Trade War Fallout: How Tariffs Are Reshaping Luxury

The trade war didn't just hit factories—it hit fashion's fantasy. As tariffs climb and global tensions rise, luxury finds itself caught between politics and TikToks.

Made in Illusion:

How the Trade War Sparked a Global Shift

Motivated by the desire to reignite American manufacturing and reduce dependence on foreign supply chains U.S. President Trump's sweeping tariffs have sent ripple effects through the global luxury landscape—shaking the status quo, exposing vulnerabilities, and igniting what can only be called a Chinese TikTok warfare.

From the destabilising effects on luxury’s polished façade to the buzz of small businesses being killed off at the root, and the rise of content creators revealing luxury’s long-guarded production secrets, we’re seeing an industry at a crossroads.

The question is no longer "Will fashion survive this?"—it’s "What can it learn from it?"

Whilst some perspectives frame this as the long-promised “Made in USA” renaissance, there exists a flip side—a more grounded, practical view that critically assesses the abruptness of this stance. As Scott L. Nova, executive director of the Worker Rights Consortium, told Business of Fashion (BoF), “This is not an effort to rebalance trade in the interest of the U.S. economy or U.S. workers. It’s a political exercise and a geopolitical power play.” Most economists, retail analysts, and insiders in the fashion sector have, quite naturally, responded with skepticism. Fashion, as an industry, thrives on the smooth functioning of global logistics—particularly with deep operational reliance on China. Any talk of repatriating manufacturing might have held weight had it been part of a long-term, sustainable roadmap. But what we’re seeing instead is a hasty, cold-turkey approach that lacks the holistic planning required for an actual reshoring strategy.

 The US, despite its “holier than thou” attitude, has been an economy centered on importing products from China to American shelves as quickly as possible, to suddenly becoming the architect of its own supply chain disruption. For years, it positioned itself as a hub supporting brands with product development and manufacturing—now, that entire model stands on shaky ground with tariffs soaring as high as 145 percent. The game changed in one stroke. The US more than doubled the cost of importing Chinese-made goods—from $8 Temu tops to $1,000 Balenciaga sneakers—the shockwaves rippled across every level of the retail ecosystem. China, meanwhile, as an economy self-reliant and robust enough to hold its own, didn’t flinch. It retaliated with steep tariffs of its own. What began as a policy shift has now morphed into a full-blown trade war, with both economies locked in a stand-off, each trying to outdo the other in inflicting economic pain.

Luxury's Fragile Ecosystem Faces the Tariff Tremor

And not all brands can successfully brace for the impact. This war poses an existential threat to platforms like Shein and Temu, along with higher-end “dupe” sellers like Quince, whose entire modus operandi revolves around making cheap Chinese goods accessible to price-conscious American shoppers with a taste for well-ticketed fashion. Then there are the retailers—many of whom are already suspending or cancelling shipments from China—reflecting the growing uncertainty. This sentiment is echoed by countless small sellers operating through Amazon, both in the US and China. 

Broken Supply Chains and Boutique Dreams

Exhibit A? A quick scroll through YouTube tutorials on starting small businesses in jewellery or apparel. Most of them will tell you the same thing: need zippers, buttons, cutesy packaging? Just go on Alibaba. That level of dependence paints a clear picture of just how seamlessly a fledgling US business could once find a factory in China—and how vulnerable that model is now. 

And another contention that has surfaced can be understood through a remark made by Bernstein analyst William Woods in an April 14 research note—he pointed out that Chinese manufacturers offer significantly more flexibility on MOQ’s. This flexibility acts as a crucial support system for small-scale businesses, especially when their production capabilities are limited. So when these very U.S. businesses are forced to shift operations and explore other manufacturing hubs like Vietnam, they may find that the same level of accommodation simply isn’t available—and that’s a disruption not everyone is ready to absorb. 

U.S. Luxury's Resilience Under Fire

An illustrative explanation of why the U.S. holds an outsized importance for luxury—would be it's a consumption-driven powerhouse with one of the world’s highest concentrations of wealth and billionaires. The American luxury market has shown remarkable resilience even in the face of global turbulence. In 2019, American luxury spending stood at €63 billion, slightly dipping to €54 billion in 2020 during the peak of the pandemic. But what followed was a fierce rebound—€95 billion in 2021, soaring to €120 billion in 2022. Even amid economic uncertainty and political whiplash, spending held strong at €118 billion in 2023 and €116 billion in 2024 (Source: Bernstein). That’s no fluke.

The U.S. has consistently proven itself as a dreamland of unrelenting opportunity for luxury and fashion. With that backdrop, Trump’s re-election in November was supposed to bring a sense of hope—a glittering promise of stability—for an industry that had once welcomed him with open arms.

Arnault, LVMH & the Ghost of Free Trade Zones

Remember the sight of Bernard Arnault, chairman and CEO of French luxury giant LVMH, shaking hands with Donald Trump—back when he famously declared that a “wind of optimism is blowing through the U.S.” after Trump’s inauguration as president. It wasn’t just lip service. LVMH began hedging its bets on American manufacturing during Trump’s first term, building not one, but three Louis Vuitton facilities in California and Texas, which now account for around 50% of the production volume and one-third of the value of its U.S. business, according to a note from RBC.

With that much at stake, Arnault hasn’t shied away from making his priorities clear. He has actively called for a free trade zone between the EU and the U.S., urging both powers to ease unresolved trade tensions that threaten to derail European industries. His plea came at a telling moment—LVMH shares fell 7.8% earlier this week after an unexpected first-quarter sales drop. And Arnault didn’t hold back from admitting that the Texas site had underperformed so far. Still, it would be unwise to underestimate just how deeply LVMH is invested in the U.S. market, which now accounts for 25% of its total sales.

