Global luxury stocks experienced a significant sell-off this week as investors reacted to President-elect Donald Trump’s pledge to impose sweeping new tariffs on major trading partners. The proposal includes a 25 percent levy on imports from Mexico and Canada, alongside an additional 10 percent on Chinese goods, sparking immediate fears of a broader trade war that could soon target European luxury exports.

LVMH Moët Hennessy Louis Vuitton, Hermès, and Kering all saw their share prices drop sharply as the market weighed the potential impact on consumer demand and profit margins. France’s CAC 40 index felt the brunt of the volatility, given its heavy weighting of high-end fashion and spirits conglomerates that rely almost entirely on fluid international trade routes.

The luxury sector is particularly sensitive to these geopolitical shifts because a large portion of its annual growth is driven by the U.S. and Chinese markets.1 If retaliatory tariffs are introduced by the U.S. against the European Union, the cost of French handbags, Italian leather goods, and Swiss watches could climb significantly for American shoppers, who are already showing signs of spending fatigue after years of inflation.

Industry analysts are drawing parallels to the first Trump administration, during which specific European luxury goods—including French wine and leather handbags—were hit with retaliatory duties. The current uncertainty is prompting fears that the “luxury soft landing” many hoped for in 2026 could be derailed by increased operating costs, higher prices at the boutique counter, and complex logistical hurdles.

The threat comes at a difficult time for the industry, which is already grappling with a sustained slowdown in mainland China. With the two largest luxury markets in the world now facing distinct economic and political pressures, investors are reassessing the long-term valuation of legacy houses that were once considered “bulletproof” investments.

Beyond the immediate stock market reaction, there is deep concern regarding the global supply chain. Many luxury brands manufacture components across various borders—sourcing leather in one country and hardware in another—and a rigid tariff structure could force expensive shifts in production.2 These added costs are often passed down to the consumer, which risks alienating the “aspirational” buyers who have been the engine of growth for the last decade.

While some heritage brands have managed to maintain high margins through previous trade disputes by relying on their extreme brand loyalty, the scale of a 25 percent tariff is much larger than many anticipated. This has led to a cautious approach from financial institutions, with several major banks lowering their price targets for the sector’s biggest players in anticipation of a volatile fiscal year.

The human element of this story is the potential impact on the artisans and factory workers in Europe. If demand in the U.S. drops due to price hikes, the ripple effect could lead to reduced production orders in Italy and France, threatening the very crafts the luxury industry claims to protect. For many of these brands, the U.S. market is not just a source of revenue, but a vital part of their global cultural identity.

Ultimately, the market’s performance reflects an industry on edge. Luxury brands have spent decades building borderless networks, and the return of aggressive protectionist policies represents a fundamental challenge to the way they do business. As the political landscape shifts, the world’s most famous fashion houses must now find a way to navigate a future where the cost of a “Made in Europe” label may become significantly higher.