- Luxury brands face uncertainty after Donald Trump won the US presidential election.
- His victory spells trouble for the sector’s hopes of a comeback in China.
- Looming tariffs and rising nationalism could weigh on retailers looking to boost demand in China.
America has elected a new president, opening up an uncertain future for luxury brands looking to boost sales in China.
Trump’s threats of imposition 60% tariff on products from China now it can become a reality.
Experts say that if Trump goes through with his plans for a trade policy reversal, it could be a double-edged sword for luxury players operating in the US and China – a market that has become a thorn in the side of heavyweights such as sh. LVMH and Kering.
In the US, perceptions of Trump as more pro-business than his opposition could support the stock market and strengthen consumer sentiment for luxury brands.
But in China, the new tariffs will have a negative impact on the economy and could affect consumer spending in the region.
Tariffs further complicate matters of luxury in China
China has been a reliable cash cow for luxury brands for decades.
But to The golden days for some brands in China seem to be fading.
A combination of macroeconomic issues, such as the ongoing property crisis, deflation and high youth unemployment, have weakened the world’s second-largest economy and weighed on consumer confidence, dampening demand for luxury goods.
While Beijing announced another stimulus package on Friday to boost the faltering economy, it is unclear whether consumers will regain confidence to resume spending.
In recent quarters, luxury giants such as LVMH, Kering and Richemont have reported declining sales in China. Trump’s potential tariffs now present a new challenge.
Jelena Sokolova, a senior retail analyst at Morningstar, told BI: “More tariffs on Chinese goods could be a further negative for the Chinese economy, which is facing a real estate crisis and is a from the weak points of luxury.”
While executives at major luxury retailers are likely to have contingency plans to weather the storm of drastic US-China trade policy changes under Trump, Martin Roll, global business strategist and senior adviser at consulting giant McKinsey, said to Business Insider that they will also endure see how serious he is about a 60% tariff on Chinese imports.
Luxury brands have struggled in China. Cheng Xin/Getty Images
With more trade tariffs on Chinese goods and tax cuts, inflationary pressure in the US could continue, Gary Ng, a senior economist at Natixis, told BI by email.
“This could limit the scope for China to cut interest rates to support growth due to concerns about capital outflows,” he added.
Corporate earnings could also be hit by the pressure facing the export-oriented sector, he said. “Along with economic uncertainty, the disposable income and wealth effect may see a smaller rebound.”
At a time when luxury players are pinning their hopes for a comeback in China on aspiring consumers feeling the confidence to spend as they did after the pandemic, Ng said those buyers may choose to “stay cautious and save more for rainy days”.
Rising nationalism does not bode well for luxury
Trump’s return to the White House is a signal of a broader issue facing luxury brands – rising nationalism.
The biggest challenge all luxury brands face is trying to connect with consumers in local markets, Daniel Langer, CEO of brand development and strategy firm Équité and a luxury professor at Pepperdine University, told BI via email. .
“Cultural capital is the name of the game in today’s world. The global one-size-fits-all approach that many brands still follow no longer works,” he said.
Donald Trump has threatened to raise tariffs on Chinese exports. Justin Sullivan/Getty Images
But Roll said Western brands, including those in the luxury sector that have struggled to attract Chinese consumers, may find it harder to do so simply because they are from the West.
“We live in an age of national sentiment,” he said, citing China, Russia, the US and the rise of right-wing populism in Europe as examples.
“It won’t get any easier being Apple. It won’t get any easier being LVMH. It’s not going to be any easier to be any kind of retail brand in China, at least in the foreseeable future.”