As discussions abound around potential tariffs on beauty products, concerns are growing within the industry.

President Trump’s recent announcement regarding the overhaul of the US trade policy and introducing a baseline 10% tariff on all imported goods has added a new layer of complexity to global trade discussions.

Meanwhile, the newly formed Value of Beauty trade alliance, which includes L’Oréal, Beiersdorf and Puig, is urging EU lawmakers to reconsider tariff policies due to their significant economic implications. According to the alliance’s recent report, “The Socio-Economic Impact of the Beauty and Personal Care Industry in the EU27,” these tariffs could disrupt billions in trade.

In 2023, the trade flow of cosmetics from the EU to the US amounted to $4.96 billion, according to the Fédération des Entreprises de la Beauté (FEBEA), France’s beauty association. France is the leading exporter of fragrances and cosmetics to the US among the 27 EU nations, followed by Italy, Spain, Germany and the Netherlands.

Kline + Company has been tracking the beauty industry for over 65 years. Kline’s extensive research has consistently shown that, during times of uncertainty, the beauty industry remains stable, as consumers often turn to beauty and personal care products for self-care and emotional comfort. While the industry has demonstrated resilience, the introduction of tariffs presents new challenges that could significantly impact the beauty sector.

Below, Kline breaks down the potential ramifications of these changes.

A Complex Web of Trade Relations

The beauty industry thrives on a complex web of international trade relations. From raw materials to finished products, the supply chain is intricately woven across multiple countries. Tariffs, which are essentially taxes on imported goods, can disrupt this delicate balance. For instance, if the EU were to impose tariffs on beauty products from the US, it could lead to increased costs for European consumers and businesses alike.

Price Hikes and Consumer Behavior

One of the most immediate impacts of tariffs is the potential for price hikes. Higher import costs are often passed down to the supply chain, ultimately reaching the end consumer. In a market where brand loyalty and price sensitivity play significant roles, even a slight increase in prices can influence consumer behavior. Shoppers may opt for more affordable alternatives, potentially shifting their loyalty to local brands or private labels, analysts say.

Innovation and Product Development

The beauty industry is renowned for its rapid pace of innovation and product development. However, tariffs could stifle this momentum. Increased costs and uncertainty may lead companies to scale back on research and development investments. Smaller brands, which often drive innovation, could be disproportionately affected, as they may lack financial resilience to absorb additional costs.

Supply Chain Disruptions

Increased tariffs can also lead to supply chain disruptions. Companies may need to re-evaluate their sourcing strategies, seeking alternative suppliers or manufacturing locations to mitigate the impact of tariffs. This realignment can be time-consuming and costly, potentially leading to delays in product launches and availability.

Market Dynamics and Competitive Landscape

The imposition of tariffs can alter the competitive landscape of the beauty market. Local brands may gain a competitive edge over international players due to their ability to avoid tariff-related costs. This shift could lead to an increased market share for domestic brands, while international companies may need to re-strategize to maintain their foothold.

Long-Term Implications

While the immediate effects of increased tariffs are often the focus of discussion, it is essential to consider the long-term implications. Prolonged trade tensions and tariff impositions can lead to lasting changes in trade policies and market dynamics. Companies may need to adopt more resilient and flexible business models to navigate an increasingly uncertain global trade environment.

The potential imposition of tariffs on the beauty market underscores the interconnectedness of global trade and its impact on various industries. As the beauty sector continues to evolve, companies must remain vigilant and adaptable to navigate the challenges posed by tariffs, analysts say.