China-EU trade war: what UK food and drink stands to gain… and lose

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Tensions between Beijing and Brussels are running high – and UK pork and alcohol suppliers are watching with bated breath

The world is currently watching from the sidelines as tension grows between the EU and China.

The Asian economic powerhouse last week revealed the findings of an investigation it opened in January this year into European distillers, claiming there was evidence they were dumping their liquors in Chinese markets. That followed another high-profile anti-subsidy investigation into pork and dairy products from the EU.

Both were widely seen as Beijing’s retaliation for Brussels’ proposals to adopt additional duties of up to 36.3% on Chinese-made electric vehicles across the EU from October. Indeed, it shouldn’t be underestimated how much China is prepared to stand against EU lawmakers, making full-blown trade war a very real possibility.

“The European side continues to escalate trade frictions and could trigger a ‘trade war’,” the Chinese commerce ministry warned in June.

But what would the implications be on global supply chains? And what does the UK have to gain – or lose?

UK-China trade figures: an overview

In 2021, China was the biggest buyer of UK pork from non-EU countries, according to figures from the Agriculture & Horticulture Development Board (AHDB).
The UK sold £240m worth of pork to China that year, along with £200m worth of whisky and £46m of salmon.
In the first half of 2023, exports to China in value terms were up nearly a quarter, Food & Drink Federation analysis of government trade data shows.
Whisky exports to China in H1 2023 rose the most (up 38%), but there was strong growth in salmon (57%), protein concentrates (89%) and cheese (296%).
By the end of 2023, total exports of food, feed and drink to China amounted to £761m, remaining pretty much unmoved from the year before.
But exports have slowed since. In the first quarter of 2024, FDF data showed China was the UK’s seventh-largest exports market, with £167m worth of British food and drink goods sold to the country – down 13.5% compared with the same period last year.

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If the Chinese press ahead with applying tariffs on meat and dairy and spirits industries, it could be devastating for those EU exporters who count the country as a major market. But it could also mean a total rerouting of global supply chains, where other countries might have to step in to fill gaps.

Take pork. China is a huge market for pigmeat byproducts including ears, snouts, tails and feet, allowing EU and UK exporters to maximise the whole carcase value of their pigs. EU pork products make up 50% of all China’s pork imports, making it a hugely significant market for European producers.

The outcome of China’s probe into EU pork imports could not only affect the European market but also “have a ripple effect across the global market”, says Chenjun Pan, senior analyst (animal protein) at Rabobank.

“A suspension of EU exports or high tariffs could mean global pork trade flows are rerouted as China finds new origins and EU exports flow to other regions,” Pan says. “If EU exporters offer discounts to capture new markets, importing countries may need to support and protect local producers. Meanwhile, other exporting countries may find their traditional trade partners shift to cheaper EU pork products.”

China represents “a vital export market for British pigmeat”, notes National Pig Association senior policy adviser Tom Haynes. The UK exported almost £180m worth of pigmeat to China in 2023, representing 63% off all non-EU exports, according to the NPA.

Richard Hampton, AHDB international trade development director, says its members are “well aware of the potential” for closer trade with China in the event its relations with the EU degrade.

However, he insists “it’s just one of the many big macro-trade issues impacting the environment” in which meat and dairy producers and processors operate. “It’s very hard to form a conclusion until this process has moved on substantially in the coming months,” he says.

Moreover, Haynes warns China could apply the same crackdown tactics on UK producers just as easily.

“While it is true to say there could be some scope for additional produce to be exported to China, we have significant concerns about the prospect of Chinese actions similar to those seen in the EU,” he says.

There will also be “significant amounts of additional EU pigmeat floating around on the global market”, he notes, which will likely lead to a global drop in pig prices and impact EU and UK producers alike.

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Spirits makers targeted

Meanwhile, European spirits makers are also now the target of the Chinese Ministry of Commerce (Mofcom), which claimed to have found that EU distillers had been selling brandy in the country at a dumping margin in the range of 30.6% to 39%, negatively impacting its domestic industry.

It then unveiled proposals to introduce provisional anti-dumping duties of 34.8% on imports of EU wine-based and marc-based spirits such as brandy, much to the shock of European producers, who vehemently reject the accusations.

Beijing said the alcohol duties would not be applied for now. But trade group SpiritsEurope claims the sector has become a “collateral victim of a broader trade conflict”. This could significantly affect spirits exports to China – the world’s largest spirits market and second-biggest export market for the French cognac sector after the US, according to BNIC, France’s cognac governing body.

French cognac maker Pernod Ricard told The Grocer last week the potential duties were “something we are fully modelling for internally”.

Ian Wright, co-chair of the UK Food & Drink Export Council, says there is a possibility that demand for UK spirits imports in China could grow in the event of higher tariffs and shelf prices for EU booze. The UK is the third-biggest exporter of hard liquor to China – with whisky particularly well-established among Chinese consumers – topped only by Singapore and France.

But he also warns that a Donald Trump US election win in November would mean an even tougher stance from the US and subsequent retaliation from China. “The UK will have to pick a side,” Wright says, noting it’s unlikely it won’t align with the EU and the US.

“The question is, how do individual businesses and individual sectors come up with strategies that allow them to find a way through all of this… particularly if their business strategy is based on a fairly significant expansion of activities in China?” Wright adds – “for instance if they’ve just built a distillery there.”

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Short-term opportunities

So, while “there may be some short-term opportunities” for UK producers, he notes “the important point for anyone seeking to take advantage is to work through what that could entail in terms of making commitments to particular investments that might end up being extremely difficult to realise”. Such difficulty could arise from wider US-China-EU relations becoming more turbulent.

“You don’t want to get massively invested in China and then find you simply can’t get out of the commitments you’ve made, and that you’ve spent so much money that you’re just not going to find a return.”

It is advice to bear in mind as Britain’s trade relations with China are about to be made easier, with both set to join the Comprehensive & Progressive Agreement for Trans-Pacific Partnership. The CPTPP is a trade bloc consisting of 11 countries spanning the Asia-Pacific and the Americas – including Australia, New Zealand, Canada, Japan and Mexico – in which members enjoy reduced and/or free tariffs.

The UK government said last week it was on track to join the free trade group in December.

Meanwhile, the Chinese government said in March this year it was determined to “speed up” its accession to the CPTPP.

AHDB, which has calculated the benefits of the UK joining the CPTPP, has previously said that “further opportunities for UK red meat and dairy may also be presented by other countries such as China, Taiwan, Ecuador, Costa Rica and Uruguay joining the CPTPP, with the offering of preferential terms and either lowering or removing tariffs over time to other members”.

So the trade opportunities are clearly available, but they will be determined by constantly shifting geopolitical and trade dynamics. It’s also worth noting that China’s booming consumer market relies heavily on EU goods (European exports to China are valued at €224bn) – and vice-versa – so it’s clear both sides would prefer to avoid an all-out war.

But with the US also potentially playing a role in this in the future, experts say it’s too difficult to make reliable forecasts. For now, no option can be discarded, and UK businesses should pay close attention.