Is the American Dream Turning Into a Tariff Nightmare?
Tariff threats send luxury stocks reeling, exposing the sector’s fragile dependence on U.S. shoppers and shaking its global stronghold.
This week delivered a sobering one-two punch to luxury stocks. First, Hermès (-6.04%), the sector's golden child, suffered its steepest weekly drop in months.
Then came Friday's political bombshell: Donald Trump's threat of 50% tariffs on EU imports sent already-weak luxury stocks into a tailspin, with Hermès, LVMH, and Kering plunging an additional 3-4% in a single day.
A New Threat to Luxury's American Dream
While Hermès' decline initially appeared driven by profit-taking and Asian demand concerns, Friday's selloff revealed a more systemic risk: The $350 billion luxury sector's heavy reliance on U.S. consumers (who account for 19-30% of sales for LVMH and Hermès).
The tariff threat:
- Hits where it hurts most: American shoppers already face 25% price premiums on European luxury goods. Additional tariffs could crush demand.
- Targets the sector's safety net: The U.S. market had been luxury's backstop amid China's slowdown. Now that pillar looks shaky.
- Explains the divergence: Rolls-Royce's (+3.73%) continued rise makes sense—its aerospace business is less exposed to retail tariffs than LVMH's handbags or Kering's fashions.
Hermès: From Safe Haven to Political Pawn
The Birkin bag maker's €150/share plunge this week now appears even more ominous in light of Trump's threats. While Hermès has long been considered "recession-proof," geopolitical risks may be its kryptonite. Notably:
- Its Friday drop (-4.14%) was worse than LVMH's (-3.16%), suggesting investors see its ultra-premium positioning as more vulnerable to tariff impacts.
- The stock now sits 17% below its April peak. A warning sign for the broader sector.
The Bigger Picture: A Sector Under Siege
The tariff news amplifies existing weaknesses:
- Travel luxury (Hyatt -7.56%, Marriott -6.42%) was already softening
- European fashion (Prada -6.04%, Moncler -6.23%) faces a double whammy of weak demand and trade risks
- Even Ferrari's (-2.55%) slight dip takes on new meaning; its U.S. exposure (24% of sales) is now a liability
The RealReal (-8.39%): If tariffs make new luxury less accessible, will the secondhand market benefit or suffer from reduced trade-in inventory?
The Bottom Line: What began as a routine pullback has morphed into a crisis of confidence. For the first time in years, luxury's three key markets, China, Europe, and now America, all face simultaneous headwinds.
Investors are left wondering: Is there anywhere left to hide?
