Abu Dhabi, UAEWednesday 16 October 2019

Trump's next tariffs could target Europe's luxury goods such as Louis Vuitton

A report is expected to be circulated at the end of the month by the WTO giving the US approval to impose sanctions on goods from the European Union

An Airbus A319-111 aircraft operated by Iberia. The US is expected to be granted approval by the World trade Organisation to launch retaliatory sanctions against the EU following a ruling in an long-running dispute between the European planemaker and Boeing.
An Airbus A319-111 aircraft operated by Iberia. The US is expected to be granted approval by the World trade Organisation to launch retaliatory sanctions against the EU following a ruling in an long-running dispute between the European planemaker and Boeing.

Some of Europe’s top luxury brands are targeted in US President Donald Trump’s latest tariff salvo, which could affect billions of dollars in exports of American-bound beverages, handbags and men’s suits.

A panel of three World Trade Organisation arbiters, as expected, said on Friday the US can legally impose tariffs on an array of European exports in retaliation for Europe’s illegal government aid to Airbus.

EU sources say they expect the WTO arbiters to publicly circulate a report by the end of the month that will allow new US duties on a range of goods worth between $5 billion to $7bn (Dh18.3bn-Dh27.5bn) per year, while Mr Trump has threatened tariffs on $11bn of goods.

Washington’s response is expected within days of the WTO’s green light for retaliation. The US has identified possible targets – with tariffs potentially as high as 100 per cent – on a list of goods with a total export value of $25bn a year. Though the most valuable goods on the US list are exports of European aircraft and parts, the tariffs could also hit products made by Europe’s most recognised high-end brands.

LVMH group is particularly vulnerable to the proposed US levies, which target two of its primary product lines – beverage products such as Dom Perignon, Moet & Chandon and Hennessy, and leather goods under labels such as Donna Karan, Givenchy, Kenzo and Louis Vuitton.

The US market for luxury goods is among the top destinations for European companies such as LVMH, where the US made up almost a quarter of its total global sales last year. American shoppers bought €11.2bn ($45.6bn) worth of goods from LVMH in 2018, according to Bloomberg data.

LVMH chief financial officer Jean-Jacques Guiony said in July that the company is “sensitive to tariffs and trade barriers”.

New tariffs will increase the cost of goods and will undoubtedly be passed on to US consumers, said Luca Marotta, the chief financial officer of Remy Cointreau based out of Paris.

“If the tariff increase will happen, I repeat myself, we will increase prices at the same moment,” Mr Marotta also said in July.

Mr Trump’s planned EU tariffs are unique for his administration because, unlike the trade war he started against China, the US will be applying duties explicitly authorised by the WTO, an organisation he has threatened to withdraw from if it does not reform.

The dispute between France's Airbus and the US's Boeing encapsulates a criticism from Trump and others that the WTO is a slow-moving bureaucracy because the case has taken about 15 years to resolve.

European beverage producers are already reeling from the uncertainty stemming from Mr Trump’s repeated threats to slap new tariffs on some product lines.

The Trump administration is evaluating whether to penalise French wine and other goods in response to France’s tax on digital companies such as Amazon, Facebook and Google.

“The degree of uncertainty has somewhat notched up a little bit,” said Pernod Ricard chief executive Alexandre Ricard in August.

Mr Trump’s tariffs will also have an unwelcome effect on Scotch whisky producers, which are already gearing up for a potentially messy no-deal Brexit.

The EU exported $2.1bn worth of Irish and Scotch whiskeys to the US last year, according to data provided by the International Trade Centre in Geneva.

Many US exporters oppose the Trump administration’s proposed tariffs, which they say could boomerang and jeopardise thousands of American jobs.

“Depending on the level of tariffs imposed on EU spirits and wine, we estimate it could negatively impact US 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 chief executive of the Distilled Spirits Council.

There are two ways the EU can avoid new tariffs from the long-running aircraft dispute with the US: by ending its illegal subsidies for Airbus, or reaching a settlement agreement.

Though US Trade Representative Robert Lighthizer and the European Trade Commissioner Cecilia Malmstrom have both welcomed the idea of negotiating a settlement, talks to resolve the issue have not begun.

Those negotiations could become more difficult after Ms Malmstrom cedes her post on November 1 to Phil Hogan, a hard-nosed Irish trade negotiator who has pledged to take a more pugnacious approach to EU-US trade relations.

In September, Mr Hogan told RTE radio: “We are going to do everything we possibly can to get Mr Trump to see the error of his ways."

Updated: September 16, 2019 01:32 PM

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