US brands set to lose out to European rivals in China amid heightened trade row

US brands risk losing market share in China due to higher prices and sour consumer sentiment amid heightened trade tension between China and the US, analysts warned on Monday.

Given China’s additional tariffs on some US imports and its lowering of tariffs on imports from other countries, the competitiveness of US goods in the Chinese market will weaken as their prices rise, Chen Fengying, an expert at the China Institutes of Contemporary International Relations, told the Global Times on Monday.

The comment came after French luxury goods firm Hermes announced a price drop for some of its products in China starting from July 1, the same day a tariff reduction scheme rolled out by the Chinese government took effect.

Similar steps were taken by France-based LVMH, which reduced prices by between 300 yuan ($45.3) and 1,500 yuan, and Gucci, which is lowering the prices for its entire portfolio by an average of 5 percent, according to the National Business Daily.

The three companies all said the reason for the price cut is the Chinese government’s tariff policy.

Rise in tension

The move came as trade tension between China and the US entered a new stage on Friday, with both countries slapping heavy tariffs on each other’s goods.

Yang Qingshan, executive president at the China Brand Strategy Association, told the Global Times on Monday that the price cut by European brands will enlarge their consumer base and draw customers away from US luxury brands such as handbag maker Tapestry Inc, formerly known as Coach.

Experts also noted that daily consumer goods from the US are facing rising competition from other countries, especially as many Chinese people naturally prefer Asian goods in various sectors ranging from cars and clothes to food and gadgets.

China has placed a reciprocal tariff of 25 percent on US auto imports, forcing Tesla to raise its price in the Chinese mainland by almost 20 percent, while European brands such as Volvo are lowering the prices of their imported cars.

At one dealership in Beijing, the previously strong sales of Tesla vehicles appeared to have cooled down over the weekend, with a big drop in the number of consumers eyeing the cars.

“It will be an opportunity for companies in other countries – for instance Europe – that have coveted the Chinese market for a long time,” Chen said.

Even before the trade row, US products like Pampers, Colgate toothpaste and Mead Johnson infant formula had seen their market share drop by around 10 percentage points in the past five years, Reuters reported in June, citing data from Bain and Kantar based on a survey of 40,000 urban households.

Now, in addition to price and competitiveness, consumer sentiment is also coming into play.

“If the goods could only be purchased from the US, then I could tolerate the higher price; but if there are substitutes, I would prefer goods made by other countries as I feel angry about the US’ unreasonable stance,” a Beijing-based white-collar worker surnamed Liu told the Global Times.

The State Council, China’s cabinet, issued a circular calling for more balanced trade with measures to stabilize exports and enlarge imports, the Xinhua News Agency reported on Monday.

Source: Global Times