Trump 2.0: What it means for China’s luxury market

What happened The re-election of Donald Trump as US president sets the stage for a renewed era of economic tension with China, casting uncertainty over the Chinese luxury market and influencing consumption patterns among Chinese consumers, both domestically and internationally. Revisiting his first-term policies and recent shifts in US-China relations gives us a preview of the potential impact of another Trump presidency. During Trump’s initial tenure, the US-China trade war led to sweeping tariffs on Chinese goods, creating an economic climate of uncertainty that weighed heavily on consumer confidence in China. Luxury brands, which depend on the purchasing power of Chinese consumers, saw notable changes in spending behavior as tariffs and tensions escalated. This time, the stakes are higher: Trump has suggested imposing tariffs as high as 60% on Chinese imports, a move that Bloomberg Economics warns could effectively decimate trade between the two largest economies. With this potential for intensified tariffs, analysts suggest China may respond with a more aggressive fiscal stimulus to bolster domestic consumption. Goldman Sachs has highlighted that, under significant economic pressure, China’s government could be forced to further stimulate the luxury sector to support growth. However, this intervention would likely benefit local brands more than foreign luxury labels, especially those aligned with American interests. The Jing Take A Trump-led US administration’s trade policies could have far-reaching consequences for the global luxury market, starting with the critical role Chinese tourists play in luxury consumption. Chinese travelers are responsible for nearly a third of global luxury sales, often shopping abroad where products are perceived as more authentic or unique. During Trump’s first term, Chinese tourism to the US dropped by nearly 5% due to the trade war and more restrictive visa policies. Data from ForwardKeys suggests a second Trump term could deepen this trend, with heightened anti-China rhetoric and visa restrictions deterring travel. For US luxury retailers, this drop in tourism spells trouble. In 2017, international tourism added more than $200 billion to the US economy, with Chinese tourists contributing a substantial share of luxury purchases in cities like New York and Los Angeles. As Chinese travel to the US declines, these cities risk losing critical revenue, not just in luxury sales but across a range of economic activities tied to tourism. The impact on local luxury retailers could be severe, forcing brands to rethink their reliance on Chinese tourist spending in the US. Moreover, Beijing has a wider array of retaliatory measures at its disposal than it did in 2018. According to Scott Kennedy at the Center for Strategic and International Studies, China is now better equipped to respond, with tools such as export controls on critical raw materials and an entity list that could target American companies. Further, Beijing could leverage currency devaluation as a means to offset the impact of US tariffs, potentially making Chinese exports cheaper and more competitive. However, a sharp devaluation of the yuan risks alienating China’s other trading partners, leading to a global ripple effect in trade relationships. There is however, a silver lining here for European luxury brands. As US-China tensions escalate, Chinese consumers may increasingly turn to European brands, which they often associate with heritage and quality. European luxury labels, less exposed to direct impacts from US policies, might capture market share as Chinese consumers shift their loyalty away from American brands. Although European stocks in export-sensitive sectors have seen initial drops due to fears of trade instability, European luxury houses could ultimately strengthen their positioning within China’s market. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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Trump 2.0: What it means for China’s luxury market