US president Donald Trump’s rapidly escalating trade war is significantly jeopardising the global luxury sector’s rebound. With Trump recently hiking tariffs against China to up to 245%, the worldwide luxury sector’s woes could be far from over.
The global luxury sector is likely to expand between 1% and 3% per year between 2024 and 2027, according to a recent reportby McKinsey.
This is compared to the personal luxury goods sector, which includes leather goods, fashion, jewellery and watches growing by 5% per year between 2019 and 2023 and by 9% annually between 2021 and 2023, McKinsey highlighted.
According to Bank of America, US consumers accounted for about 21% of worldwide luxury sector revenues in 2024, whereas Bain and Company estimated that China made up somewhere between 22% and 24% of global luxury consumption in 2023.
Footwear, handbags and leather goods and cosmetics and beauty products are some of the most consumed luxury products in both markets.
In the US, Gucci and Louis Vuitton were some of the top brands, while Chanel, Dior and Burberry were also popular. Chanel and Dior were two of the most consumed luxury brands in China as well, with Prada, Louis Vuitton, Rolex and Hèrmes seeing robust sales as well.
How could tariffs impact the worldwide luxury sector?
The global luxury sector has been struggling significantly in the last several months, as a slowing worldwide and Chinese economy caused consumers to considerably tone down on high-end spending.
The cost of living crises in several parts of the world, mainly due to a combination of high inflation and interest rates, further dampened luxury purchases, as consumers focused more on bargain hunting and buying long-lasting products.
During the latter end of the pandemic, when demand soared, several luxury companies also ramped up their prices, as well as their production. However, innovation and creative strategies failed to keep up, which eroded some of the exclusivity and appeal associated with these products.
Instead, smaller boutique brands, as well as breakout brands from bigger luxury groups, such as Prada’s Miu Miu, are seeing a boom in demand. There has also been a shift towards more wellness and luxury experiences over goods recently.
The constant US tariff announcements and changes over the last few days have wiped billions off stock markets worldwide, and have also severely impacted consumer confidence. This can have a very long-lasting effect on the luxury sector.
Currently, China’s tariffs against the US are at 125%, far below the US’s 245%. The US had imposed a 20% universal tariff against the EU, but has since lowered it to 10% for 90 days. This is on top of the 25% tariffs on steel and aluminium and cars for the EU.
Lululemon Athletica’s shares have already seen a 20.7% drop in the last month on the Nasdaq, whereas Prada Group has plunged 23.4% on the Hong Kong Stock Exchange in the same time period. Kering also plummeted 26.3% in the last month on the Euronext Paris exchange, with LVMH falling 19.9% during the same time too.
LVMH, which is seen as a bellwether for the wider luxury sector, saw its first quarter 2025 total revenue slide 2% to €20.3 billion. Revenue for its fashion and leather goods’ division dropped 4%, while staying stagnant for the perfumes and cosmetics branch.
The company’s wine and spirits division took a bigger hit, with first quarter revenue decreasing 8%, whereas its watches and jewellery revenue advanced 1%.
The US also imports a number of luxury goods from the EU, such as wines and spirits, cheese, chocolate, high-end clothing, furniture, cars and more. Although the US universal tariffs against the EU are still quite low, the range of goods imported may cause several price increases to be passed on to consumers, who could in turn cut back on these purchases.
The luxury sector also has quite an opaque and sprawling supply chain, which means that there could be several more hidden costs added due to tariffs as production parts travel between countries and continents.
Could tariffs boost demand for luxury knock-offs?
Trump’s tariffs against China have prompted some Chinese manufacturers to take to social media platforms such as TikTok and urge US consumers to buy knock-offs of luxury products, such as Birkin handbags and Lululemon leggings straight from their factories.
These producers, who often claim that they are the original equipment manufacturers for global luxury brands, offer these dupes at a fraction of the real brand’s price, claiming that they have been made with the same high-quality labour, products and equipment.
The claims, however, are unfounded. Despite this, DHgate, a Chinese online wholesale marketplace has soared to the number two spot on the US Apple app store.
