Analyst: US Tariffs On European Goods Will Impact Luxury Market

The United States Trade Representative announced on Wednesday a list of $7.5 billion in tariffs on European products that take effect Oct. 18. 

The World Trade Organisation authorized the annual tariffs on a range of European goods, including luxury goods and premium spirits, that are imported to the U.S.

The Analyst

Swiss bank UBS analyst Zuzanna Pusz said the tariffs could lead to increased overseas spending by U.S. consumers and reduce foreign tourist spending locally.

The Takeaway 

“Given the luxury goods industry's majority European production base, our coverage universe will be directly impacted by this. Nevertheless, we believe that industry pricing power and the importance of tourism in the sector could mitigate the negative impact of the issue,” Pusz said in a Thursday note.

“In our view, pricing power should allow companies to pass any levies directly on to the consumer. After all, the different tax regimes across the world explain the existence of global pricing architecture of luxury brands, e.g. prices in China are on average 25% higher due to local duties.”

A list of impacted products will be published in due course, she said. 

One determining factor will be if leather goods, suits and premium spirits are included, Pusz said, adding that such a move would impact most companies in the UBS coverage universe. 

Price Action

At this stage, only the watch and jewelry players such as Compagnie Financière Richemont SA, also known as Richemont, and The Swatch Group SWGAF will be impacted, the analyst said. 

Swatch Group shares were trading down 0.49% at $264.05 at the time of publication.

LVMH Moet Hennessy Louis Vuitton SA LVMUY shares were up 1.52% at $76.71.

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