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 whiskeys, wine, Champagne, handbags and men’s suits.
A panel of three World Trade Organization arbiters, as expected, said Friday the U.S. 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 U.S. 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% on Monday in Paris, with Airbus dropping as much as 5.4%. 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 U.S. has identified possible targets – with tariffs potentially as high as 100% – on a list of goods with a total export value of $25 billion a year. Though the most valuable goods on the U.S. list are exports of European aircraft and parts, the tariffs could also hit products made by Europe’s most recognized high-end brands.
LVMH is particularly vulnerable to the proposed U.S. levies, which target two of its primary product lines – wine and spirits like Dom Perignon, Moet & Chandon and Hennessy – and leather goods under labels such as Donna Karan, Givenchy, Kenzo, and Louis Vuitton.
Expensive tastes
The U.S. market for luxury goods is among the top destinations for European companies like LVMH where the U.S. 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 U.S. consumers, said Luca Marotta, the CFO of Paris-Based Remy Cointreau SA, which produces Remy Martin cognac, Cointreau, Passoa and Mount Gay rum.
“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 U.S. will be applying duties explicitly authorized by the WTO, an organization 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.
European beverage producers are already reeling from the uncertainty stemming from Trump’s repeated threats to slap new tariffs on wine, liquor and other alcohol.
The Trump administration is currently evaluating whether to penalize French wine and other goods in response to France’s tax on digital companies like Amazon.com Inc., Facebook Inc., and Alphabet Inc.’s Google.
“The degree of uncertainty has somewhat notched up a little bit,” said Pernod Ricard SA Chief Executive Alexandre Ricard on an Aug. 26 conference call.
Paris-based Pernod Ricard produces top-shelf wines, bitters, whiskeys, spirits, cognac, brandies and rum.
The impact of Trump’s tariffs will also have an unwelcome effect on Scotch whisky producers, which are already girding for the fallout of a potentially messy no-deal Brexit.
The EU exported $2.1 billion worth of Irish and Scotch whiskeys to the U.S. in 2018, according to data provided by the Geneva-based International Trade Center.
Many U.S. exporters oppose the Trump administration’s proposed tariffs, which they say could boomerang and jeopardize thousands of American jobs.
Whiskey shot
U.S. whiskey producers have already become collateral damage from Trump’s steel and aluminum tariffs – which spurred the EU to retaliate with a 25% tariff on U.S. bourbon and whiskey. What’s more, the EU has threatened further penalties on $12 billion worth of whiskey and other U.S. exports stemming from a related WTO dispute over U.S. subsidies to Boeing Co.
“Depending on the level of tariffs imposed on EU spirits and wine, we estimate it could negatively impact U.S. businesses, leading up to a loss of jobs from 11,200 to even 78,600 jobs across the United States,” said Chris Swonger, the president and CEO of the Distilled Spirits Council.
There are two ways the EU can avoid new tariffs from the long-running aircraft dispute with the U.S.: by ending its illegal subsidies for Airbus, or reaching a settlement agreement.
Though U.S. Trade Representative Robert Lighthizer and the current European Trade Commissioner Cecilia Malmstrom have both welcomed the idea of negotiating a settlement, talks to resolve the issue haven’t begun.
Those negotiations could become more difficult after Malmstrom cedes her post on Nov. 1 to Phil Hogan, a hard-nosed Irish trade negotiator who’s pledged to take a more pugnacious approach to EU-U.S. trade relations.
In a Sept. 10 interview with RTE radio, Hogan said “we are going to do everything we possibly can to get Mr. Trump to see the error of his ways.” Bryce Baschuk, Bloomberg
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