China Links Cognac Deal to EU Tariff Talks, Impacting Electric Vehicle Trade

China has tied a tentative deal on minimum import prices for French cognac to progress in negotiations over EU tariffs on Chinese-made electric vehicles (EVs), creating a complex trade standoff with significant implications for the EV industry. This development, reported by Reuters, underscores the broader trade tensions between Beijing and Brussels, with EV manufacturers and markets caught in the crossfire.

Trade Tensions Escalate

The EU imposed tariffs of up to 45.3% on Chinese EVs in October 2024, citing unfair subsidies like preferential financing and below-market resources. In retaliation, China launched an anti-dumping probe into European brandy, primarily targeting French cognac, and imposed temporary duties of up to 39%. These duties have slashed cognac exports to China by as much as 70%, according to the Bureau National Interprofessionnel du Cognac (BNIC), and caused stock declines of 35% for Remy Cointreau and 33% for Pernod Ricard since last October.

A French government source confirmed to Reuters that Chinese officials have “consistently linked the cognac and electric vehicles dossiers,” though France has resisted this connection. The source expressed cautious optimism for a deal before China’s July 5, 2025, deadline to finalize its brandy probe, which could make the 39% duties permanent if unresolved.

Proposed Cognac Deal and EV Parallels

The tentative cognac agreement sets minimum import prices ranging from $6.39 per liter for Very Superior (VS) cognac to $85 per liter for high-end Extra Old (XXO) varieties. These prices, detailed in a June 12 BNIC briefing, aim to ease the burden of current duties, which one source described as “much better” than the status quo. Major producers like Hennessy and Remy Martin face slightly higher minimums than smaller firms but still below current costs.

China is pushing the EU to adopt a similar minimum price model for Chinese EVs, replacing tariffs with price commitments. This approach, discussed in EU-China talks, seeks to stabilize trade while addressing subsidy concerns. However, EU officials note limited progress, with negotiations ongoing ahead of a July 24-25 summit marking 50 years of EU-China relations.

Implications for EV Manufacturers and Consumers

For EV manufacturers like BYD, Geely, and SAIC, which face EU tariffs of 17%, 18.8%, and 35.3% respectively, a shift to minimum prices could stabilize export costs but raise prices for European consumers. The EU imported 440,000 Chinese EVs worth $9.7 billion in the 12 months ending April 2024, and tariffs have already reduced imports by 7% year-over-year. A minimum price agreement could further impact affordability, potentially slowing EV adoption in Europe, where zero-emission vehicle mandates aim for 80% of sales by 2030.

Industry and Regulatory Outlook

The linkage of cognac and EV talks highlights China’s strategic use of trade leverage. French Trade Minister Laurent Saint-Martin, visiting the Cognac region, said minimum price talks were “on the right track” but inconclusive. The EU’s reluctance to fully endorse the cognac deal reflects its broader stance against China’s subsidies, which enable Chinese EVs to sell at 20% higher prices in Europe than domestically.

As negotiations continue, EV manufacturers must navigate rising costs and potential market shifts. The outcome of these talks could set a precedent for resolving trade disputes, balancing economic interests with regulatory goals like fair competition and sustainability.