Trump’s Win Spells Trouble for a Luxury Comeback in China

• 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 the rise of nationalism could affect retailers looking to boost demand in China.

America has elected a new president, paving an uncertain future for luxury brands looking to boost sales in China.

Trump’s threats of imposing 60% tariffs on products from China could now become reality.

Experts say that if Trump makes good on his plans for a trade-policy upheaval, it could be a double-edged sword for luxury players that operate in the US and China — a market that has become a thorn in the side for heavyweights such as LVMH and Kering.

In the US, perceptions of Trump as more pro-business than his opposition could support the stock market and bolster consumer sentiment for luxury brands.

But, in China, new tariffs would negatively affect the economy and could impact consumer spending in this region.

Tariffs further complicate luxury’s China issues

China has been a reliable cash cow for luxury brands for decades.

But the golden days for some brands in China seem to be fading.

A combination of macroeconomic issues, such as an 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.

While Beijing announced another stimulus package on Friday to boost the faltering economy, it’s unclear whether consumers will regain the confidence to start spending again.

In recent quarters, luxury giants such as LVMH, Kering, and Richemont have reported falling sales in China. Trump’s potential tariffs now present a fresh 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 grappling with a real estate crisis and is one of the weak spots in luxury.”

While leaders at major luxury retailers likely have contingency plans to weather the storm of drastic US-China trade policy changes under Trump, Martin Roll, global business strategist and senior advisor at consulting giant McKinsey, told Business Insider they’ll also be holding out to see how serious he is about a 60% tariff on Chinese imports.

With more trade tariffs on Chinese goods and tax cuts, US inflation pressure may linger, Gary Ng, a senior economist at Natixis, told BI over email.

“This may limit the room for China to lower interest rates to support growth due to the concern about capital outflows,” he added.

Corporate profits could also be hit by the pressure facing the export-oriented sector, he said. “Together with the economic uncertainty, the disposable income and wealth effect may see a more minor rebound.”

At a time when luxury players are pegging their hopes of a comeback in China to aspirational consumers feeling the confidence to spend as they did after the pandemic, Ng said those shoppers may opt to “stay cautious and save more for rainy days.”

Nationalism’s rise doesn’t play well for luxury

Trump’s return to the White House is a signal of a wider issue facing luxury brands — rising nationalism.

The biggest challenge all luxury brands have is trying to connect with consumers in local markets, Daniel Langer, CEO of brand development and strategy firm Équité and a Pepperdine University luxury professor, told BI via email.

“Cultural capital is the name of the game in today’s world. A global one-size-fits-all approach that many brands still pursue does not work anymore,” he said.

But Roll said Western brands, including those in the luxury sector that have been struggling to appeal to Chinese consumers, may find it harder to do so simply because they are from the West.

“We live in an era of national sentiment,” he said, citing China, Russia, the US, and the rise of right-wing populism in Europe as examples.

“It’s not going to be easier to be an Apple. It’s not going to be easier to be an LVMH. It’s not going to be easier to be any type of retail brand in China, at least in the foreseeable future.”