Credit Analyst Joe Macland considers some potential impacts on consumer brands and what this has to do with fixed income investing.

All eyes are on the immediate impact of Trump’s tariffs on the consumer. People the world over are wondering how they will affect their finances, and they’re widely expected to increase prices. What sort of businesses will be hit hardest? And which could actually stand to benefit? What does this mean for fixed income investors?

Who are potential losers?

As has been widely reported, for US-based apparel companies, the impact of Trump’s tariffs could be particularly severe given that some manufacturing is concentrated in China as well as neighbouring nations such as Vietnam and Cambodia.

Higher production costs could ultimately lead to higher prices for consumers. Retailers could be forced to either absorb the cost or pass it on to customers, which could decrease demand.

The beverage sector is also affected. European spirits companies like Remy Cointreau, Pernod Ricard, and Campari, which sell to the US, could face a challenging landscape due to the imposition of tariffs on goods from the EU. While the threat of a 200% tariff was reduced, providing some relief, a 25% tariff on beer and aluminium cans is a challenge.

Although luxury goods companies are potentially relatively insulated from the effects of tariffs due to their strong pricing power and premium market positioning, certain companies will still face challenges.

For instance, Pandora, with manufacturing based in Thailand, could be hit by the 36% tariff on Thai goods. Similarly, Swiss watchmakers like Richemont and Swatch face a 31% tariff on Swiss goods. Brands such as LVMH, Kering, and Brunello Cucinelli, may experience some impact, though LVMH’s local production facilities in the US could help mitigate the effect.

The impact of tariffs goes beyond just price hikes for consumers. Second-order effects hit harder in regions that depend on exporting goods to the US. Key manufacturing hubs may experience job losses and economic slowdown as demand for goods in the US weakens. For example, apparel companies which rely on these countries for production, may face delays and reduced output due to less demand or higher economic costs in these regions.

As wages drop and job insecurity rises in these manufacturing hubs, consumers in these regions face reduced purchasing power.

These economic shifts ripple out into lower demand for non-essential goods and services, with consumers having less to spend on luxury items, entertainment, and travel.

Who are potential winners?

While the tariff climate may seem challenging for many, there will be businesses and industries that will benefit.

In the beverage sector, we believe companies like Molson Coors and Anheuser Busch stand to benefit most from the situation due to their extensive domestic production base in the US.

In luxury goods, we believe brands of similar calibre to Hermes could weather the storm by passing on higher costs to consumers, especially in high-end markets where price elasticity of demand is relatively low.

The long-term second-order effects may be underappreciated, highlighting the need to closely examine businesses with higher revenue exposure to countries where higher tariffs have been implemented.

Looking at the beverages industry, for example, Carlsberg and Heineken have the lowest exposure to the US among the top four brewers. In fact, Carlsberg has no exposure to the US, and Heineken generates less than 5% of its sales from there. However, their investments in “premiumisation” – the bridge between luxury and mass market – could be at risk in a weaker consumer environment. Both companies have significant exposure in Asia, particularly Southeast Asia, where tariffs have been more severe.

For retailers focused on value, such as Costco and Aldi, demand for discount goods is expected to rise, as middle-income and lower-income consumers shift towards more affordable options in response to rising prices. Domestic travel could see a boost, as consumers prioritise cheaper, local vacations over more expensive international trips.

If the European travel industry becomes more focused on domestic journeys within the continent, low-cost airlines like Ryanair, EasyJet and Wizz Air, Southwest, Spirit, and JetBlue could benefit, as well as budget accommodation providers like Airbnb.

Luxury brands, while not immune to the pressures of higher costs, could have an opportunity to shift toward “quiet luxury”. As consumers become more price-conscious, there may be a move away from flashier, logo-heavy brands in favour of understated, timeless luxury pieces. Brands already catering to this market, may see even more demand for their products as consumers look for value in the long-term, rather than instant status symbols.

An interesting case is Accor, the global hotel operator. The CEO recently shared in a Bloomberg interview that European travel to the US is down. However, we believe Europeans focusing more on travel within Europe is likely to benefit Accor’s business in the short to medium-term.

What does all this mean for fixed income investors?

I asked fund manager Simon Prior in the Fixed Income team to summarise. This is what he said:

“Across our fixed income range, we concentrate on investing in stable and improving credits. The tariffs evidently have reverberations that will ensure that many companies’ business models will be hugely impacted in the first order from the tariffs. Second-order effects potentially impacting the consumer globally are unlikely to be homogenous. Whilst this story continues to unfold, with the potential of retaliatory tariffs against the US, the value of stability has never been clearer.

Our focus remains on delivering on our strategies across our fixed income fund range, from high levels of liquidity to low volatility. We are continuing to actively manage a diverse portfolio targeting high quality stable issuers on behalf of investors likely to be seeking calm in the storm.”