Key Points
- China is unlikely to target European luxury goods in retaliation for EU EV tariffs.
- Luxury spending in China is vital for tax revenue, and higher prices could push consumers to shop overseas.
- The Chinese luxury market is expected to account for 35% of the global market in 2024.
- Both the EU and China appear interested in avoiding a full-scale trade war.
European luxury brands such as Hermès and Dior are facing concerns that they may become targets in China’s retaliation against the European Union’s decision to impose tariffs on Chinese electric vehicles (EVs). However, analysts believe it is unlikely that Beijing will target luxury goods despite the escalating trade tensions between the two powers.
Patrice Nordey, CEO of Shanghai-based consultancy Trajectry, commented, “It’s a question of how Beijing will respond to the EV tariffs. Is there going to be an escalation? Yes. Is it going to go after luxury goods? I don’t think so.”
So far, China’s retaliatory actions have focused on industries like brandy, pork, and dairy, which are significant for France—a country that played a key role in advocating for the EU’s tariffs on Chinese-made EVs. Recently, China announced anti-dumping measures on imported brandy, causing shares of luxury conglomerates such as LVMH, Hermès, Kering, Ferragamo, and Burberry to fall by 2% to 6%.
Despite these concerns, Jacques Roizen, managing director at Digital Luxury Group, argues that targeting luxury goods would conflict with China’s longstanding favorable policies toward the sector. China, the world’s second-largest economy, has worked to keep luxury spending within its borders, evidenced by the development of Hainan as a major duty-free hub.
Roizen explained, “When luxury goods sales are taking place in China, it means more tax revenue, and it’s significant.” He added that higher prices on luxury items within China would likely push consumers to shop overseas—something the Chinese government wants to avoid.
According to Jelena Sokolova, senior equity analyst at Morningstar, the Chinese luxury market, even with a recent slowdown, is projected to account for 35% of the global luxury market this year. This market dominance is one reason European luxury shares are sensitive to news from China. Any threat of tariffs or higher taxes on imported luxury goods could hurt French luxury brands, as European luxury imports to China reached €11 billion last year.
Albert Hu, professor of economics at the China Europe International Business School, believes that neither the EU nor China is interested in a full-scale trade war. He noted that China’s careful selection of retaliatory targets indicates a willingness to negotiate a compromise with Brussels.
