Impact of a trade war on China’s luxury shoppers is ‘minimal’ for now
The impact of the ongoing trade spat between Washington and Beijing is going to have a “minimal” impact for now on China’s luxury shoppers, according to a partner at consulting firm OC&C Strategy Consultants.
Most of the impact will be indirect, with the trade tariffs likely affecting the overall Chinese economy and the capacity for consumers to spend money on luxury goods, Pascal Martin told CNBC’s “Squawk Box ” on Tuesday.
“If you really look at the impact on luxury goods right now, it’s very minimal because they’re not part of the list of products affected by phase one and phase two of the trade sanctions that are being taken by the U.S. and China,” he said.
The U.S. has implemented additional tariffs on around $250 billion worth of Chinese goods that enter its borders, and China has retaliated with extra levies on roughly $110 billion of imports from the U.S.
President Donald Trump’s has said he is “ready” to slap tariffs on all Chinese products imported to the U.S. — which would amount to $505 billion.
“I think the impact will come later if luxury goods are included as part of an eventual phase three of tariff increase,” Martin added. “At this stage, it’s not the case, so the impact is really very minimal at this point.
Luxury shopping is a crucial market in China. Asia’s largest economy is expected to have the most affluent households in the world by 2021, according to a China luxury report by McKinsey & Company released last year.
Chinese luxury consumers account for over 500 billion yuan ($72 billion) in annual spending, representing almost a third of the global luxury market, according to the McKinsey report.
OC&C also said that Chinese customers account for 25 percent to 35 percent of global luxury sales and most of the purchases happen outside China. Still, shrinking price gaps of luxury products between China and the rest of the world is driving Chinese purchases back to the mainland and most of that growth is happening online, according to the firm.
That said, there are growing concerns about the impact that the trade war will have on China’s economic outlook. Earlier this month, the International Monetary Fund said the ongoing trade tensions could potentially knock 1.6 percentage points off the country’s growth over two years.
Next month, Chinese tech giant Alibaba will hold its annual mega-shopping event on Nov. 11, widely known as “Singles Day.”
Even though luxury goods make up a relatively small portion of the sales, Martin said that the event will “be a big test of the health of the Chinese consumption power.”
— CNBC’s Yen Nee Lee contributed to this report.