Trump’s Trade War Shatters Hopes for Luxury Market Revival

Donald Trump’s trade war has crushed expectations for a recovery in the luxury market this year, as tariffs threaten to prolong the decline in demand for handbags and high-end watches. The US and China, key players driving global demand for luxury goods, have continued to raise import tariffs on each other’s products in a feverish trade dispute that threatens to seriously undermine consumer confidence in the two largest economies in the world, reports the Financial Times.

Analysts have responded by lowering growth forecasts for the entire industry. This week, it was projected that the luxury sector will suffer a revenue decline of 2 percent in 2025, reversing its previous growth forecast of 5 percent due to increased economic uncertainty and a heightened likelihood of a global recession. However, while Trump may still change course regarding his tariff plans, one banker told the Financial Times that ‘a lot of damage has already been done.’

LVMH’s head, billionaire Bernard Arnault, flew to Washington in late March to discuss potential tariffs with Trump, a long-time acquaintance. He also attended Trump’s inauguration in January and subsequently welcomed the ‘wind of optimism’ that swept through the US. The luxury tycoon stated at that time that he was considering increasing LVMH’s production in the US. Barclays expects that sales in LVMH’s core fashion and leather goods division, the pinnacle of the industry, will fall by 1 percent in the first quarter. Group sales are expected to remain the same compared to the same period last year.

Bernstein analyst Luca Solca has maintained his reduced estimates for the sector as a whole in 2025, even after Trump announced a 90-day pause on his ‘reciprocal tariffs’ for countries that have shown a willingness to renegotiate trade agreements with the US.

– Returning to previous numbers, as if what happened was just a bad dream, is out of the question. We have material damage in financial markets and in the economy as a result of volatile political announcements. Uncertainty is at its peak, which is otherwise an excellent backdrop for a recession – Solca said.

After the pandemic, luxury has become mired in crisis

After a historic boom during the pandemic, when consumers spent money on expensive bags and alcohol, luxury has become mired in crisis as middle-class buyers rein in spending and the Chinese economy falters. Trump has targeted China, a key market for the luxury sector. US tariffs on Chinese goods now stand at 145 percent, while China has responded by raising tariffs on imports from the US to 125 percent.

Most luxury products are manufactured in France and Italy, while high-end watches are produced in Switzerland. The US imposes 10 percent tariffs on all three countries, having lifted higher rates it initially imposed. One executive told the Financial Times that his company was forced to change tariff rates on shipments to the US three times in less than a week.

– The loss of trust is long-lasting, and uncertainty is absolute poison for consumer sentiment – he added.

The tariffs, as they stand today, are still more manageable for luxury companies than for many others, and stronger brands have more room to mitigate the impact by raising prices. But in an industry that relies on consumer trust, the deeper damage is psychological. The brutal sell-off in global stock markets this year will leave many luxury buyers nursing their wounds.

– If you look at what is happening with the stock market, you can basically predict the level of business in our boutiques – said Bruno Pavlovsky, president of the fashion division at Chanel, to the Financial Times last month.

Erwan Rambourg, CEO of HSBC, wrote that the risks for luxury lie in a combination of wealth destruction, limited consumer purchasing power in the US, and a general deterioration in consumer sentiment. HSBC now expects that sales will fall by five percent this year, compared to previous expectations that sales would remain flat compared to 2024.

Expectations for ‘mild growth’ in continental China, after a painful 2024, also seem increasingly unlikely. However, Hermès, the group behind the highly sought-after Birkin bags, is expected to continue its growth. Barclays analysts estimate that its sales will increase by eight percent in the first quarter. But problems at Gucci, Kering’s largest brand, have left the group significantly exposed to any downturn. Barclays expects Gucci’s sales to fall by 25 percent in the first quarter, while Bernstein warns that Kering is now ‘very likely’ to miss its guidance for unchanged revenues and operating profit in 2025.