China has taken another decisive step in its widening trade dispute with Europe, announcing provisional tariffs of up to 42.7% on dairy products imported from the European Union. The measures, set to take effect Tuesday, underscore how trade frictions between Beijing and Brussels are spreading beyond industrial goods into sensitive agricultural sectors, with potential implications for global food markets and cross-border investment sentiment.

Dairy Products Caught in a Subsidy Dispute

The new tariffs follow preliminary findings from an investigation launched by China’s commerce authorities in August 2024, examining subsidies provided under the EU’s Common Agricultural Policy and additional support offered by individual member states. According to Beijing, these subsidies unfairly benefited European dairy producers and caused material harm to China’s domestic dairy industry.

The provisional duties will range from 21.9% to 42.7% and apply to a broad basket of products, including milk, cream with a fat content exceeding 10%, fresh and processed cheeses, and specialty items such as blue cheese. For European exporters, the scope of the measures significantly raises the cost of accessing the Chinese market, which has become an important outlet for premium dairy products over the past decade.

Retaliation Linked to Electric Vehicle Tariffs

The dairy tariffs cannot be viewed in isolation. They are part of a broader tit-for-tat trade confrontation triggered by Brussels’ investigation into Chinese subsidies for electric vehicles. The EU subsequently imposed tariffs of up to 45.3% on China-made EVs, a move that Beijing has strongly criticized and repeatedly urged the bloc to reverse.

In response, China has opened a series of probes into European agricultural and consumer goods. Beyond dairy, Beijing has targeted pork and brandy imports, signaling a willingness to leverage access to its vast consumer market as a negotiating tool. Last week, China announced provisional tariffs of up to 19.8% on EU pork imports, while earlier this year it imposed duties of up to 34.9% on EU brandy, including French cognac, albeit with exemptions for several major producers.

Economic Stakes for Europe and China

Trade data highlight why these disputes carry weight. The EU runs a trade deficit with China exceeding €300 billion annually, a figure that has drawn increasing scrutiny from European policymakers. From Beijing’s perspective, defending domestic industries—particularly in agriculture, which remains politically sensitive—is central to maintaining economic stability and food security.

For Europe, the concern is less about immediate macroeconomic damage and more about cumulative pressure on exporters already navigating slowing global demand and shifting trade rules. Agricultural producers, especially in countries such as Ireland, Italy, and Finland, could face margin compression and be forced to redirect exports to alternative markets, often at lower prices.

Market and Policy Implications Heading Into 2026

The provisional nature of the tariffs leaves room for negotiation, but it also injects uncertainty into trade planning for both sides. Investors and companies are increasingly wary of policy-driven disruptions, particularly as geopolitical considerations play a larger role in trade decisions.

Looking ahead, the trajectory of EU–China relations will depend on whether both sides can de-escalate through compromise or whether disputes broaden further into other sectors. With multiple investigations ongoing and political pressures mounting, the risk is that temporary measures harden into long-term barriers. For global markets, the key issue will be whether trade tensions remain contained or begin to materially reshape supply chains and pricing dynamics in 2026.