Cars? Pork? Perfume? China has many options if a trade war breaks out with Europe

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BEIJING (AP) — Now that Europe has done so announced rates when it comes to Chinese-made electric cars, the continent is bracing to see if the other shoe drops.

Will China retaliate with tariffs on European cars and target German manufacturers like BMW and Mercedes? Would it introduce tariffs on agricultural products, targeting Europe’s politically influential farmers? Or luxury goods from Italy and France?

Analysts warn an escalating trade war could break out, raising prices for consumers and hurting exporters and their workers on both sides. Both are important markets for each other: China, an emerging economy with more than 1 billion inhabitants, and Europe with its relatively affluent population of more than 400 million inhabitants.

“It’s a bit like seeing a traffic accident in slow motion,” Jens Eskelund, president of the European Chamber of Commerce in China, said earlier this year. “The accident has not yet occurred and… it is still possible to find an exit. It’s becoming urgent.”

The Chinese government has said it will “take all measures necessary to protect our legitimate rights and interests” in response to the tariffs on electric vehicles, but has not specified what they might be.

China has launched an anti-dumping investigation into… European cognac exports in January, a warning shot aimed at French cognac. France was a supporter of the European Union investigation that resulted in the announcement of EV tariffs on Wednesday.

The EU is also investigating subsidies given to Chinese wind and solar energy companies and whether China unfairly restricts access to its market medical devicesa long-running complaint from European manufacturers.

The European Union said it had contacted China to discuss the findings of the EV study, and that the tariffs would come into effect on July 4 if the two sides fail to resolve the issue. The rates would be provisional and would only be final after four months.

Chinese newspaper Global Times has reported that Chinese companies plan to ask the government to launch an anti-dumping investigation into certain EU pork products and an investigation into subsidies for some dairy products.

The state-run newspaper also quoted a leading Chinese auto industry expert as calling for raising tariffs on imported vehicles with larger engines to reduce CO2 emissions, a move that would hit high-end German exports from Mercedes and BMW .

Volkswagen expressed concern that EU tariffs on Chinese electric vehicles could lead to an escalation of trade conflicts and said the European Union is promoting a continued trend towards protectionism, nationalism and isolationism.

“The negative consequences of this decision outweigh the potential benefits for the European and especially the German automotive industry,” VW said in a statement.

Research firm Sanford C. Bernstein noted that the impact on German manufacturers would be tempered by the fact that most of their cars sold in China are made locally. Only 2% of Volkswagen’s sales in China are imports vulnerable to higher tariffs, along with 15% for BMW and 19% for Mercedes-Benz.

China could also impose retaliatory tariffs on French and Italian luxury goods, cosmetics, wine, chocolate or furniture, Gabriel Wildau, a China analyst at consultancy Teneo, wrote in an analysis ahead of the announcement.

While Germany fears reprisals against its automakers and chemical producers, France and Italy have been the leading advocates for tariffs on electric vehicles within the EU, he wrote.

It is unclear how big the impact of the provisional tariffs would be on Chinese sales of electric vehicles. Some Chinese companies might still be able to sell at a profit, even with tariffs as high as 30%.

The preliminary rates range from 17.4% to 38.1% depending on the automaker, and are in addition to an existing 10% rate on vehicles. The new tariffs would pose a serious market barrier to Chinese electric vehicle exports, the Chinese Chamber of Commerce said to the EU.

Calculations by the Rhodium Group showed that five out of six models from BYD, China’s largest EV maker, would make a profit at a 30% tariff, while a Chinese-made Tesla Model 3 would sell at a loss.

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