The High-End Fashion Industry’s Reaction to Economic Turmoil

While inflation has pinched the wallets of many, it’s ironically fueling the growth of luxury fashion. As most consumers scale back on spending due to rising costs, iconic brands like Chanel, Rolex, and Hermès are boldly raising their prices, sometimes surpassing inflation itself. For some, it's a response to economic pressures; for others, it’s a strategic move to preserve their elite status.

Luxury brands excuse their price inflation by claiming inflation pressures and rising material costs, but their figures do not hold up. Consider, for instance, Chanel in 2019, the average price for a Classic Flap bag stood at $5,800. At present, it has reached about $10,200, a phenomenal increase of about 76% in price. Chanel justified this by claiming a commitment to quality and exclusivity. This argument was pushed by the CEO, Leena Nair for the price hike, she said "We use exquisite raw materials and our production is very rigorous, laborious, handmade-so we raise our prices according to the inflation that we see." But is there more to it? Many consumers and analysts suspect otherwise, wondering whether such price bounds are truly to do with keeping up with cost or simply to maintain their ultra-high-end status.

The watch market is no different. Patek Philippe and Rolex rank among the world's most desirable brands, but to purchase them at retail is effectively impossible for someone who lacks any insider affiliation. On the secondary market, though, such timepieces tend to fetch two to three times their retail price. Are these brands genuinely facing supply chain restrictions, or do they limit production on purpose to keep demand strong? Most industry professionals believe the latter.

Beyond the realm of economics, luxury brands have learned a thing or two about price psychology. Economists call it the Veblen Effect; as the price for some luxury items rises, so does their demand. In contrast to mass-market items, a client does not buy Chanel handbags or Rolex watches just for their fine craftsmanship; he or she buys them for their prestige. Price hikes aren’t just about inflation; they create an aura of exclusivity around such goods. In short, the higher the price, the more desirable they become.

Hermès exemplifies this strategy. The brand, synonymous with scarcity and strict pricing, increased the price of an average Birkin bag by nearly 10% in 2023, exceeding inflation rates. A close examination of the discourse further reveals the possible truth that these bags do not just serve as accessories but genuine investments, worth holding and appreciating. Louis Vuitton had equally to trade from a playbook wherein multiple price raises go within a year despite the depressing foreign retail markets. These luxury goods stack up nowadays according to Business of Fashion on an average basis for around fifty-four percent more than they did during 2019. Yet, sales remain booming-some even argue more than ever. Why? Because these have successfully groomed the idea that affordability in hand and wrist should become a tag as status hallmark for completion in being successful. However, it too ends up being an ethical debate. Should luxury companies literally be allowed to raise prices this steeply while others are still cash-strapped? Some would just say that this is merely a business concept as the saying goes"If you find someone willing to pay, why not charge him more?" while some see it as a deliberate ploy to keep out regular buyers, thus making it all the more desired by ultra-high-net-worth individuals.

So, what’s next in the future? Will brands continue to push prices higher, or are we approaching a breaking point? History suggests that as long as affluent consumers remain eager to buy into exclusivity, luxury brands will continue raising prices, regardless of economic conditions. But there’s always the risk of alienating aspirational buyers, the ones who save up for a dream luxury purchase, if prices keep climbing.

Indeed, changes in behavior control the portion of this high drama. The industry remains high-class and entry-level as long as there is pursuit by people to be status seekers, this profit will always be there for these brands, be it a recession or not.Ruhi Bishnoi is a Data Science, Economics, and Business student at Plaksha University, set to graduate in 2027. She is passionate about leveraging data-driven insights to drive strategic business decisions and create meaningful impact. The High-End Fashion Industry’s Reaction to Economic Turmoil | MorungExpress | morungexpress.com

Read More........ → May 14, 2025

The global costs of the US-China tariff war are mounting. And the worst may be yet to come

Kai He, Griffith University

The United States and China remain in a standoff in their tariff war. Neither side appears willing to budge.

After US President Donald Trump imposed massive 145% tariffs on Chinese imports in early April, China retaliated with its own tariffs of 125% on US goods.

US Treasury Secretary Scott Bessent said this week it’s up to China to de-escalate tensions. China’s Foreign Ministry, meanwhile, said the two sides are not talking.

The prospect of economic decoupling between the world’s two largest economies is no longer speculative. It is becoming a hard reality. While many observers debate who might “win” the trade war, the more likely outcome is that everyone loses.

