Brandy's tariffs are just hit – but these luxury giants find a secret way around them
China has just abandoned the trade bomb of European brandy investors and has been repositioned. Starting from July 5, the country will impose anti-dumping duties of up to 34.9% on European brandy imports. But there is a twist: major cognac producers like Remy Cointreau (Remyf), Pernod Ricard (PDRDF) and LVMH’s Hennessy (LVMHF), have been exempted by agreeing to a minimum price commitment agreement with Beijing. For now, this could mitigate explosive losses, especially after last year’s brutal reduction in freight triggered by preliminary tariffs. Although entry into the Chinese market is still damaged, the solution has left these companies in urgent need of respite in key areas.
Remy Cointreau said there were much fewer punitive alternatives to price transactions and said the end effect would be much smaller than the limits than what was worried about. Optimism in stock prices reversed the early sharp decline, while Pernod and LVMH also narrowed their losses. Intervention industry leaders stressed that China is still too important to lose, and that the deal could be a short-term lifeline, while in the context of wider trade tensions. Jacques Roizen of Digital Luxury Group said this was clearly a crucial decision, citing China's important role in global sales.
Behind the scenes, it is part of a larger chess game between China and the EU. After European tariffs on Chinese electric vehicles, Brandy's responsibility is to take action on the premise that Beijing delays both to purchase time. French officials have called for a downgrade, and industry minister Marc Ferracci warned that the trade war will only lead to losers. Still, signs are that tensions may escalate again. According to Bloomberg, China is now considering canceling part of the upcoming EU summit. For investors, the brandy deal may offer short-term relief, but the broader story has not cooled down yet.
This article first appears on Gurufocus.
