An ongoing spat between the European Union and China continues to intensify into what could be a trade war. Now, China is threatening to examine European wine exports in response to the EU passing punitive tariffs against Chinese manufactured solar panels. The EU’s executive arm has passed anti dumping tariffs on Chinese manufactured solar panels and accuses the Chinese of selling solar panels at prices below the cost to manufacture them.

china vs europe Trade War

Trade Wars explained

Companies sometimes sell products below their manufacturing cost, which is called “dumping,” in order to wipe rivals out and gain market share. In theory, once major competitors have been neutralized and the dumping company is in control, it can raise prices and not have to worry about competition.

Many people accuse the United States of doing this with produce and agricultural products by providing subsidizes to farmers who can then flood foreign markets with cheap produce.  The EU Commission now charges that Chinese companies are dumping solar panels in the European market.

The EU Commission has given Chinese manufacturers a 2 month window to work out a deal before the tariffs of 11.8 percent are imposed. This is only a fraction of proposed tariff levels, with some members of the commission proposing tariffs as high as 50 percent. With Chinese solar panel imports totaling some 21 billion Euros, the market and potential impact is quite large. In fact, solar panels accounted for 7 percent of all exports to the EU in 2011.

Interestingly, Germany strongly opposes the measure, even though it is Europe’s largest manufacturer of solar panels. Further, a majority of member states actually oppose passing tariffs. The tariffs have been able to move forward, however, because the EU commission has the authority to impose tariffs without the support of individual member states if it feels that Europe is threatened.

The commission consists of one representative from each member state whom are elected by the European Parliament. Once elected, these representatives are quite autonomous from the country they represent and can act on their own accord.

Trade War: China Accuses European Union For Imposing Unfair Subsidizes

China is now accusing the European Union of imposing unfair wine subsidizes. China imports some $2.6 billion worth of wine per year, two thirds of it coming from the European Union. The move is clearly in response to the solar panel dispute as China has no real domestic premium wine manufacturing sector and if the EU is indeed using unfair tariffs, it would be largely to the benefit of Chinese consumers. Further, many Chinese companies have been investing in Europe’s wine sector, so tariffs could hurt Chinese companies as much as European companies.

More importantly however, is the increasing movement towards a trade war. Global tensions are high between various nations and this is simply the most recent spat. The Japanese have come under fire for devaluing the Yen. The American government, among others, accuses China of keeping its currency artificially low.

The Chinese are upset over moves by various nations to block sales of companies to Chinese firms, both government-linked and private. On and on the list goes. The number of grievances is growing amid a stagnant global economy, and one can’t be blamed for wondering if this most recent spat is the prelude to larger global trade wars.