The turmoil of a trade war between China and Europe burst open this week as hundreds of employees at the Hennessy cognac factory in southwest France on Wednesday walked off the job for a second day to protest what unions said were plans to move brandy bottling to China.
Hennessy, owned by the French luxury giant Louis Vuitton Moët Hennessy, is exploring the move after China recently imposed steep financial penalties on European brandy imports, according to the Confédération Générale du Travail and Force Ouvrière unions, which represent Hennessy employees.
China last month raised the stakes in a trade dispute with the European Union by imposing temporary penalties on brandy from Europe and warning of possible tariffs on other European goods. The move by Beijing came after the European Union voted to proceed with higher tariffs on imports of electric vehicles made in China. France had led the push for the E.V. tariffs, and almost all the brandy targeted by China is made in France.
Hennessy did not immediately respond to a request for comment. The National Interprofessional Cognac Bureau, a trade group, said in a statement that brands could be “forced to explore all avenues” to blunt the impact of Chinese tariffs.
“Workers are very impacted and emotional,” Matthieu Devers, the CGT union leader at Hennessy, said Tuesday in a video posted on X, as nearly 500 workers halted production at the distillery. “They want to show their absolute opposition to the planned tests to move some production to China.”
Some workers from France’s other so-called Big Four cognac producers have joined the strikes, he added, including employees of Martell, a cognac house founded in 1715, and Rémy Martin and Courvoisier. Together with Hennessy, the brands produce the majority of the world’s cognac.
Hennessy and other brandy importers must deposit up to 39 percent of the wholesale value of shipments to China. Beijing, which has the option of turning the deposits into permanent tariffs, has accused European brandy producers of hurting Chinese producers by dumping brandy at unfairly low prices in the Chinese market.
Shares in LVMH, the world’s biggest luxury group, slid 3 percent on Tuesday, deepening a slump that set in after the company warned last month of an “uncertain economic and geopolitical environment” and published earnings that disappointed analysts. The stock recovered slightly on Wednesday.
Brandy producers have pressed President Emmanuel Macron of France to negotiate “a diplomatic solution” with China to ensure the tariffs do not become permanent. The penalties, unions warn, could push companies to relocate more cognac production to China, dealing a devastating blow to the spirits-producing region of Cognac and other parts of Europe where brandy is made.
Mr. Macron said Tuesday at the Group of 20 summit meeting in Brazil that he was confident the trade dispute with China affecting France’s cognac producers would be resolved. He added that he has asked Prime Minister Michel Barnier to visit China next year.
In the meantime, LVMH and other European brandy producers are scrambling to figure out a way forward — with few palatable solutions. According to the CGT union, Hennessy has plans to ship already-distilled cognac to China in vats, and bottle it there to avoid the brandy tariffs. The union described the plan as a “test” that could be carried out before the end of the year.
Video showed hundreds of workers massed early Wednesday morning outside the Hennessy brandy plant in Charente, the region of France where cognac production takes place. A strike could continue through early next week, when management is scheduled to sit down with employees. Around 17,000 people in the region are directly employed in Cognac production, and another 30,000 or so earn a livelihood from the business, in packaging, transport and other fields.
Cognac sales have slowed since pandemic lockdowns several years ago, and they have been hit further by falling sales in China and the United States more recently. In 2023, French brandy exports slumped in value by almost 15 percent, to 3.35 billion euros (about $3.5 billion).
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