Trade War 2.0: Will luxury brands survive the fallout?

The global trade war has taken a turn for the worse, with Beijing unveiling countermeasures against Trump’s tariff of 34% on Chinese goods, on top of the existing 20% tariffs. On Friday, China struck back with 34% tariffs on American goods entering its borders, set to take effect on April 10. The move follows President Donald Trump’s “Liberation Day” announcement on April 2, during which he imposed a sweeping 10% duty on all countries, along with higher tariffs on nations with large trade deficits with the U.S. — with China topping the list. According to the Office of the U.S. Trade Representative, the U.S. goods trade deficit with China reached $295.4 billion in 2024, up 5.8% ($16.3 billion) from 2023. While the Trump administration claims tariffs will help create domestic manufacturing jobs and eventually lower prices for consumers, economists worry about rising inflation and the elevated risk of a recession. For brands, the stakes are high, as they are left to navigate higher production costs, disruptions to their global supply chains, and dampened consumer confidence. Impact on fashion giants: Lululemon, Nike, VF Corp take the hit Among the countries hit the hardest, many are major players in apparel manufacturing. Vietnam, the second-biggest apparel exporter to the U.S. after China, will be subject to a 46% tariff, while Cambodia and Bangladesh will be hit with duties of 49% and 27%, respectively. Lululemon, which manufactures 40% of its products in Vietnam and 17% in Cambodia, saw its shares plummet 9.6% on April 3. The Canadian athleisure giant, anticipating the impact of increased tariffs, projected a more modest revenue growth of 5% to 7% for the full year of 2025, down from 10% growth in 2024. Likewise, Nike, which makes half of its footwear in Vietnam, and VF Corp, which operates manufacturing facilities in several of the affected countries, saw their shares fall over 14% and 28%, respectively, on April 3 compared to their previous close. Fashion supply chain disruption: Manufacturing hotspots under pressure If these tariffs remain in place, the fashion industry will likely face price hikes, production delays, and real stress on already fragile supply chains, says Sennait Ghebreab, program leader of the Business BA courses at Istituto Marangoni London and a board member of the Italian Chamber of Commerce in the U.K. “What I see is independent labels being the most vulnerable because they don’t have the scale or margin flexibility to absorb such sharp increases. Fast fashion will also struggle with razor-thin margins and price-sensitive consumers. Luxury brands may weather it better short-term, but even they can’t escape long-term supply disruptions and reputational risks,” she tells Jing Daily. Luxury’s response: Price hikes, supply chain shifts Luxury brands are also predicted to raise their prices in response to the 20% blanket tariff on European goods. However, unlike mass-market brands, these high-end houses often use price increases as a tool to reinforce scarcity and exclusivity, making the hikes less jarring to customers. “We would expect most European luxury companies to pass on the tariffs in the form of price increases to end consumers, who tend to be less sensitive to pricing and accustomed to regional price differentials,” UBS equity analyst Zuzanna Pusz wrote in a note. Bernstein analysts echoed that Trump’s tariffs war is expected to have a negligible impact on luxury: “Luxury players have already been paying duties on exports to the U.S. for decades. For example, leather and fashion companies used to pay more than 15%: if the new 20% tariffs include this percentage, we are talking about nothing; if the duties are incremental, we are discussing very little.” Still, while tariffs alone may not be enough to rattle these companies, they add to the broader problems plaguing the industry. This includes the global slowdown in luxury spending and a weakened value equation — over 50% of consumers consider luxury brands overpriced, according to a Bain & Co report. As such, luxury brands must be cautious about price hikes. “[Brands] rely on perceived value, and aggressive increases could hurt their image,” Ghebreab says. “I believe storytelling and craftsmanship will become even more critical to justify premium pricing. Some may shift focus toward services or exclusivity to reinforce brand value. Others might lean into localized collections or experiences to offset global uncertainty.” China’s retaliation: Countermeasures vs American goods On the flip side, China’s retaliation against American goods could create an unexpected opportunity for some, says Adam Knight, co-founder of Yaso, which helps beauty brands expand to China. “U.S. beauty exports into China — already impacted by high logistics costs and regulatory hurdles — will now face even steeper pricing pressure,” Knight wrote in a LinkedIn post. “In contrast, European brands gain a relative price advantage overnight, potentially opening up opportunities for faster consumer adoption, especially in the premium and masstige segments.” The China opportunity: How European brands might benefit That doesn’t spell the end for American brands in China, though. Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, believes there’s unlikely to be a widespread shift in purchasing behavior, as evidenced by the first Trump administration. “American brands and cultural IP continued to be popular, and quintessential American companies like Disney and Apple grew in China during that period. To the extent we saw substitution for Chinese brands — especially in categories like beauty and F&B — that was mostly due to innovation from new homegrown brands,” Cooke says. “Similarly, we haven’t seen any nationalist-motivated backlash to American brands in response to the recent tariff news.” Consumer cost analysis: Price hikes coming to American shoppers Ultimately, analysts expect Trump to backtrack on the tariffs, and this looks more likely as countries call for trade talks. But what would the situation look like if the tariffs proceed as planned? For one, American consumers would face higher prices on everyday items, from clothing to electronics. According to The Budget Lab at Yale, if all the 2025 tariffs are implemented, consumer prices could rise by 2.3% in the short run — equating to an average household loss of $3,800. Additionally, “Brands will have to consider nearshoring or relocating to lower-tariff countries, though that’s not a quick fix,” says Ghebreab. “They’ll likely try to renegotiate supplier contracts, optimize shipping, or consolidate SKUs. What I see is a shift in strategy — away from cost alone and toward flexibility and risk management.” She also anticipates a potential loss of competitiveness for American brands globally if the situation escalates into a full trade war. In fact, global consumers have already voiced their discontent with Trump’s policies, with the term “BoycottUSA” trending on social media and Google Search even before the recent tariff changes. Finally, regarding China, Cooke remains confident about the 2025 outlook. “Obviously there will be an economic impact of tariffs,” he says, “but they may accelerate the government’s stimulus plans, which could boost confidence, or at least mitigate any negative impact.” While luxury brands may have been counting on American consumers amid China’s economic slowdown, it seems the U.S. may not be the reliable market they had hoped for after all. In the end, how fashion and luxury brands adapt and diversify — both their supply chains and market reach — will determine who stays afloat in this rapidly shifting landscape.

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Trade War 2.0: Will luxury brands survive the fallout?