Luxury goods are unlikely to be the next target of China’s EU trade retaliation, analysts say

European luxury goods are on the rise as investors worry that Hermès handbags and Dior slingbacks could become Beijing’s next targets for retaliation after the EU decided to impose tariffs on Chinese EVs. Although stocks are falling, analysts see such a move as unlikely.

“The question is how Beijing will respond to EV tariffs. Will there be an escalation? I think so. Will they target luxury goods? I don’t think so. ” he said. Trajectry is an innovation consulting company based in .

So far, China’s moves in a retaliatory trade dispute with the EU have targeted brandy, pork and dairy products, all of which are key industries for France, as well as Chinese EVs imported into the EU. is asking for customs duties.

Shares in LVMH, which also sells luxury cognacs Hennessy, Hermès, Kering, Ferragamo and Burberry, fell between 2% and 6% on Tuesday after the Chinese government announced it would impose temporary anti-dumping measures on brandy imports. It fell.

Jack Roizen, managing director of Digital Luxury Group’s China consulting division, said targeting luxury goods in China is an important move in the world’s second-largest economy, where the Chinese government wants to increase luxury spending. He said it would go against policies that have consistently been favorable to luxury goods companies. Rather than watching consumers splurge in overseas markets.

He cited the example of Hainan province, which has been set up as a major duty-free hub, largely due to policymakers’ recognition that luxury spending in China is beneficial to the country.

“If you sell luxury goods in China, it means more tax revenue, which is important,” he said.

“A new fiscal environment that forces luxury brands to raise prices in China would create further incentives for Chinese consumers to spend their luxury goods outside of China, which is what the government wants. Quite the opposite.”

Even taking into account the recent slowdown, China’s luxury goods market is expected to account for 35% of the global market this year, said Elena Sokolova, senior equity analyst at Morningstar.

This helps explain the reaction of European luxury goods stocks to any announcement from China, but the introduction of tariffs on imported luxury goods or even the threat of a domestic sales tax increase will hit a sore spot for the French luxury goods conglomerate. He said it meant attacking.

French brandy shipments to China reached $1.7 billion last year, accounting for 99% of the country’s spirits imports, while 11 billion euros ($12 billion) of European luxury goods were imported into China last year.

But the sheer scale of the luxury goods industry may make it less likely that the Chinese government will target it, said Albert Hu, an economics professor at the China-Europe International Business School in Shanghai. .

“At this point, neither the EU nor China wants a full-scale trade war that would hurt both economies,” he said, adding that so far China has been relatively cautious in calibrating its retaliatory goals. It added that this shows that the Chinese government is keen to continue negotiations and work toward a trade agreement. Compromise with Brussels.

The nature of the luxury goods industry also makes it difficult for China to reasonably confront dumping claims.

“Logically, it’s hard to justify that there’s a lawsuit where a $2,000 handbag is unfairly thrown away,” Sokolova said.