New US tariffs may soon hit European luxury exports

Bloomberg

Some of Europe’s top luxury brands are targeted in President Donald Trump’s latest tariff salvo, which could affect billions of dollars in exports of American-bound handbags and men’s suits, among other products.
A panel of three World Trade Organization arbiters, as expected, said the US can legally impose tariffs on an array of European exports in retaliation for Europe’s illegal government aid to Airbus SE.
EU sources say they expect the WTO arbiters to publicly circulate a report by month’s end that will allow new US duties on a range of goods worth $5 billion to $7 billion per year, while Trump has threatened tariffs on $11 billion.
Shares of French luxury conglomerate LVMH fell as much as 4.4 percent on in Paris, with Airbus dropping as much as 5.4 percent. Continuing political turmoil in Hong Kong and a slowing Chinese economy have also weighed on European fashion and drinks companies.
Washington’s response is expected within days after the WTO’s green light for retaliation. The US has identified possible targets — with tariffs potentially as high as 100 percent — on a list of goods with a total export value of $25 billion a year.
Though the most valuable goods on the US list are exports of European aircraft and parts, the tariffs could also hit products made by Europe’s most recognised high-end brands.
LVMH is particularly vulnerable to the proposed US levies, which target its primary product lines and leather goods under labels such as Givenchy, Kenzo and Louis Vuitton.
The US market for luxury goods is among the top destinations for European companies like LVMH where the US made up almost a quarter of its total global sales last year. American shoppers bought 11.2 billion euros ($12.4 billion) worth of goods from LVMH in 2018, according to Bloomberg data.
LVMH Chief Financial Officer Jean-Jacques Guiony said that the company is “sensitive to tariffs and trade barriers,” during a conference call in July.
New tariffs will increase costs that will undoubtedly be passed on to US consumers, said Luca Marotta, the CFO of Paris-Based Remy Cointreau SA.
“If the tariff increase will happen, I repeat myself, we will increase prices at the same moment,” Marotta said during a July 17 conference call.
Trump’s planned EU tariffs are unique for his administration because, unlike the trade war he started against China, the US will be applying duties explicitly authorised by the WTO, an organisation he’s threatened to withdraw from if it doesn’t reform.
The dispute between Toulouse, France-based Airbus and Chicago-based Boeing Co encapsulates a criticism from Trump and others — that the WTO is a slow-moving bureaucracy — because it’s a case that’s taken about 15 years to resolve.
The Trump administration is currently evaluating whether to penalise goods in response to France’s tax on digital companies like Amazon.com Inc, Facebook Inc, and Alphabet Inc’s Google.
Many US exporters oppose the Trump administration’s proposed tariffs, which they say could boomerang and jeopardise thousands of American jobs.