The EU's investigation into Chinese EV subsidies, which could trigger retaliatory tariffs on European automakers, creates a precarious feedback loop. For investors, this means:

• Risk to EU EV Manufacturers: Companies like Volkswagen (VOWG_p.DE) and Stellantis (STLA.MI), which rely on Chinese battery components and export EVs to China, face dual threats: retaliatory tariffs on their products and supply chain disruptions if China restricts rare-earth exports.
• EV Supply Chain Winners: Firms insulated from Sino-EU tariff crossfires—such as Tesla (TSLA) (though not directly exposed to EU-China disputes) or EV battery producers in non-tariff-affected regions—could see relative outperformance.

Key Risks and Considerations

1. Diplomatic Leverage: The July 2025 China-EU summit could offer a reprieve, but history suggests such talks rarely resolve structural tensions. Analysts like Alicia Garcia-Herrero (Natixis) note that Beijing views trade disputes as tools to force EU concessions on broader issues, like tech IP or market access.
2. Market Saturation: Chinese spirits firms may struggle to fully offset EU competitors' losses if domestic demand growth slows. Monitor Moutai's sales data closely.
3. EV Tariff Escalation: If the EU imposes retaliatory tariffs on Chinese EVs, it could trigger a spiral of countermeasures, hitting sectors like solar panels or semiconductors.

Positioning for Maximum Return

• Short European Beverage Stocks: Rémy Cointreau and Pernod Ricard are prime candidates due to their exposure to Chinese market losses and lack of diversification.
• Allocate to Chinese Spirits: Kweichow Moutai and Wuliangye offer a leveraged play on tariff-driven market share gains.
• EV Supply Chain Diversification: Firms with global supply chains (e.g., LG Energy Solution (3735.KS) in batteries) or non-EU-centric operations are safer bets than EU-based automakers.

Conclusion

China's cognac tariffs are a microcosm of its broader trade strategy: use retaliatory measures to defend domestic industries while pressuring the EU on critical issues. For investors, the playbook is clear: profit from the reshaped spirits market and avoid EV stocks entangled in tariff crossfires. As trade wars increasingly define global markets, positioning in “no-tariff zones” and betting on retaliation beneficiaries will be key to navigating this new normal.

Stay vigilant—this is just the opening round.