The China-EU trade war begins, China adopts divide and conquer approach

As expected, China did not take the new tariffs on its exports of solar panels to the EU lying down, nor did it see it simply as an ‘opportunity to negotiate’ as the Commission suggested.

China has announced that it is investigating illegal EU subsidies to the EU wine industry. The rational is, as the Chinese Commerce Ministry put it, because, "Wine imports from the EU enter our market via dumping, subsidies and other unfair trade practices, and have hit our wine production."

Our headline is of course exaggerated for effect but the main point stands. This dispute has escalated significantly with the retaliation now raising the prospect of a tit-for-tat trade dispute.

It’s also been well documented that the EU is divided on this issue, with quite a few countries (led by Germany) openly expressing their opposition to the Commission’s tariffs. Other more traditionally protectionist countries have been decidedly less vocal. With this in mind, it’s interesting that China has launched an investigation which focuses on a sector heavily located in France and the Mediterranean rather than one in Germany. This could be a mere coincidence, but then it could not.

AFP reports that French President Francois Hollande has called for an EU-27 meeting to be convened to discuss the issue and create a united EU position on it (possibly to counter such a divide and conquer approach).

There are a few other interesting points to note with this investigation:

• The Chinese do have a case given the influence of the CAP, which still provides significant subsidies to farms including vineyards.
• It’s hard to say exactly how large the subsidies are. Under the reformed CAP programme in 2008, National Support Programmes for wine growers totalled €2.8bn.
• As with much Chinese data it’s hard to pin down the exact size of the market. The Commission notes that in 2011 China and Hong Kong together accounted for €1.47bn in wine exports from the EU. This has certainly increased since then as China represents one of the largest growth markets for wine. Reuters suggests that Chinese imports of wine amount to €1bn from France alone.
• Whatever the size, this market is smaller than the solar panel one. EU imports of solar panels from China amount to around €21bn.