Could Hermes And Dior Be Next On China’s Tariff Hit List?

European luxury stocks have experienced a decline, fueled by investor anxiety that high-end brands like Hermes and Dior could be collateral damage in the escalating trade conflict between the EU and China. Following the EU’s decision to impose tariffs on Chinese electric vehicles (EVs), analysts speculate on Beijing’s possible response.

Analysts Downplay Luxury Targets

Despite fears of a broader retaliation, experts believe that targeting luxury goods is unlikely. Patrice Nordey, CEO of a Shanghai-based innovation consultancy, expressed skepticism: “While escalation is probable, I don’t foresee luxury items being targeted.” Thus far, China’s counteractions have primarily affected French products such as brandy, pork, and dairy, which are key sectors for France.

Luxury Market Dynamics

Shares of major luxury brands, including LVMH and Kering, fell between 2% and 6% after China announced temporary anti-dumping measures on brandy imports. Jacques Roizen, managing director of a consulting firm, noted that targeting luxury goods contradicts China’s favorable policies towards luxury brands. The Chinese government aims to retain luxury spending within its borders, enhancing tax revenue instead of losing consumers to overseas markets.

Economic Implications of Targeting Luxury

With China’s luxury market projected to represent 25% of the global total this year, the impact of any tariffs on imported luxury goods could be substantial for European conglomerates. In 2022, French brandy exports to China reached $1.7 billion, accounting for nearly all imports of that spirit in the country. Moreover, last year saw imports of European luxury goods into China totaling €11 billion ($12 billion).

Avoiding a Full-Scale Trade War

Experts suggest that the considerable size of the luxury goods sector makes it a less likely target for Beijing’s retaliation. Albert Hu, an economics professor, highlighted the mutual interest in avoiding a full-scale trade war, which could harm both economies. The Chinese government’s calculated approach to its retaliatory measures indicates a willingness to negotiate and seek compromise with the EU.

Challenges of Justifying Luxury Tariffs

The nature of the luxury market also complicates claims of dumping. As Jelena Sokolova, a senior equity analyst, pointed out, “It’s hard to justify that there is a case for dumping $2,000 handbags,” underscoring the unique positioning of luxury items in trade discussions.

(INCLUDES INPUTS FROM ONLINE SOURCES)

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