Many crises over the past six years – notably the coronavirus pandemic and Russia's invasion of Ukraine – have had consequences for the global economy. Supply chains were disrupted, production resources were lacking, inflation rates skyrocketed, and there was turmoil on the capital markets. As if these burdens, which continue to have an impact to this day, were not enough, US President Donald Trump has created total uncertainty in just three months in office.

His political views – such as making Ukraine responsible for the Russian invasion, or calling into question the Nato defence pact – and his obsession with tariffs, have caused uncertainty among governments, companies and private individuals alike. The result is an economic slump that has hit, or will hit, many countries. At the same time, inflation is picking up again after two years of slowdown. Even a U-turn in US foreign and trade policy cannot undo the damage done.

The full impact of the increase in import tariffs announced by Trump on the inflation rate will, of course, only become apparent in the months following their introduction. Prices in the US will rise sharply when foreign products initially become more expensive as manufacturers add the additional tariffs to US sales prices. In a second step, prices for domestic goods will also rise as demand for them increases, because many US consumers will then find foreign products too expensive and switch to cheaper domestic items. More demand leads to higher prices while supply remains the same. Economics 101.

Trump's fiction is that foreign manufacturers will relocate their production to the USA to avoid the tariffs. This would create jobs and increase value creation in the country. What he apparently doesn't want to admit is that, firstly, in most industries it takes years from the initial planning of a factory to the start of production. But if the first finished product doesn't leave the factory floor until a new president is sitting in the White House, who may have completely different economic policy ideas, why spend hundreds of millions of euros or dollars now on such a major project that may no longer pay off in a few years? Secondly, well-founded confidence in one's own business prospects is a prerequisite for investment. In the current environment, which is unlikely to improve significantly until 2029, most companies lack any basis for this.

The US Federal Reserve is concerned about the impact of tariffs on domestic prices. As the labour market in the United States has been stable so far, the Fed is halting its rate-cutting phase in this environment so as not to contribute to price increases itself. The suggestion of this by Fed Chairman Jerome Powell has already upset Trump.

However, there is no reason to blame the USA alone for the darkening economic skies. In Germany, the special fund of 500 billion euros agreed in March, which is to be used primarily to promote the economy and infrastructure as well as for rearmament, will also have a price-driving effect. This new debt – because that is what the „special fund“ is – will not have quite the same inflationary effect as Trump's import tariffs, because the demand for the repair and restoration of bridges, tunnels, roads and public buildings is unlikely to crowd out private clients. However, it is feared that there will be considerable misallocations, meaning that many billions will not be spent on modernising infrastructure, but on public consumption – such as administrative services – which will then have an inflationary effect.

What impact will this gloomy scenario have on consumption, which accounts for around 70% of gross domestic product in the USA and around half in the EU and Germany? It will decline if the outlook for private individuals becomes gloomier. In Europe, this will be much more pronounced than in the USA, where experience shows that consumers initially restrict their purchases only slightly, even in a negative environment. The next question is in which areas and how savings will be made. Weak economic forecasts and fears of job losses and a general loss of prosperity will increasingly prompt consumers to skip expensive branded goods and buy cheaper retail and no-name products instead. Money spent on „strengthening the brand“, as suppliers often call it, will be of little use. In any case, companies will also have to make savings in view of the feared recession – advertising and investment budgets will not escape unscathed in such an environment. This means that, firstly, less attention will be drawn to the brand in the public sphere and, secondly, there will be fewer innovations.

In the globalised consumer goods market, sales problems affect almost every brand supplier. Recently, Procter & Gamble and Colgate-Palmolive, two of the largest US players in the industry, lowered their sales and earnings targets for 2025. Both cited gloomy consumer sentiment and the ongoing trade disputes as reasons for this. In Europe, Nestlé and Unilever confirmed their expectations, but prepared for possible negative surprises by pointing to the same negative factors.

The theory that consumers afford „small luxuries“ even in difficult times, but forego larger expenses such as a long-distance trip, a new car or new kitchen furniture, is controversial. The gloomier the outlook, the more people are likely to save. This means that sneakers and shirts from Adidas, Puma or Nike, smartphones from Apple or cosmetics from L'Oréal could also be replaced by cheaper no-name and private label products. The latter have long since lost their reputation for being of inferior quality and now enjoy a good reputation in many cases – supported by the results of product tests. In addition, the price-performance ratio is generally good.

Beer brewers such as Anheuser-Busch Inbev, Heineken and Carlsberg and spirits producers such as Diageo, Pernod Ricard, Davide Campari and Rémy Cointreau will also face serious sales problems because, similar to the days of the pandemic, people are no longer going out as often in difficult economic times. This is having a particular impact on revenue in the gastronomy sector and hotels, where many branded drinks are sold.

In addition, brand manufacturers have already noticeably increased their prices due to higher costs in order to keep their margins relatively stable. This has led to a loss of market share, as consumers are not prepared to buy their usual branded products at any price. However, many producers state that prices must be increased further in order to compensate for the cost increases of the last two years and to absorb foreseeable additional costs. The incompatibility of the goals of defending margins on the one hand and not losing customers and thus market share on the other sometimes leads to seemingly helpless promotions such as discount campaigns or offers in unsuitable sales outlets – such as expensive branded clothing in discount chains. This does lasting damage to the brand image – the worst thing that can happen to a label.

Luxury goods occupy a special position among consumer goods: Anyone who can afford a 40,000 euro Rolex watch at any time, and doesn't think twice before buying a handbag from Louis Vuitton for a measly 3,000 euros or a Montblanc fountain pen for 700 euros, won't care about the economic outlook. They will remain loyal to their luxury brands, whether it's clothing from Gucci, Prada or Dior, designer furniture from Hay, or speakers from Teufel.

But even in the luxury segment, the weather can change within a short space of time. Due to the behaviour of US entrepreneur Elon Musk, who is close to Trump, over the past six months, it has long been considered embarrassing to drive a Tesla in progressive-liberal circles in the USA and abroad. Consequently, sales figures have plummeted. Just as the e-car pioneer Musk and Tesla are being downright boycotted and tourists are now avoiding the USA as a travel destination, non-US consumers could increasingly start refusing to buy US brands if the government under Trump continues to break all diplomatic rules and acts as if the Oval Office is deciding for the world what is right or wrong, true or false. US companies such as PVH, with its luxury brands Calvin Klein and Tommy Hilfiger, and Victoria's Secret, which is also listed on the stock exchange, will hardly like this and the brand giants for average citizens, Procter & Gamble and Colgate-Palmolive, certainly won't either.