A convenient target

Trump’s protectionist agenda has spared few. Allies and adversaries alike have been targeted by sweeping US tariffs. However, China has served as the main target, absorbing the political backlash of broader frustrations over trade deficits and economic displacement in the US.

The economic costs to China are undeniable. The loss of reliable access to the US market, coupled with mounting uncertainty in the global trading system, has dealt a blow to China’s export-driven sectors.

China’s comparative advantage lies in its vast manufacturing base and tightly integrated supply chains. This is especially true in high-tech and green industries such as electric vehicles, batteries and solar energy. These sectors are deeply dependent on open markets and predictable demand.

New trade restrictions in Europe, Canada and the US on Chinese electric vehicles, in particular, have already caused demand to drop significantly.

China’s GDP growth was higher than expected in the first quarter of the year at 5.4%, but analysts expect the effect of the tariffs to soon bite. A key measure of factory activity this week showed a contraction in manufacturing.

China’s economic growth has also been weighed down by structural headwinds, including industrial overcapacity (when a country’s production of goods exceeds demand), an ageing population, rising youth unemployment and persistent regional disparities. The property sector — once a pillar of the country’s economic rise — has become a source of financial stress. Local government debt is mounting and a pension crisis is looming.

Negotiations with the US might be desirable to end the tariff war. However, unilateral concessions on Beijing’s part are neither viable nor politically palatable.

Regional coordination

Trump’s tariff wars have done more than strain bilateral relationships; they have shaken the foundations of the global trading system.

By sidelining the World Trade Organization and embracing a transactional approach to bilateral trade, the US has weakened multilateral norms and emboldened protectionist tendencies worldwide.

One unintended consequence of this instability has been the resurgence of regional arrangements. In Asia, the Regional Comprehensive Economic Partnership (RCEP), backed by China and centred on the ASEAN bloc in Southeast Asia, has emerged as a credible alternative for economic cooperation.

Meanwhile, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) continues to expand, with the United Kingdom joining late last year.

Across Latin America, too, regional blocs are exploring new avenues for integration, hoping to buffer themselves against the shocks of resurgent protectionism.

But regionalism is no panacea. It cannot replicate the scale or efficiency of global trade, nor can it restore the predictability on which exporters depend.

Looming dangers

The greater danger is the world drifting into a Kindleberger Trap — a situation in which no power steps forward to provide the leadership necessary to sustain global public goods, or a stable trading system.

Economist Charles Kindleberger’s account of the Great Depression remains instructive: it was not the presence of conflict but the absence of leadership that brought about the global economy’s systemic collapse.

Without renewed global coordination, the economic fragmentation triggered by Trump’s tariff wars could give way to something far more dangerous than a recession – rising geopolitical and military tensions that no region can contain.

The political landscape is already fraught. The Chinese Communist Party, for instance, has long tethered its legitimacy to the promise of eventual unification with Taiwan. Yet the costs of using force remain prohibitively high.

Taiwanese President Lai Ching-te’s recent designation of China as a “foreign hostile force” have sharpened tensions. Beijing’s response has been calibrated – military exercises intended more as a warning than a prelude to conflict.

However, the intensifying trade war with the US may become the final straw that exhausts Beijing’s patience, leaving Taiwan as collateral damage in a US-China final showdown.

A role for collective leadership

China alone is neither able nor inclined to assume the mantle of global leadership. Its current focus is more on domestic priorities – sustaining economic growth and managing social stability – than on foreign policy.

Yet, Beijing can still play a constructive role in shaping the international environment through its cooperation with Europe, ASEAN and the Global South.

The objective is not to replace American hegemony, but to support a more multi-polar and collaborative system — one capable of sustaining global public goods in an era of uncertainty.

Paradoxically, a more coordinated effort by the rest of the world may ultimately help bring the US back into the fold. Washington may rediscover the strategic value of engagement — and return not as the sole leader, but as an indispensable partner.

In the short term, other states may seek to gain an advantage from the great power standoff. But they should remember that what begins as a clash between giants can quickly engulf bystanders.

In this volatile landscape, the path forward does not lie in exploiting disorder. Rather, nations must cautiously advance the shared interest in restoring a stable, rules-based global order.

Kai He, Professor of International Relations, Griffith University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read More........ → May 13, 2025