Every cloud has a silver lining.
While new Trump administration tariffs on a raft of consumer-facing Chinese imports have raised fears over the retail sector’s fortunes, analysts at Cowen and Co. believe that luxury jewelry companies could benefit from a quiet move made by the Chinese government at the beginning of the month.
As part of a pre-planned reduction in levies on a plethora of consumer goods, Beijing slashed tariffs on gold and silver jewelry from 20 percent to 8 percent and from 35 percent to 10 percent for platinum, precious or semi-precious gemstone jewelry.
The change, which has been viewed as a move to boost consumer spending at home rather than being explicitly related to the escalating trade war, is expected to give the likes of Tiffany and LVMH a boost in the Chinese market.
“We think Tiffany and LVMH can be the beneficiaries from reduced tariffs on gold and silver jewelry and platinum/ gemstone jewelry as this may increase local consumption in China,” said Oliver Chen, senior analyst for equity research at Cowen.
He cautioned, however, that a pickup in domestic Chinese spending on these items may result in decreases in the likes of Europe and New York if the Chinese shop less when traveling abroad. He added that there’s still a possibility that Beijing could use jewelry in some subsequent retaliation as the tit-for-tat trade war shows no sign of ending any time soon.
“I think it’s a possibility because every day we’re getting a different announcement. I think the pivot here, though, is to strengthen the local economy and keep the sales in the country,” said Chen.
The U.S. is still waiting to see what China’s response will be to it publishing a new list of $200 billion worth of Chinese imports that will be hit with 10 percent levies in September. The list included a variety of consumer goods and fashion was no exception, with multiple items ranging from textiles to handbags to footwear and suitcases featuring on the list.
China branded the tariffs as “totally unacceptable” and pledged to take “necessary countermeasures.” While it’s not yet known what those will be, there is speculation that it would have to resort to more nontariff trade barriers such as holding up licenses for U.S. firms because it does not have as much room as the U.S. to impose trade levies.
The U.S.’ new list comes on top of the first wave of levies on $34 billion worth of Chinese imports that were implemented a week ago, with another $16 billion earmarked for an unspecified later date. China retaliated immediately, placing levies on $34 billion worth of American imports.