The American market meltdown is dismantling Europe’s luxury empire brick by brick. Last week, when President Trump unleashed a crushing 39% tariff on Swiss goods, the luxury sector witnessed its worst trading day in months.
Within hours, Richemont shares plummeted 6.3% while Swatch Group tumbled nearly 4%. Here’s what we need to ask: is this market economics at work, or a calculated move to cripple European luxury dominance?
Swiss Timepieces Bear the Brunt
For centuries, Geneva’s historic watch district has weathered economic storms. Now, centuries-old manufacturers scramble to survive the latest assault.
With surgical precision, the new tariffs target Swiss watches with a punishing 31% levy on top of existing duties. Even Richemont, owner of Cartier and IWC, faces its steepest challenge despite strong brand positioning. When American buyers account for roughly 40% of Swiss watch exports, the timing couldn’t be worse.
Tourist Spending Drought Compounds Woes
From Paris boulevards to Milan shopping districts, American tourists have pulled back spending across European luxury capitals.
The numbers tell a grim story: LVMH, Prada, and Moncler all report sharp drops in American visitor purchases at their European flagship stores. Behind these declining sales, currency swings have sapped the spending power of American travellers overseas.
What used to be bargain hunting has become budget watching as dollar strength makes European luxury goods more expensive for US tourists who previously drove sales growth.
Luxury Market Forecasts Turn Grim
Investment firm Bernstein has revised its 2025 luxury revenue forecast from 5% growth to a 2% decline. Across the industry, analysts now estimate the global luxury market could fall by 2% this year rather than achieving the previously predicted 5% growth.
Even luxury giant LVMH saw its first quarter 2025 revenue slide 2% to €20.3 billion with fashion and leather goods dropping 4%. These aren’t just numbers on a spreadsheet.
French Fashion Houses Feel the Squeeze
From Avenue Montaigne to Rue Saint-Honoré, French luxury brands confront mounting pressure that’s reshaping their business models.
For months, European fashion and jewellery houses like Louis Vuitton, Chanel and Cartier had been counting on American sales to offset weakness elsewhere. Instead, customers have pulled back spending at higher-end brands including Chanel and Christian Dior for the second year running.
The result: single-brand luxury fell 6% compared to last year.
Beyond Pure Market Forces
Behind the scenes, the systematic nature of these tariffs suggests more than random trade policy.
Since February 2025, Trump’s administration has expanded tariff coverage to include additional textile categories and leather goods. Even Southeast Asia, once a alternative manufacturing base, faces new measures.
During Europe’s weakest luxury market period since the Great Recession, the timing appears calculated to maximise damage.
To some, tariffs merely level the playing field. In early 2025, American luxury brands like Coach and Ralph Lauren outperformed their European rivals. They argue European luxury houses have enjoyed unfair advantages through subsidised manufacturing and tax benefits. For decades, some contend, currency manipulation has artificially cheapened European goods.
The evidence points elsewhere though. Through centuries of craftsmanship investment, not government manipulation, European luxury brands built their dominance. Swiss watch making and French leather goods represent genuine cultural heritage industries that cannot be replicated overnight.
In 2025, American luxury brands succeeded precisely because European competitors faced artificial tariff barriers, not superior products or marketing.
Europe Must Fight Back Strategically
Right now, European governments should impose reciprocal tariffs on American luxury goods.
Italian leather producers, German automotive luxury brands, and British heritage companies need coordinated protection that matches American aggression. To offset American market losses, the European Union must accelerate trade agreements with Asia and Latin America.
Away from US-dependent routes, luxury companies should fast-track supply chain diversification.
The luxury sector’s survival depends on recognising this trade war’s true nature. America isn’t just protecting domestic industries; it’s systematically dismantling European cultural and economic advantages built over generations. Last quarter, Swiss watch exports to Hong Kong jumped 12% while American sales collapsed, proving Asian markets can fill the void.
Through strategic defiance rather than passive market acceptance, European luxury will endure.
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