What a Trump Win Would Mean For Luxury

    As America gears up for its November election results, Jing Daily looks at the impact a Trump vote would have on the luxury industry.
    As America gears up for its November election results, Jing Daily looks at the impact a Trump vote would have on the luxury industry. Photo: Shutterstock.
      Published   in Finance

    Key takeaways#


    After banning social media applications, closing consulates in Washington and Chengdu, and blaming China for the virus’ outbreak, Trump’s anti-Chinese rhetoric is unlikely to de-escalate if he’s elected.

    A continuation of Trump’s taxes on foreign luxury goods could have a positive impact on fashion companies in the US, but mostly for big companies rather than small to medium-sized businesses.

    The fashion industry is widely considered to be progressive and has mostly come out in support of Joe Biden. But Trump has found some supporters in the ranks.

    Millions of Americans have already cast their postal vote in the 2020 presidential election, which takes place amid the most polarized electorate in US history. After four years of an unconventional and equally unpredictable Donald Trump presidency, leviathan chasms now exist between both sides, with pro-Trump fans on one and everyone else on the other.

    Under this Presidency, the luxury and wider fashion industry has become more vocal than ever before on political issues. Industry leaders like Philip Lim, Prabal Gurung as well as Nike and Adidas have all spoken out to some degree against his actions.

    Trump’s legacy thus far started with a first election campaign run on calls for a border wall with Mexico and a crackdown on immigration – both are rallying cries of this second campaign too. Soon after being elected, he quickly set about trying to dismantle some of his predecessor’s actions, including environmental policies and the Affordable Care Act.

    Then, at the start of 2020, the coronavirus hit. Since it's outbreak, Trump has been widely criticized for his handling of the outbreak. Trump’s administration has also continuously ramped up anti-China rhetoric, and his trade war with the country has paved the way for chilly relations between the two countries — a situation that is unlikely to stabilize should he be re-elected.

    Additionally, he has presided over the biggest mass protest in US and global history over the murder of George Floyd (and others). Now, on the precipice of this election and facing the possible untold economic and political effects of another four years of a Trump presidency, the luxury industry finds itself at an intersection: it must embrace our responsibility to take issues of injustice, sustainability, and equal treatment into our own hands.

    The fashion industry has come out more unequivocally in support of Trump’s Democratic rival, Joe Biden. Yet, Trump has found some supporters in the ranks, from New Balance to Estée Lauder. His fan base can never be written off though - nor his potential refusal to accept the election results.

    Now, thanks to a litany of issues, Trump is currently trailing in the polls. But if he does win this election, how would it impact luxury and US-China relations? Jing Daily takes a closer look.

    Even more US-China tensions? Yes, it’s possible.#

    China seems to have won its battle against COVID-19, and its economy and retail sales are rebounding well. Domestic designers and tech companies are gaining ground at home and elsewhere, too: Fast-fashion brand Shein, for one, has found a new millennial audience in the US.

    China and America have never been good bedfellows. Under the stewardship of Trump, the relationship has reached its lowest point since the Nixon years. Trump’s first three years in office were strikingly harsh against China trade. But at that point, domestic Chinese expansion or its internal policy was less worrying: from the rollout of 5G masts from Chinese mobile giant Huawei to the human rights abuses against the Uighur population (and the cotton production facilities that were linked to numerous notable fashion brands).

    His strategies have come under further scrutiny with the uncovering of a bank account in China and the knowledge that he paid roughly 200,000 in Chinese taxes. According to Tommy Wu, Lead Economist at the forecasting firm Oxford Economics, China’s growth on the international stage indicates that we will see a further decoupling of the US and China - regardless of which candidate wins.

    "Chinese spending in the US is linked to a welcoming visa policy and environment as well as a favorable foreign exchange."

    The Holding Foreign Companies Accountable Act, which was passed in May, could force up to 200 Chinese companies to delist and re-enlist back home, including Alibaba. This legislation comes at a time when Chinese tech company shares are soaring. Other antagonisms like rare consulate closures in Washington and Chengdu, attempts to ban Chinese apps like WeChat, and interference with the Chinese company ByteDance-owned app TikTok have also added fuel to the fire.

    According to Ben Cavender, managing director at China Market Research Group, the trade war has taken a backseat to COVID-19 and the economy over the last couple of months. “If Trump wins, there will be a lot of discussion about the general economy, so there might not be the bandwidth to keep the tariffs up. The focus will be more on how to stabilize things in the US economy.”

    Either way, retaliations from both sides are reimagining what many have called a new Cold War — one that might be difficult to unwind. Therefore, if Trump is re-elected, his aggressive anti-Chinese stance is unlikely to dissipate and could alienate Chinese Americans, and limit Chinese migrant and tourist movement.

