Post by : Saif Rahman

In a significant escalation of trade tensions, China has implemented provisional import duties of up to 42.7% on select dairy products from the European Union. This decision intensifies the already fraught relationship between Beijing and Brussels, coinciding with the first phase of a Chinese investigation into anti-subsidy claims and perceived retaliatory moves against EU tariffs on Chinese electric vehicles.

The tariffs, which vary between 21.9% and 42.7%, primarily target dairy items like milk and cheese, including famous products such as France's Roquefort cheese. Most companies will face an approximate tariff rate of 30%. The Chinese government has outlined that these duties will be enforced starting Tuesday.

Chinese authorities have indicated that these rates are provisional, meaning they could be subject to change pending a conclusive ruling. A previous instance regarding pork imports saw China lowering provisional tariffs before reaching a final determination, hinting at possible adjustments ahead.

Trade friction escalated between China and the EU earlier in 2023, with the European Commission initiating an investigation into suspected unfair subsidies for Chinese electric vehicles. In response, China has undertaken investigations into a range of EU products, encompassing brandy, pork, and now dairy, perceived as strategic countermeasures to influence trade negotiations.

According to China’s Ministry of Commerce, evidence was found suggesting that EU dairy producers had received subsidies detrimental to Chinese farmers and businesses. Approximately 60 European firms will be impacted, with prominent dairy companies like Arla Foods facing tariff rates around 28% to 30%. Meanwhile, Italy's Sterilgarda Alimenti will incur the lowest fees, while FrieslandCampina operations in Belgium and the Netherlands will encounter the steepest duties at 42.7%. Companies failing to cooperate with the investigation will also incur the maximum tariff.

As of now, the European Commission has not published an official statement in response. Meanwhile, discussions concerning electric vehicle tariffs between China and the EU reportedly resumed earlier this month, but no updates have surfaced, with European diplomats suggesting ongoing substantial disagreements.

In 2024, China imported approximately $589 million worth of EU dairy products linked to this investigation, reflecting stability compared to 2023. Although this constitutes a minor part of the overall trade between the two regions, it sends a strong message regarding China's readiness to leverage trade mechanisms to safeguard its interests.

This move is expected to be positively received among domestic dairy producers in China, who face pressures from dwindling demand, lower milk prices, and declining birth rates affecting milk product consumption. As the world’s third-largest milk producer, China has urged its farmers to curtail excess supply and reduce herd sizes.

Overall, these new duties illustrate the potential for trade disputes to impact different sectors. What initiated as a conflict over electric vehicles has now extended into the European dairy market, underscoring the intricate connections in global trade and the swift effects of tensions on everyday commodities such as milk and cheese.

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