China has imposed taxes on imports of European brandy in a move that France has said is retaliation for recent big tariffs the EU announced on Chinese electric vehicles.
The European Commission said it would challenge China's tax at the World Trade Organization (WTO), calling it an "abuse" of trade defence measures.
But China said the move was an "anti-dumping" measure that would protect its domestic producers.
French brandy producers said the duties, which will hit big brands including Hennessy and Remy Martin, would be "catastrophic" for the industry.
Shares in brandy companies dropped after the announcement.
China announced new restrictions on European brandy just days after EU countries approved steep tariffs on Chinese-made electric vehicles.
China's commerce ministry said brandy imports threaten "substantial damage" to its own producers. Importers will have to pay "security deposits" on European brandy.
China is also considering new tariffs on other EU imports including cars, pork, and dairy.
It has said EU tariffs on its electric vehicles are a breach of global trade rules.
French Trade Minister Sophie Primas said the brandy tax "seems to be a retaliatory measure" after the European Union decision to raise tariffs on Chinese electric cars.
She said that kind of retaliation would be "unacceptable", and a "total contradiction" of international trade rules, adding that France would work with the European Union to take action at the WTO.
France accounts for 99% of brandy exported to China, and French cognac lobby group BNIC said the move would be "catastrophic" for the industry.
"The French authorities cannot abandon us and leave us alone to deal with Chinese retaliation that has nothing to do with us," BNIC said, adding that the taxes "must be suspended before it's too late".
Shares in companies that sell spirits took a battering after the Chinese announcement.
Luxury firm LVMH, which produces Hennessy, fell more than 3%, while Remy Cointreau, which makes Remy Martin, fell more than 8%.
Analysts at Jefferies estimate that the tariffs could translate into a 20% price increase for consumers, which would probably lead to volumes and supplier sales falling by a fifth.
Shares in German carmakers, which could also be hit by tariff moves from China, also slid.
Volkswagen, Porsche, Mercedes-Benz and BMW were all down after the announcement.
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