    Given China’s pivotal spending in the sector, Mario Ortelli, Managing Partner at the M&A advisory boutique Ortelli & Co, suggested that a Trump win could further threaten luxury’s future, which depends on a healthy economy and happy consumers. “Chinese spending in the US is linked to a welcoming visa policy and environment, as well as, a favorable FX [foreign exchange],” he said.

    But he also noted that it could have positives too such as lower taxes and higher discretionary spend. Regardless of the outcome, he sugged: “The customer should have a wallet full of money and the mindset to spend it. Whatever leaves them with more disposable income — like, for example, lower taxes — and peace of mind allows them to invest and splurge, which is better for luxury.”

    A cooling-off of the trade war is unlikely given how politicized the debates have been, and Trump resolutely wants to be seen to be 'tough on China.' A number of the aforementioned issues, from China’s industrial practices to COVID-19, means that it's unlikely to stay out of the spotlight for very long.

    A tariff blowback, but also a silver lining?#

    Luxury goods could be under additional fire if Trump is voted back in, says Wu. He argues that under a Trump administration, there will be a smaller chance that the US will have a consensus with the European Union regarding the global tax reform of multinational companies, with US tech giants being the notable targets.

    “This means that there will be a higher chance whereby the EU or individual European countries will unilaterally raise taxes on these companies, and in such case, the US will retaliate, and luxury goods will be a likely target,” Wu explained. The US has already targeted France over its tax on tech companies by placing 25-percent tariffs on 1.3 billion worth of French goods, including luxury, handbags, and cosmetics. This are earmarked to go into effect in January 2021.

    "Consumers are keener on spending more on luxury when the economy is positive, and they are paying less tax."

    Other commentators like Ortelli agreed with this assessment, which is worrying news for luxury brands and conglomerates. But on the flip side, if Trump should decide to apply import taxes on foreign products of different categories and origins, then the disposable income of the wealthy would be protected.

    “Consumers are keener on spending more on luxury when the economy is positive, and they are paying less tax. But, in case of higher import taxes on European luxury goods, there can be a negative impact on the sector,” Ortelli said.

    On the other hand, some are hopeful that a Trump win might, in fact, see him distracted again — this time from tariffs. “I think also we are probably looking at a scenario where he tries to de-escalate on the tariffs front,” Cavender said, adding, “calling things “a win,” even if nothing really changes.

    "It’s unlikely we’ll see more aggressive tariffs — particularly as the dollar is weakening right now. So this should, in theory, make US exports more appealing to overseas buyers more — so this adds to his story of resetting the trade balance.'”

    Should Trump be re-elected, a continuation of taxes on foreign luxury goods could have a positive impact on fashion companies in the US — although those benefits are more likely to be felt by bigger over small to medium-sized businesses. Smaller companies should also be further hampered by the recent announcement that Trump is delaying additional Coronavirus stimulus packages.

    As Cavender explained, Trump has always favored big corporations, and this is unlikely to change. “With Trump, you’re likely to see large amounts of interest directed to corporations, and if you have the connections, you’ll have more access to unrestricted cash to use any way you want,” Cavender explained.

    But, one advantage for US brands could be nearshoring however, this might only work for low-cost sectors like activewear or apparel. Only luxury companies with a production site already located in the US (such as Louis Vuitton who invited Trump to its opening), will be able to ensure they have the products to put directly into stores.

    As November approaches, who will be the real winner?#

    The fashion industry is now undergoing a Darwinian-style overhaul, and not all labels will survive, regardless of the election outcome. But luxury and China are intrinsically intertwined, and China’s consumers have been pivotal in this recovery. As far back as March, they turned to revenge spending in China’s stores. On International Women’s Day (March 8), brands on Tmall experienced double-digit sales growth, as compared to last year.

    Cavender confirmed that labels are reliant on favorable relations with China now more than ever, and the sales numbers bear that out. He added: “the brands doing well are the ones that have been able to connect with Chinese consumers digitally during the crisis.” And, if the US continues its tariffs on European luxury, local brands are unlikely to ever replace those sales among domestic consumers.

    Perhaps jewelry might benefit, as consumers could swap in a national brand, said Ortelli. But in reality, that is unlikely, he added: “Due to the unique attachment consumers have to their preferred labels. Honestly, in luxury, the consumer usually has brand loyalty and is not looking for an alternative.”

    Whether you’re for him or against him, you must credit Trump with transforming the political landscape. But it has hardly been for the better, and the consequences have been far-reaching. The global positioning of the US is in tatters and looks radically different than when he first took office. Now, we can say, the world looks down at the once-powerful nation.

    Meanwhile, progressive environmental moves from President Xi, who committed to carbon neutrality by 2060 and a green revolution after the outbreak, has only strengthened China’s importance on the global stage. Regardless of the outcome in November, there will be luxury casualties abound, and only one economy is positioned to win at this point.

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