And Arnault’s American admiration doesn’t stop there. As France proposes corporate tax hikes, he has described them as a “tax on ‘Made in France’”, warning that such policies might push companies to relocate abroad. Cue the expected (and yet somehow secondhand) patriotism—he lauded the U.S. economic model for its lower taxes and state-backed industrial investment, saying:

“When you come back to France after spending a few days in the U.S., it’s a bit of a cold shower.”

The recent U.S. tariff announcements pouring in relentlessly and an air of uncertainty gripping global markets, the last few days have wiped billions off stock exchanges worldwide and severely impacted consumer sentiment. Lululemon Athletica’s shares have dropped by 20.7% in the last month on Nasdaq. Prada Group has plunged 23.4% on the Hong Kong Stock Exchange in the same time frame, while Kering has seen a steep 26.3% fall on Euronext Paris. LVMH hasn’t been spared either, with a 19.9% dip over the same period. The impact is visible across a range of EU luxury exports—from wines and spirits to cheese, chocolate, high-end clothing, furniture, and automobiles. If Bernard Arnault can successfully spearhead the push for renewed trade diplomacy, it might just be the sorely needed balm for the bruised eyes of Europe’s luxury sector.

China’s Retaliation:

TikTok, Tariffs, and Tactical Counterattacks

And just when we thought things couldn’t get more overwhelming, in response to the tariffs, Chinese manufacturers have taken to social media platforms like TikTok to urge U.S. consumers to buy knock-offs of luxury products—think Birkin handbags and Lululemon leggings—directly from their factories. These producers are now propelling Chinese e-commerce platforms like DHgate to the top of the U.S. App Store. Instagram and TikTok are flooded with videos from Chinese manufacturers exposing the so-called "production secrets" of brands like Gucci, Chanel, and Hermès—videos that have captivated millions, as per reports. Platforms like DHgate are leading the charge in this digital counterstrike. 

The name itself is symbolic—‘DH’ stands for Dunhuang, a vital city on the historic Silk Road, and ‘Gate’ reflects its role as a bridge connecting China with global buyers. True to its roots, DHgate is built to mirror this ancient trade model in a digital era—connecting Chinese suppliers with international consumers, both retail and wholesale. What makes it especially potent in this moment? There are no minimum order requirements. That means even a single consumer in Ohio can get their hands on a “Birkin” or “Chanel” dupe directly from a factory in Guangzhou—no middleman, no branding, no apologies.

We’ve officially entered the era of the Trade War. Many of these manufacturers claim to be original equipment manufacturers (OEMs) for global luxury brands and offer dupes at a fraction of the real brand’s price—asserting that they use the same high-quality labour, materials, and machinery.

Fashion Reshoring:

Myth, Movement or Marketing?

As Malique Morris quite rightly pointed out in BoF’s notes, “Fashion is already an emotional purchase, and consumers do care about the story behind a brand. That’s why brand marketing is so important. It’s storytelling, not nationalism.” But for American fashion, reshoring is a logistical, economic, and cultural mountain. The U.S. simply lacks the sheer manufacturing capacity required to clothe a nation at scale. Moreover, very few fashion schools in the U.S. offer technical production training—meaning the talent pipeline itself is drying up.

Some brands, like Todd Snyder and Taylor Stitch, have managed to keep domestic manufacturing alive through collaborations with legacy factories. But let’s be honest—their volumes are tiny. For global giants like Nike or Gap, reshoring isn’t just a pivot—it would demand a seismic transformation in sourcing and logistics. And that’s something no tariff, however dramatic, can single-handedly achieve.

And it’s not just your apparel, bags, or accessories. This has major implications for your makeup and skincare too. The Trump tariff war is rattling the beauty industry, showing just how swiftly and widely the ripple effects are spreading. South Korea, being the top cosmetics exporter to the U.S., will take a direct hit if Trump’s proposed tariffs become reality.

Technically, these tariffs would apply only to imports into the U.S., but the fear is real: brands may hike prices globally to recover profit losses from American buyers. The U.S. imported over $7.5 billion worth of cosmetics last year, according to the U.S. International Trade Commission—and about $1.7 billion of that came from South Korea alone.

So yes, this isn’t just a looming debacle for beauty businesses—it could also stifle innovation in a sector that thrives on reinvention and trendsetting. In the long run, this may chip away at industry-wide profit margins and slow down the very pace that keeps beauty buzzing.

What Next for the Industry?

When we think about luxury, it has always been a delicate balance between myth and material. But in today’s information age—where it takes mere microseconds for something to go viral—that myth is much harder to sell. So, where does that leave fashion? In limbo

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The tariffs are expected to remain in place until at least 2026, pending legal challenges and the outcome of the next U.S. election. Brands are bracing for more supply chain shocks. And quietly, in the background, creators in Guangzhou are reshaping the global narrative around value and origin.

For now, here are the takeaways:

1. Tariffs are not a shortcut to re-shoring.

2. Luxury brands must take it upon themselves to proactively defend their supply chain narratives.

3. Digital transparency can flip the script in seconds—and in this environment, consumer trust will become the real currency.

   
   

For decades, the industry thrived on the disconnect between what a label claimed and where a product was actually made. But that gap is closing—fast. 

"Made in USA" may be a slogan.

"Made in Illusion" might be the truth.

And in an era of viral truths and economic uncertainty, fashion must now work harder than ever—not just to sell its goods, but to sell its story.