'If China imposes duties on the EU it will skew the global dairy market in favour of those not in trade wars over electric cars'

Cheap – well relatively cheap – electric cars from China might seem a distant concern for dairy farmers, but these two industries are wrapped in a potentially damaging trade dispute.

Such events rarely turn out well – and in this latest trade battle dairy farmers are certainly weaker players than the Chinese government, with its successes in affordable electric vehicles targeted at export markets.

Trade disputes and tariffs rarely produce good results for either party. In this case the European Union triggered an inevitable response from China when it launched plans to impose 'countervailing duties' on Chinese imports. The rate ranges from 17 to 36%, depending on the manufacturer, with the highest duty rate targeted at SAIC – the manufacturer of cars sold in Europe under the MG brand name.

In a bid to impose these duties within World Trade Organisation rules China said it was taking the action to protect European car and battery makers from what it claimed was unfair competition. This was based on claims that the Chinese government subsidises its EV (electric vehicles) industry and exports in particular.

Not surprisingly the Chinese government disagrees and it has hit back with planned duties of its own, targeted at EU dairy products. This is a big threat to farming and the food industry, as China is generally in the top three destinations for European food exports, along with the UK and United States. It is a vital market for dairy products for EU and southern hemisphere suppliers, with sufficient demand to be the balancing factor for global market stability.

If China imposes duties on the EU it will skew the market in favour of those not in trade wars over EVs – although Canada is also likely to fall foul of China, because it has taken unilateral action against Chinese EV imports.

China is seeking to do this within the WTO rules. It secured an official complaint from the Chinese dairy industry about subsidies received by European dairy farmers and processors. It is now in the process of compiling a detailed dossier of every subsidy given in the EU, from CAP support to promotional programmes for exports.

Its aim is to show that the level of support is no different to the support Brussels has accused the Chinese government of giving to its EV industry. Unless Brussels or Beijing backs down this dispute will not be easily resolved in the WTO. Its decisions take a long time and by the time any view is reached the damage to the dairy industry will have been done.

China has always been a prime market for milk powders, but with a growing middle class population it is also a good outlet for higher value products and ingredients. It is an important market for infant formula, which is a key product for the Irish dairy industry. Duties on Chinese EVs will only serve to take new cars further out of the reach of private buyers, as they represent the cheapest new EVs available. This will make it even more difficult to achieve the goal of eliminating new petrol and diesel cars by the mid 2030s.

Where this leaves the UK is difficult issue. As it is not an EU member state it does not have to follow what Brussels does. However things are more complex and the motor trade view is that the UK will have to impose the same duties as the EU. This is because it depends on other post-Brexit agreements to trade cars and components in the EU without punitive duties.

If and when this is confirmed the Chinese government will widen its investigation into dairy industry subsides to include the UK. This is bound to deliver a negative result, regardless of the facts, as the message from the Chinese government to its economists compiling the European reports is to find facts to justify the action it wants to take – or more accurately at this stage the threat wants to make.

The Chinese have been careful in its picking of the European products to target. It could have gone for the high value drinks industry, but targeting agriculture is more politically sensitive and divisive between member states for Europe.

Trade disputes always end in compromise – but it takes time to get there. Until that happens dairy farmers could be the losers from this latest tension between two global trade superpowers.