President Donald Trump’s ‘Liberation Day’ tariffs went into effect at midnight last night, disrupting a decades-long era of free trade and causing further strife for the fashion and luxury industries.
The stakes were raised even higher in the lead up, as retaliatory sparring between Beijing and the US prompted Trump to ratchet China’s tariffs up to a staggering 104 per cent. While the administration appears open to negotiations, no country has successfully bartered their tariffs down to zero yet, and reciprocal tariffs from China and the EU were set to go into effect as of Tuesday.
The situation is volatile, with questions remaining right up until midnight. How long they’ll last is unclear; that uncertainty has thrown global stock markets into disarray. After a brief rally on Tuesday morning on the notion of negotiations, the S&P 500, the Dow and Nasdaq all shed earlier gains, with the S&P 500 dropping 1.7 per cent, the Dow tumbling 300 points and Nasdaq falling 2.4 per cent as of market close. Shares have slumped over the past five days across LVMH, Kering, Richemont, Prada Group, Tapestry, Capri, Nike, Ralph Lauren and more.
“What’s even more concerning than the direct impact of tariffs is the broader effect on the overall economy and consumer confidence. Even ultra-high-net-worth individuals often gauge their wealth based on stock market performance, and this uncertainty has a ripple effect that extends beyond the tariffs themselves,” says Claudia D’Arpizio, senior partner and global head of fashion and luxury at Bain Co.
US fashion brands are facing down the prospect of increasing prices and lost profits. For luxury fashion brands — many of which are still trying to regroup from a sector-wide slowdown in 2024 — the impact could be the difference between a recovery year and another in the red.
At the start of 2025, analysts predicted that growth would return to the luxury sector by the second half of the year, growing by approximately 5 per cent, with green shoots emerging from a post-election US, a rallying Europe and emerging markets like the Middle East. Now, according to Reuters, one Wall Street analyst is predicting global luxury goods sales could fall by as much as 2 per cent this year. Analyst firms like Bain have not yet published updated forecasts, but the outlook is darkening.
“The forecasts are for sales growth to slow. Higher prices may well push up sales values, but they will compress volumes as people buy less,” says Neil Saunders, managing director of retail at Globaldata. “It’s not just about prices, it is also about the confidence to buy, and on this front, consumers are uncertain and uneasy. That is not good for spending, including on luxury.”
Immediate impacts
The sweeping nature of the tariffs have ensured that no country is left untouched, except for Russia and North Korea (while Canada and Mexico were left off the list of tariffs announced 2 April, previous tariffs of 25 per cent were already levied against most goods from the countries). The ripple effect across fashion depends on where companies are located and where they source from and manufacture: European luxury brands count on the high-spending US consumer as a top market; now, any goods sent to the US will be taxed 20 per cent for the European Union and 10 per cent for the United Kingdom.
US fashion brands that manufacture goods in Asian countries like Bangladesh, Vietnam and Cambodia have had to stomach the idea of double-digit tariffs on each country, which will eat into margins and likely force most brands to pass on additional costs to consumers. But in comparison to China’s latest triple-digit tariff, these duties may look like a bargain.
Already, before the most recent round of tariffs went into effect, duties on goods from China, Canada and Mexico were causing price increases for apparel items sold in the US in the fourth quarter, and rising through Q1, according to Fflur Roberts, head of luxury goods at Euromonitor International, a data analytics firm.
In a note sent on 4 April, HSBC estimated that soft luxury companies with big retail networks would likely raise prices by a relatively modest 3 to 6 per cent, while hard luxury prices would likely rise by the high single digits, as Switzerland tariffs sit at 32 per cent.
For luxury goods, a $300 increase on a $5,000 handbag may not make or break the decision to buy, but analysts say it’s a fine line. “Many factors are at play here. After two years of price hikes and significant inflation on luxury brands iconic products, even a modest 5 [per cent] price increase could affect consumer sentiment,” says D’Arpizio.
Meanwhile, fast fashion brands (especially China-based Shein and Temu, which will see the de minimis shipping exemption for packages under $800 disappear in May) may fare better by remaining the least expensive option as all prices climb. Mid-tier brands that rely on manufacturing and sourcing partners globally, and especially in Asia, could bear the biggest brunt. US executives have put the estimated increases at roughly 15 per cent per item for those sourced from Asian manufacturing countries.
Brands can take steps like “renegotiating with suppliers, taking out costs in other areas of the business, and exploring price rises, and maybe absorbing some of the costs by taking a hit on margins,” says Saunders. “Price rises are somewhat easier for luxury as there is less price sensitivity, but volumes are already under pressure in the sector and some middle-income consumers have been deterred by a series of very sharp price increases, so this still needs to be executed with care.”
