Exclusive-Beijing ties cognac deal to EV tariff talks with Europe

French cognac makers have reached a tentative agreement on minimum import prices for China, a crucial development given shrinking sales and existing temporary duties up to 39% impacting major producers like Pernod Ricard and Remy Cointreau. However, China has explicitly linked the finalization of this deal, which would provide significant relief, to progress in the separate EU-China dispute over tariffs on Chinese electric vehicles. This strategic linkage by Beijing, ahead of a July 5 deadline for the anti-dumping investigation, highlights how cognac producers are effectively collateral damage in broader trade tensions, with implications for affected companies and the wider EU-China trade relationship.

Analysis

French cognac producers, including Pernod Ricard, Remy Cointreau, and LVMH, have established a tentative agreement on minimum import prices for the Chinese market, a pivotal step towards resolving a damaging trade dispute. However, the finalization of this deal is explicitly contingent on progress in the separate, and more contentious, EU-China negotiations over tariffs on Chinese-made electric vehicles. This linkage effectively makes the French spirits industry collateral damage in a broader geopolitical trade conflict. The stakes are high, as monthly cognac exports to China have plummeted by as much as 70%, and shares in Remy Cointreau and Pernod Ricard have declined 35% and 33% respectively since temporary duties were imposed. While the proposed minimum import prices are seen as 'much better' than the alternative of permanent tariffs of up to 39%, the outcome remains highly uncertain ahead of the July 5 deadline for China's anti-dumping investigation. The situation presents a binary risk for the sector, hinging entirely on a political resolution outside of the companies' direct control.

Key Decisions for Investors

• Investors in Pernod Ricard, Remy Cointreau, and LVMH should recognize that the primary driver for these stocks in the short term is the outcome of the EU-China EV tariff negotiations, not company-specific fundamentals.
• Positions should be managed with an awareness of high potential volatility around the July 5 deadline, as a positive resolution could trigger a significant relief rally, while a failure to agree could formalize damaging tariffs and extend the share price downturn.
• Given the significant stock price declines already registered, investors might consider that a negative outcome is partially priced in, but a definitive resolution in either direction will serve as a major catalyst.