European Luxury Goods Industry Faces Major Downturn Amid New US Tariffs

The European luxury goods industry is confronting its most significant downturn in over two decades, with sales projections for 2025 now anticipating a 2% decrease—a stark reversal from earlier forecasts of 5% growth. This decline is largely attributed to escalating trade tensions following U.S. President Donald Trump's recent imposition of sweeping import tariffs.

On April 2, 2025, President Trump announced import tariffs ranging from 20% to 31% on European Union (EU) and Swiss luxury products. These measures have led to retaliatory actions from China, further destabilizing global stock markets and diminishing consumer confidence, particularly in the United States—a key market for luxury goods. Major European luxury brands, including LVMH, Kering, Hermès, and Richemont, have experienced notable stock declines and are considering strategic price adjustments in response to these tariffs.

The S&P 500 fell 1.6%, the Dow Jones lost 320 points, and the Nasdaq slipped by 2.1% following the tariff announcements. Major technology companies have seen substantial declines, shedding over $2 trillion in market value since the sell-off began. Global corporations are facing challenges as high tariffs imposed under President Trump's administration are set to take effect globally, leaving them with no viable alternatives to avoid import taxes. Unlike in his first term, when companies could shift manufacturing from China to other countries like Vietnam or Cambodia, new tariffs now apply to nearly all nations, eliminating the opportunity for tariff arbitrage. The rapid and expansive nature of these changes marks a stark departure from the historically gradual trade policy shifts, signaling tougher conditions ahead for multinational firms.

German luxury carmaker Porsche reported an 8% decline in global vehicle deliveries for the first quarter of 2025, totaling 71,470 units. This decrease was largely driven by reduced demand in China and Europe, with deliveries dropping 42% and 10% year-on-year in those regions, respectively. In Germany, the decline was even more significant at 34%, with 7,495 vehicles delivered. Conversely, Porsche saw robust growth in North America, where deliveries increased by 37% to 20,698 units, partly due to import-related delays that had affected the previous year's deliveries. This trend mirrors broader market challenges, as Mercedes-Benz also reported a 7% drop in Q1 sales due to weak demand in China and Europe.

The Swiss watch industry is facing significant challenges following the announcement of new U.S. tariffs by President Trump, imposing a 31% import tax on Swiss goods and 20% on European Union imports. This move has caused immediate concern among watch retailers and manufacturers, with vintage watch sellers like Sacha Davidoff grappling with the financial burden and the potential loss of U.S. customers. The U.S. is Switzerland’s largest foreign market, accounting for 16.8% of watch exports, or 4.4 billion Swiss francs. Swiss watchmakers, particularly Richemont and Swatch Group, are expected to experience increased financial pressure, exacerbating existing issues from a difficult 2024, including a significant sales drop in China. Industry insiders attending the Watches and Wonders show in Geneva expressed tension and uncertainty, and many high-profile brands declined to comment on the tariffs. With the American market being crucial, especially amid a potential economic slowdown in China, the Swiss watch industry fears the tariffs could trigger a market freeze or decline.

Analysts anticipate a 2.2% decline in Q1 earnings for European companies, reflecting growing concerns about the impact of global trade tensions. This revised forecast is significantly worse than the 1.5% drop anticipated just a week earlier and a dramatic shift from the 3.5% growth expected back in January during Trump's inauguration. Despite the fall in profits, revenue projections have slightly improved, with analysts forecasting a 4.4% increase compared to 4.2% last week. These developments come amid market volatility, with the STOXX 600 index plunging 9.3% since April 2, reversing its positive early-year gains. The ongoing tariff dispute has roiled global markets and raised fears of a potential recession. As companies reevaluate their supply chains and financial assumptions, analysts anticipate a wave of corporate profit warnings. The European earnings season begins next week with major firms such as Publicis, LVMH, ASML, and L’Oreal set to disclose their quarterly results.

Italian Prime Minister Giorgia Meloni is scheduled to meet with President Trump on April 17 in Washington to address the United States' new tariffs on European Union imports. The EU is facing steep duties—25% on steel, aluminum, and vehicles, and 20% on almost all other goods—under Trump’s protectionist trade policy. Meloni supports the European Commission’s proposal for a "zero-for-zero" tariff deal to avoid a trade war. The meeting comes as Meloni balances her nationalist alignment with Trump and her responsibility to defend Italy’s trade interests within the EU. Italy had a €40 billion trade surplus with the U.S. last year, making the situation especially pressing for its export-driven economy. Meloni criticized the tariffs as harmful to both European and American economies. To mitigate the impact, Italy plans to reallocate EU funds, with €14 billion from post-COVID recovery plans, €11 billion from regional development funds, and €7 billion from climate initiatives. Amid growing economic uncertainty, Italy is also revising its GDP growth forecasts downward for 2025 to 0.6% from 1.2%, and to 0.8% in 2026 from 1.1%.

The current downturn in the European luxury goods sector is the most significant since the Great Recession. During that period, the industry faced similar challenges due to economic instability and reduced consumer spending. However, the current situation is compounded by direct trade policies, such as tariffs, which add an additional layer of complexity and potential long-term impact on the sector.

The European luxury goods sector is navigating a complex landscape shaped by aggressive trade policies and global economic uncertainty. As brands grapple with declining sales and market volatility, strategic adjustments and diplomatic efforts will be crucial in mitigating the impact of these challenges.