A new trade war may have just started. This morning, the World Trade Organization ruled that the U.S. can impose tariffs on $7.5 billion of goods from the European Union.
Let’s investigate what this means for our favorite European luxury brands. (Spoiler: it’s fairly worrying.)
Where Did the Tariffs Come From?
Okay, there are lots of nitty-gritty details in this story, so we’ll try to break it down legibly. Basically, the EU violated the rules of the World Trade Organization (WTO) by providing $18 billion in government subsidies over the past fifteen years for Airbus, an aerospace manufacturer.
As retaliation for these violations, the Trump administration announced this year that it intended to levy tariffs of up to 100% on $11 billion worth of goods from the EU. This was a move the EU Trade Commissioner deemed “short-sighted” and “counter-productive,” according to CNBC.
A WTO panel ruled in the middle of last month that the U.S. would, in fact, be able to impose these tariffs. But the details of the report wouldn’t be released until today.
What Does This Have to Do With the Luxury Market?
So far, we have the story behind the beginnings of what may become a trade war. But how, exactly, does this affect luxury fashion?
Well, the scare started on September 15th when WTO made it clear that the Trump Administration’s proposed tariffs would be legal. These tariffs—up to a whopping 100% on EU goods!—would affect aircraft and aerospace parts, as expected given the Airbus scandal, but also luxury goods.
The Monday after this ruling, shares of LVMH fell 4.4%, Bloomberg reported, and those of Hermès International fell 1.5%, Yahoo reported. It’s worth noting that the U.S. makes up about a quarter of LVMH’s revenue. Unrest in Hong Kong has also affected the security of luxury companies during this time.
According to Bloomberg, LVMH Chief Financial Officer Jean-Jacques Guiony said in July that the company is “sensitive to tariffs and trade barriers.” Essentially, these make the dissemination of luxury goods to other countries much more tricky.
What Could This Mean for Buying Luxury Handbags?
In the luxury goods sector, the U.S. levies target two areas in particular: wine & spirits, and leather goods. It’s not a stretch to say that most of our favorite designer bags come from European brands (Chanel, Hermès, Goyard, LV, anyone?). So it looks like they will be affected, unless the EU can convince President Trump otherwise.
Many officials on both sides of the Atlantic are hoping to avoid further trade tensions, but as the Washington Post reported, U.S. Trade Representative Robert E. Lighthizer has promised to implement the tariffs on European aircraft and consumer goods immediately after today’s ruling.
All of this means bad news for U.S. consumers. Luca Marotta, the CFO of Remy Cointreau SA, said that the tariffs will immediately lead to higher costs of which consumers will bear the brunt. Such is our fate unless the current administration changes course.
For now, we simply don’t know what this will bring. Will the Trump Administration start out with 100% tariffs on, for example, Hermès handbags? Well, that’s pretty unlikely, but we will need to keep our eyes glued to the headlines in the coming months to see how this will affect the luxury fashion market in the U.S. and around the world.
Are you concerned about the global state of affairs with respect to the luxury market? Let’s talk below.
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