By Yawen Chen

LONDON- Few Western corporate chieftains command as much attention in China as Bernard Arnault. The 75-year-old boss of $340 billion LVMH routinely rubs shoulders with senior government officials and was the talk of Chinese social media during a whirlwind trip to the People’s Republic in June 2023. Even so, the French luxury giant could get sucked into China’s ongoing faceoff with the European Union.

Brussels has raised tensions with Beijing by proposing extra tariffs on Chinese-made electric vehicles, arguing that they are unfairly cheap due to state subsidies.

Pending an EU members vote, the bloc’s move to impose additional tariffs of up to 38 percent  of the value of Chinese-made EVs will become binding for the next five years by November at the latest. Since the European Commission first mooted the duties in June, the question has been how and whether China responds.

It remains possible that Chinese President Xi Jinping pulls his punches. Faced with a more hostile United States, Europe is a strategically important market for the People’s Republic. China has launched anti-dumping probes on European brandy, pork and dairy, but has yet to impose any additional tariffs. Besides, the combined import value of these goods totaled just 6 billion euros ($7 billion) in 2023. In contrast, the EU is targeting nearly 10 billion euros’ worth of battery-powered electric cars shipped from China to the EU last year.

European politicians may also buckle. Spanish Prime Minister Pedro Sánchez broke ranks this month to advocate going easy on tariffs on Chinese-made EVs. His country had supported a hardnosed approach, before its 1.5 billion euros of pork exports to China came under threat. If other governments like Italy follow suit, the tariffs may yet get watered down.

Yet the ball remains sufficiently in Beijing’s court that some sort of riposte could lie in wait. European luxury goods, which includes leather bags, perfume, jewelry, shoes, suits and other apparel, accounted for 11 billion euros of imports in 2023. There are a host of reasons why they fit the bill for Chinese retaliation.

Unlike pharmaceutical, manufacturing and aircraft imports, luxury is far from essential to Chinese productivity. As with French cognac, overpriced status symbols hold less cachet in the stuttering Chinese economy. If their prices went up further, the number of irked buyers would be limited: the richest 2 percent  of customers usually account for about 40 percent  of luxury sales, according to Bain & Co.

A second factor is internal European dynamics. Unlike Germany, which still counts the People’s Republic as a big market for its cars and with whom China trades essentials like chemicals, France has been a particularly vocal champion of European EV tariffs. Handily enough the country, along with Spain and Italy, is one of the key exporters of luxury goods like $10,000 Christian Dior handbags: a third of the EU’s $5 billion of leather and plastic handbags sent to China came from France last year. LVMH is the crown jewel: the group’s 24 billion euros of fashion exports accounted for 4 percent  of 2023 French exports, according to a study by consultancy Asterès. – Reuters