Luxury brands were already navigating a tough market in 2025, but the Trump administration’s move to reset global trade through new tariff policies will only deepen the challenges facing the luxury market.

Luxury automobiles, which experienced a bumpy ride last year with a 5% decline to $641 billion, are bracing for further turbulence. Similarly, the personal luxury goods sector, which dropped 2% to $402 billion in 2024 according to Bain, faces an even steeper decline if the proposed tariffs come into effect. 

As foreign leaders line up at the White House to make a deal, the fate of luxury brands hang in the balance. Globalization provided hurricane-force tailwinds to the personal luxury goods market after the 2008/2009 Great Recession. Now, the winds have shifted. 

“The world has changed, globalisation is over and we are now in a new era,” U.K. Prime Minister Keir Starmer’s office issued in a statement to the Sunday Times.

Americans Consume What Europe And U.K. Supplies

The Americas, most especially the U.S., is the world’s second largest market for personal luxury goods, accounting for 28% share, after Europe with 30% share in 2024. However, American tourist spending boosted Europe’s growth last year, so American consumers remain the tastemakers who drive the fortunes of luxury brands. Mainland China was well behind with only a 12% share, and its market share dropped after sales declined by 20% last year.

On the supply side, the EU is the world’s largest supplier of luxury goods, according to the European Commission. It supplied some 70% of the global personal luxury market, including fashion, accessories, jewelry and watches, leather goods, perfumes, and cosmetics, totaling $288 billion last year. 

Italy Already Feeling The Pain

Fashion is Italy’s second largest industry, according to the Italian National Fashion Chamber, and it experienced a 5% decline in 2024 to $106 billion, including textiles, apparel, footwear, jewelry, eyewear and leather goods. 

A good share of what Italy produces comes here. For example, Prada generated some 17% of revenues in the Americas last year, while Moncler relied on the market for 14%. 

Gucci is perhaps the best-known Italian luxury brand, but its parent Kering, headquartered in France, doesn’t report brand revenues by country. However, 24% of consolidated Kering revenues are credited to North America. 

France In The Crosshairs

France exported some $5 billion in luxury goods to the U.S. in 2024, according to Le Monde. LVMH, the world’s largest luxury company by a wide margin, is partially shielded from tariff impacts by having production sites located in the U.S., not to mention CEO Bernard Arnault’s long-term friendship with Donald Trump. LVMH generates about one-fourth of revenues in the U.S. 

Hermès, the second most valuable luxury brand by market cap, depends on the Americas for nearly 20% of sales. Executive chairman Axel Dumas has announced the company will raise its already sky-high prices accordingly should tariffs take hold. The iconic Birkin and Kelly bags go for $10,000 on up.

U.K. Luxury Needs The U.S.

The $105 billion British luxury goods sector is highly dependent on exports. According to Walpole, the British luxury trade association, some 70% of U.K. luxury goods are exported, including 22% of all exports goes to the U.S.

Walpole CEO Helen Brocklebank notes that under the first Trump administration, the 25% tariffs on Scotch whisky cost the industry nearly $800 million. She further warns: 

“The luxury sector has previously been caught in the crossfire of global trade disputes. The economic consequences were severe, and we must ensure history does not repeat itself. Yet, with trade tensions escalating at an alarming rate, the risk of a full-blown transatlantic trade war looms large.”

Macro Versus Micro Level

As the tariff drama unfolds in diplomatic circles, consumers will ultimately be the decision maker for luxury brands’ and the luxury market’s future. Since the post-pandemic boom, luxury has lost some of its luster, and with additional price increases, it could only get worse. 

“Before the tariffs, there was already a need to rebuild customer satisfaction and trust,” shared Claudia D’Arpizio, Bain’s senior partner and global head of fashion and luxury. “We are seeing signs of a slight detachment from customers last year, as reflected in a drop in net-promoter-score and a 50 million decrease in the customer base.” 

The lost customers were largely the so-called “aspirational consumers,” but the market could lose more true-luxury customers this year as the uncertainty around tariffs and their affect on the global economy swirls.

Consumers’ lack of enthusiasm was reflected in luxury brand performance last year. Bain reported that brand performance was “highly polarized” last year, with only about one-third of luxury brands reporting growth in 2024, a dramatic drop from 65% that grew in 2023.

Consumer Psychology Rules

While conventional wisdom holds that the affluent and high-net-worth consumers who are the luxury market’s core customers are immune to rising prices, D’Arpizio advises, “After two years of price hikes and significant inflation on luxury brands iconic products, even a modest 5% price increase could affect consumer sentiment.”

She further warns, “What’s even more concerning than the direct impact of tariffs is the broader effect on the overall economy and consumer confidence. For example, even ultra-high-net-worth individuals (UHNWI) often gauge their wealth on stock market performance, and this uncertainty has a ripple effect that extends beyond the tariffs themselves.”

In other words, purchasing a luxury brand product is more than a discretionary indulgence. It carries a deeper emotional, symbolic meaning tied to personal identify and self-worth. 

“From HNWI to aspirational buyers, the decision to buy luxury is never just a transaction. While tariffs raise prices and inflation adds more fuel, the most important force hitting pause on luxury spending isn’t economics – it’s psychology,” shared Chandler Mount, founder and CEO of The Affluent Consumer Research Company, a company with which I am affiliated.

Luxury As Bellwether

Luxury demand often acts as a bellwether preceding economic downturns. Luxury consumers are the most informed about economic trends and tend to curtail indulgent spending as they anticipate the economy going south.  

ACRC’s longitudinal survey among affluents and high-net-worth consumers, specifically incomes of $200k+ and $1 million+ in assets excluding primary residence, found half of those surveyed expect a recession within the next twelve months, an uptick since the middle of last year. Their sentiment mirrors that of  JP Morgan CEO Jamie Dimon who said a recession will be the “likely outcome” of Trump’s tariff policies. 

Luxury Purchases Don’t Feel Right

Beyond the personal dimension, luxury purchases have a social aspect as well. An individual’s desire and purchasing power might still be there, but they delay gratification because it simply doesn’t feel right.

“There is a psychological tension between having the capability to buy now and the appropriateness to do so. That tension grows when headlines scream ‘layoffs,’ ‘recession,’ or ‘rate hikes,’” Mount said. 

Such conflicted feeling tend to lead to inaction and postponing decision making, rather than just making adjustments, like trading down. “Think of it as emotional liquidity drying up, not actual financial liquidity,” he added. “The impulse may be there, but the moment isn’t right.”

Future Purchases On Hold

Looking ahead with the tariff situation still very much up in the air, Mount anticipates that luxury fashion will take a hit as accessory splurges are delayed and fewer impulse jewelry purchases will be made. High-end furnishings will suffer backlash as home projects are put off and luxury car upgrades and purchases will be put on hold. 

Net/Net: luxury brands face headwinds in 2025 unlike any they have seen since the Great Recession or Covid. 

“In this time of uncertainty, the most luxurious thing of all might be restraint,” Mount concludes. “Luxury isn’t immune to economics, but it’s ruled by psychology.”