Trump's 50% Tariff Threat Sinks European Luxury Stocks 3%

On May 23, U.S. President Donald Trump announced via social media that he proposed imposing a 50% tariff on all European Union (EU) goods starting from June 1. This announcement came as a shock to global markets, particularly the European luxury goods sector, which is highly sensitive to international trade dynamics. The EU, which produces a wide range of luxury items including handbags, shoes, and fashion apparel, relies heavily on the U.S. market for growth. The U.S. is considered the largest market for the European luxury goods industry this year.

The tariff threat led to a significant drop in European stock markets, with major indices in the UK and Germany falling by more than 1.5%. Luxury goods companies such as LVMH, Hermes, Kering, Prada, and Burberry saw their stock prices decline by more than 3%. The luxury goods sector is particularly vulnerable to trade tensions, as it heavily depends on exports to the U.S. France, the world's largest luxury goods market, employs over 600,000 people in this sector. Italy, another major producer of high-end leather goods, is also significantly impacted by this trade dispute.

Bernard Arnault, the founder and chairman of LVMH, recently stated that the EU must soften its stance on Trump's trade demands and reach a negotiated agreement to avoid high tariffs and protect European jobs. The U.S. is one of LVMH's most important markets, accounting for 25% of its annual sales. Claudia D'Arpizio, a partner at Bain Capital, noted that establishing a factory in the U.S. to circumvent tariffs is currently impractical due to the lack of skilled labor and expertise.

The luxury goods industry is one of the sectors most affected by U.S. tariffs, as companies have limited ability to relocate production to the U.S. Standard & Poor's (S&P) recently reported that pricing adjustments may be the primary method for luxury goods companies to mitigate the impact of tariffs. However, given the purchasing power of consumers, some brands may have limited room to raise prices.

The EU Commission declined to comment on Trump's latest threat, stating that it would await the outcome of a call between EU Trade Commissioner Maros Sefcovic and U.S. Trade Representative Jamieson Greer. Ambassadors from the 27 EU member states were also scheduled to hold a trade meeting in Brussels later that day. The escalating trade tensions between the U.S. and the EU have raised concerns about the potential impact on global economic stability, particularly as the world economy faces new pressures.