In a significant escalation of trade tensions, China announced on July 4, 2025, that it would impose new import duties of up to 34.9% on European brandy and Cognac, effective July 5, 2025. This move is a direct response to the European Union’s (EU) tariffs on Chinese electric vehicles (EVs), which range from 10% to 35.3%.
Strategic Exemptions for Major Cognac Producers
In a surprising twist, major Cognac producers such as Hennessy, Martell, and Rémy Martin have been granted exemptions from these duties. This conditional exemption requires them to commit to minimum pricing agreements designed to prevent dumping—the practice of selling goods below market value. This nuanced policy highlights China’s attempt to balance retaliatory trade measures with the maintenance of economic ties with key European players, while also fostering growth for domestic brandy producers like Changyu.
Cognac’s Longstanding Dominance in China
China has historically been a crucial market for Cognac, a premium brandy segment. This demand has been fueled by robust economic growth, increasing consumer affluence, and a cultural appreciation for luxury spirits. The Chinese brandy market experienced a compound annual growth rate (CAGR) of 3.7% from 2017 to 2022, with Cognac holding a dominant 54% market share in 2022. Projections indicate continued expansion at a CAGR of 2.9% through 2029, potentially reaching a market value of $3.2 billion. China remains the world’s largest market for Cognac in terms of value, with French producers generating approximately $3 billion in global exports annually.
French brands have historically dominated this lucrative market. In 2019, Hennessy alone accounted for over 38% of brandy sales value in China, closely followed by Martell and Rémy Martin. Cognac’s appeal spans various consumer segments: from young “fuerdai” (18-25 years old) who purchase it to signal social status, to the “baofahu” (nouveau riche) who use it to display wealth, and older connoisseurs (49+ years) who value its refined taste. This premiumization trend, evidenced by a 20% surge in high-end spirits sales in 2022, has cemented Cognac’s position among China’s affluent millennials.
However, domestic competition is on the rise. Chinese brandy, led by Changyu, contributed nearly 50% of consumption volume in 2019. Despite lower unit prices limiting its value share, Changyu’s sales grew by 12% in 2023, driven by nationalist sentiment and shorter supply chains. This reflects a broader “sinicization” trend, with younger consumers increasingly favoring local brands.
Details of the New Import Policy
China’s new anti-dumping duties, effective July 5, 2025, will remain in place for a five-year period. This measure follows a year-long anti-dumping investigation, initiated in January 2024 by the China Alcoholic Beverages Association. The investigation concluded that European brandy posed a threat to China’s domestic industry, finding dumping margins ranging from 30.6% to 39%. Preliminary penalties introduced in October 2024 have already severely impacted trade, with monthly Cognac exports to China plummeting by up to 70%, according to the Bureau National Interprofessionnel du Cognac (BNIC).
The exemption for major Cognac producers—LVMH (Hennessy), Pernod Ricard (Martell), and Rémy Cointreau (Rémy Martin)—is contingent on their adherence to a “minimum price commitment.” While the exact minimum prices have not been disclosed, this agreement is viewed as a pragmatic compromise, ensuring continued market access for these industry giants while addressing China’s concerns about dumping. Additionally, deposits paid by brandy makers since October 2024 will be refunded, alleviating some financial strain.
Conversely, smaller European producers will face the full 34.9% duties, which could significantly erode their competitiveness in China’s price-sensitive market. This dual approach underscores China’s strategic intent: protecting its domestic industry and retaliating against EU tariffs while preserving crucial relationships with the major French brands that dominate the premium segment.
Trade Tensions and Diplomatic Efforts
These duties are a clear act of retaliation for the EU’s tariffs on Chinese EVs, which were implemented to counter perceived subsidies and market distortions. The EU has labeled China’s brandy tariffs “unfair and unjustified,” with European Commission spokesperson Olof Gill criticizing the measures. French officials, including Junior Trade Minister Sophie Primas, have expressed disappointment, accusing China of reneging on earlier commitments.
Diplomatic efforts are underway to de-escalate the dispute. On July 4, 2025, China’s Foreign Minister Wang Yi met with French President Emmanuel Macron, signaling a willingness to negotiate. A planned EU-China summit in Beijing, starting July 24, 2025, is expected to address broader trade issues, including the brandy and EV tariff disputes. The EU spirits industry, represented by spiritsEUROPE, has welcomed the exemptions for major producers but urged China to lift all restrictions, emphasizing the necessity of open markets.
Industry Reactions and Market Implications
Major Cognac producers have expressed cautious optimism about the exemptions. Rémy Cointreau described the minimum price deal as “substantially less punitive,” noting it allows for continued investment in China. Pernod Ricard, while acknowledging increased costs, stated that the arrangement is significantly less severe than permanent tariffs. LVMH and Campari have yet to comment publicly.
The policy’s impact on the Chinese brandy market is multifaceted. For major French producers, the exemptions stabilize their market position, safeguarding the majority of Cognac sales given their dominant share. Hennessy, Martell, and Rémy Martin are likely to retain their appeal among premium consumers, although minimum pricing may slightly elevate costs for buyers. Smaller European brands, however, face significant challenges from the full 34.9% duties, risking market share loss, particularly in the price-sensitive mid-tier segment.
Domestic producers like Changyu are poised for significant gains. The duties reduce competition from smaller European brands, potentially boosting Changyu’s market share. With a 12% sales growth in 2023 and increasing consumer preference for local products, Chinese brandy is well-positioned to capitalize on this shift. The investigation’s finding of a “causal relationship” between EU dumping and harm to domestic producers further strengthens the case for protective measures.
The broader trade context adds complexity. These duties echo China’s earlier tariffs on Australian wine, which nearly eliminated exports in 2019, raising concerns about long-term market access for European spirits. The five-year duration of the brandy duties suggests a sustained policy shift, though diplomatic breakthroughs could alter the trajectory.
Looking Ahead: Challenges and Opportunities
As of July 4, 2025, China’s brandy and Cognac market stands at a crossroads. While exemptions for major producers mitigate the immediate impact on premium Cognac sales, smaller European brands face substantial hurdles. Chinese brandy producers, buoyed by nationalist trends and reduced competition, are poised for growth, potentially reshaping market dynamics.
The ongoing EU-China trade dispute, with brandy and EVs as flashpoints, underscores the fragility of global trade relationships. The upcoming Beijing summit offers hope for resolution, but the entrenched positions of both sides suggest a prolonged standoff. For stakeholders, adapting to this new reality—whether through price adjustments, market diversification, or enhanced domestic production—will be critical.
China’s new duties on European brandy reflect a calculated response to EU tariffs, balancing retaliation with economic pragmatism. While major Cognac producers like Hennessy, Martell, and Rémy Martin navigate the minimum price framework, smaller players and domestic brands face a transformed landscape. As trade tensions simmer, the Chinese brandy market remains a battleground for global and local interests, with far-reaching implications for producers and consumers alike.