Geostrategic Media Political Commentary, Analysis, Security, Defense
China’s investigations into the EU and Canada show its readiness to use economic tools in response to trade restrictions or foreign policy actions. These actions highlight the connection between trade and diplomacy in shaping international ties. In response to President Trump’s 10% tariffs on Chinese imports, China’s Ministry of Commerce announced plans to file a WTO complaint and take “corresponding countermeasures” to protect its rights and interests. While the world is focused upon the action and reaction along with impact of Trump tariffs on China, Canada and Mexico on respective economies and the world, the preparedness of China deserves to be explored through sample cases in respect of EU and how countries like India are following suit in diversification.
On 25th December 2024, China’s Commerce Ministry announced extension of its anti-dumping investigation into brandy originating from the European Union by three months. The probe, which was started on January 5 and was supposed to be finished in a year, will now be extended to April 5. The investigation was generally interpreted as the result of France’s backing of EU tariffs on electric vehicles manufactured in China. The investigation was earlier referred to as “pure retaliation” by French President Emmanuel Macron. Previously, on August 21, 2024, China began its dairy investigation against EU. The inquiry focused on several kinds of EU cheese as well as liquid milk and cream with a fat level greater than 10%. The question in particular by China was on specific national and regional programs as well as subsidies under the EU’s Common Agricultural Policy. For the first time from the beginning of an investigation, the European Commission challenged China’s probe at the World Trade Organization (WTO) rather than waiting for trade sanctions against the bloc to follow. June 2024 saw China issuing notices related to pork and pig by-products imported from the EU. Furthermore, early September 2024also saw China announcing anti-dumping investigation into Canadian canola imports in response to Canada planning to impose tariffs on Chinese-made electric vehicles, steel and aluminium.
Interestingly, with regard to China’s retaliation against Canada, as substantiated by China’s import data, China has already diversified its imports of “Product: 151411 Low erucic acid rape or colza oil “fixed oil which has an erucic acid content of < 2%”, crude” over last five years. Russia has grown to become China’s key import source for Canola oil with Russia’s share in China’s total global imports of Canola Oil having grown from 10 percent in 2019 to 56 percent in 2023. In terms of import value, import of the commodity from Russia stood at USD 1.5 billion in 2023 as compared to USD 126 million in 2019. On the other hand, Canada accounted for 59 percent of China’s total Canola oil imports in 2029 which reduced to as low as 6 percent in 2023 with value USD 154 million only.
The investigation against EU’s brandy case demonstrates China’s willingness to retaliate even in cases where France accounted for 98 percent of China’s global import of brandy with value USD 1 billion in 2019 reaching to a share of 99 percent in 2023 at USD 1.7 billion. The obvious question then is what gives China the right to retaliate with one main import source such as French cognac in this particular case? The answer lies in China’s strategy of being domestically reliant to cater to domestic demand when alternate external source is not available. A quick peek into China’s domestic brandy production is quite an eye opener. Due to rising consumer demand and government assistance for regional businesses, China’s domestic production of brandy and related spirits has surged dramatically in recent years. Chinese manufacturers are stepping up to offer competitive alternatives to EU brandy, which is still a premium import, especially from France. Due to its low unit pricing, Changyu, a Chinese brandy manufacturer, only accounted for 3.7% of the overall sales value even though it contributed to approximately 50% of China’s brandy consumption volume. Chinese domestic players in this segment include companies like Changyu Pioneer Wine Company, Tonghua Grape Wine Company, Great Wall Wine Company (subsidiary of COFCO), Wei Long Grape Wine Company (based in Xinjiang), Dynasty Fine Wines Group Limited (joint venture with French partners), etc to have contributed significantly to the growth of China’s brandy market by providing substitutes for imported goods from Europe. For example, the UK is one of the worldwide markets where Changyu’s Koya brandy has been presented.
In an effort to capitalize on trade frictions between EU and China, Russian pork producers are hoping to take 10% of China’s pork import market in the upcoming years. Before China approved three Russian manufacturers to sell pork into the USD 3.5 billion Chinese import market—which is dominated by EU producers with a 51% share—Russia did not export any pork to China. According to Global Times reports, China nearly quadrupled its pork imports from Russia in June 2024 as diversification efforts to improve food security. With a volume of over 30,000 tons through September 2024, China, which reopened its market for Russian pork in February 2024 following a 15-year ban, turned as one of the three largest buyers of Russian pork products.
China’s retaliatory actions in response to trade disputes and political issues could significantly disrupt global trade. EU and Canadian exporters, particularly in the agricultural and food sectors, are expected to be hit hard. These moves will likely create ripple effects in global supply chains, increasing trade uncertainty and impacting prices and supply. The geopolitical situation could deteriorate further, with more countermeasures likely if tensions escalate. China’s reliance on alternative import sources and domestic production is expected to buffer it from these disruptions, reducing the impact compared to its trading partners.
The retaliatory strength gained by China through its indigenous production along with displacing import sources with its allies empowers it to put export controls on segments of its choice. The recent example is the doubling of efforts towards export restrictions in the form of ‘New Export Control Framework” implemented with effect from 01st December 2024. Two days after the framework comprising of the Regulations on Export Control of Dual Use Items and the Export Control List of Dual Use Items was implemented, China controlled the exports of gallium, germanium, antimony, germanium, etc. China holds a dominant position in global refining, accounting for around 90% of the capacity. This concentration raises alarms about potential supply chain vulnerabilities and geopolitical dependencies. Countries like Australia and the US are working on their own domestic refining capacities. By 2025, Lynas which runs Australia’s Mount Weld mine and concentration plant, is expected to finish its expansion project, increasing annual production of NdPr products to 12,000 MT. According to US Geological Survey (USGS), Mineral Commodity Summaries, 2024, China is listed as leading producer with dominant share in world production in Antimony (48%), Bismuth (80%), Gallium (98%), Graphite (77%), Rare Earths Compounds and Metals (69%), Tungsten (81%), Vanadium (68%), etc.
With US accelerating its export controls on chips for AI to counter China, China has included 10 US entities on its Unreliable Entity List and 28 US entities on its Export Control List from 02nd January 2025. Amid the intensifying trade and technology frictions between China and the western countries, impact on India is often generalised to hamper its interests. Specifically speaking, India’s import of select critical minerals has alternate sources. For example, India imports antimony from Australia and Oman besides China. Besides China, while Gallium is taken from Russia, Germanium is imported from France and Graphite from UK. Furthermore, the possible impact on India with India’s economic interests in the focus, quantum of imports of critical minerals also needs to be factored in. For example, as per DGCIS data for the period April-October 2024, India imported USD 0.07 million worth of Gallium and Germanium each. In this regard, besides having alternate suppliers commensurate with the import requirement, India’s efforts are evident in its policy initiatives. Supply chain resiliency has been the thrust area of the policy makers as evident by the progress under Indo- Pacific Economic Framework for Prosperity (IPEF). Article 10 of the Supply Chain Resilience Agreement (Pillar-II) provides for identification of critical sectors or key goods by the IPEF partners towards ensuring national security, public health and safety, or the prevention of significant or widespread economic disruptions. While China’s retaliatory power is drawing immense strength from its diversified import sources and domestic capabilities in areas sanctioned by the western world, countries including India are adopting equal measures to work on their domestic manufacturing capabilities with active participation of foreign players, with diversification or alternate import sources for sectors under the radar of ongoing trade wars and giving the due support to the economy evidenced by a reduction in custom duties including critical minerals in the Indian budget 2025-2026.