On the marketing front, brands are ramping up focus on storytelling that emphasises value, says Jhara Valentini, founder of Valentini Media Group, whose clients include Watches of Switzerland Group, a seller of Rolex, Cartier and Patek Philippe, among others. “Long term, we’re evolving both creative and media strategies to reinforce value storytelling, promote tariff-insulated inventory and build trust across every touchpoint. We’re also putting greater emphasis on customer lifetime value — ensuring that retention, upsell opportunities and post-purchase experiences are working harder, so we’re not relying solely on new customer acquisition in a cost-sensitive environment.”
Also determining how hard companies will be hit is where they are financially at the outset. “If retailers were already teetering at the edge, they are a lot more concerned right now,” says Deborah Weinswig, founder and CEO of Coresight Research.
Tariffs are top of mind as brands begin reporting quarterly earnings. “As we enter this period, we are coming from a place of strength,” Levi’s CEO Michelle Gass told investors during the company’s earnings call for Q1 2025 on Monday. Sales rose 3 per cent for the quarter. “We have momentum. The brand has never been stronger and we’ve achieved significant margin expansion. That said, we have a task force assembled assessing the various scenarios and identifying what levers we have to mitigate.” Gass said that any price increases will be “very surgical”.
Hiking up costs
Customers have begun reporting getting hit with hefty taxes and fees when accepting deliveries since tariffs on Canada, China and Mexico have entered into effect. With more tariffs now enacted, this could become commonplace if customers shop with retailers abroad.
New York-based stylist Caitlin Burke received a package that she assumes was a PR gift, sent from a distribution centre in Canada. Ahead of delivery, Burke received an email from UPS saying that the amount due upon receipt was $458.51 for fees and taxes. She’s not alone. Drew Michael Scott, an interior designer with 1.4 million followers on Instagram as @LoneFoxHome, posted a Reel to the platform showing a US Postal Service (USPS) notice on his door stating that he owed more than $2,600 to get a Canadian-sent package delivered. A TikTok user said she was charged $345 to pick up an Canada-based Ssense package from USPS.
It’s not just brands impacted by tariffs: shipping partners from UPS, USPS, DHL and Fedex all incur import taxes and customs charges to ship packages into the US from abroad. Customers can decline payment and send packages back, but that can cause companies and distributors to deny future shipments. This could have an immediate impact on customers shopping with international retailers.
Customers could also start to see price changes on retail sales floors as soon as this week, even on goods already delivered to the US. Weinswig says that, in conversations with retailers, some have begun re-pricing items on sales floors to reflect higher prices. Others are investing in digital signage to be able to change pricing dynamically depending on how the tariffs play out.
Industry responses
If tariffs stick for an extended period of time, analysts say the US will go into a recession. This would spell bad news for international luxury brands who had looked to the US as fertile ground for growth — particularly as the economic slump in China continues. But analysts aren’t counting on that happening, predicting that negotiations and arrangements will be made in the coming days or weeks. According to the Trump administration, 70 countries have expressed interest in bargaining.
“While the new tariffs have shocked, they are not likely the end of the story,” says Saunders. “There will be negotiations and shifts. There will also be possible escalations as retaliation comes into play. This is not a settled state. It is a very dynamic situation, which makes it hard for luxury brands to plan.”
The entire saga could prompt a reassessment of fashion and luxury’s supply chains, analysts say.
“When we consider the luxury and fashion markets outside of the US, it’s worth noting that protectionism was already on the rise, and it’s only likely to increase in the short to medium term on the back of the new trade deals and tariffs,” says Roberts, referring to limiting imports in order to boost domestic industries. “We may see a growing trend of ‘luxury localism’ or patriotic consumption among consumers. This could lead to a preference for British, French or Italian heritage brands that are mainly manufactured in these local markets or regions as expressions of national pride, craftsmanship and in a quasi-response to de-globalisation.”
That reinforcement of heritage also applies to marketing strategies. “Storytelling will step back into the spotlight in a big way,” says Valentini. “As pricing becomes more sensitive, brand purpose will act as the safety net. We’ll likely see a shift from performance-only messaging to richer emotional storytelling — rooted in craftsmanship, heritage and meaning.”
Weinswig says that a silver lining out of this could be improved communication between companies and employees, retailers and vendors, and brands and customers. There are a lot of inefficiencies in fashion’s supply chain, she notes, and the pandemic was going to be a galvanising event to change how the industry worked — but that never panned out.
“Every loophole that was there has gotten plugged, so that the industry as a whole has to come to the table and make it right. It’s forcing brands to rethink their approaches, put more focus on heritage and what they stand for,” says Weinswig, adding that this realignment could prompt changes in suppliers and materials. “This is in some ways a positive because we have an opportunity to remind ourselves what we stand for and why we do things the way we do.”
D’Arpizio agrees. “During the Covid pandemic, luxury brands excelled at listening to and engaging with their customers from a communications and marketing perspective. They must now continue this approach and invest in these efforts moving forward,” she says.
Like the pandemic, that doesn’t mean this won’t be without pain, Weinswig adds.
“The industry is incredibly stressed. Nobody slept very much in the last five days. But at the same time, there is a sort of excitement of being able to figure out a new way of working.”
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