China just dropped a trade bomb on European brandyand investors are already repositioning. Starting July 5, the country will impose anti-dumping duties of up to 34.9% on European brandy imports. But there’s a twist: major cognac producers like Remy Cointreau (REMYF), Pernod Ricard (PDRDF), and LVMH’s Hennessy (LVMHF) secured exemptions by agreeing to a minimum price commitment deal with Beijing. For now, this could soften the blowespecially after a brutal drop in shipments last year triggered by preliminary tariffs. While access to the Chinese market is still impaired, the workaround gives these companies a much-needed breather in a critical region.

Remy Cointreau called the price deal a substantially less punitive alternative and said it expects the final impact to be far less restrictive than feared. That optimism showed up in the stock priceshares reversed a sharp early drop, while Pernod and LVMH also narrowed losses. Cognac industry leaders emphasized that China remains too important to lose, and this deal could be a short-term lifeline while broader trade tensions simmer in the background. This was obviously a crucial decision, said Jacques Roizen of Digital Luxury Group, citing China’s outsized role in global sales.

Behind the scenes, it’s part of a bigger chess match between China and the EU. The brandy duties came after Europe slapped tariffs on Chinese electric vehicles, and Beijing has been delaying moves on both frontspossibly to buy time. French officials are calling for de-escalation, with Industry Minister Marc Ferracci warning that trade wars only make losers. Still, signs are emerging that tensions could escalate again. According to Bloomberg, China is now considering canceling part of an upcoming EU summit. For investors, this brandy deal may offer short-term reliefbut the broader story isn’t cooling down just yet.

This article first appeared on GuruFocus.