LVMH, Kering, and Pernod Ricard stocks retreated on Wednesday as investors braced for retaliation from China. Kering, the parent company of Gucci, plunged by over 1.1% while Pernod Ricard fell by 0.75%. LVMG shares retreated by 0.35%.
Other European companies exposed to China like Remy Cointreau, Stellantis, Hermes, and L’Oreal also retreated sharply.
This crash happened after the European Commission said that it would impose a 25% tariff on Chinese electric vehicles (EV). The commission argues that Chinese EV companies benefit from state support, which explains why they are significantly cheaper than those made in Europe.
These tariffs are coming at a time when many Chinese EV companies like BYD, Nio, and XPeng have been boosting their exports to Europe. In 2023, these companies sold vehicles worth over 10 billion to European countries and the trend is accelerating.
These tariffs are bad news for Europe for two main reasons. First, Chinese EVs will continue being cheaper than those made in Europe. China has vast access to cheaper labor and battery cells. As such, the country will continue to export to Europe, with locals paying the tariffs.
Second, China has vowed to retaliate against these tariffs, a move that could affect many European companies that do a lot of business in China. This includes firms like Remy Cointreau, Pernod Ricard, Kering, and LVMH.
These companies have done well in China in the past few decades, helped by the country’s growing middle class. Most recently, Kering stock price crashed hard after the company lowered its outlook for the Chinese market.
China accounts for about 20% of LVMH’s global sales. Similarly, the Asia Pacif region, which includes China, is the biggest part of Pernod Ricard, Remy Cointreau, and Hermes sales.
Still, it is unclear how China’s retaliatory tariffs will impact these products. Besides, luxury buyers will continue buying and paying for the new tariffs. In most cases, these buyers tend to have more purchasing power.
Historically, tariffs have a mixed impact on trade. For example, while Trump meant his tariffs to reduce the country’s trade deficit with China. Since then, the deficit has continued to widen as Americans continue buying Chinese products.
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