Arnault’s friendship with Trump could spare LVMH (CBOE: MC) from tariffs

“Game knows game” is an expression used to describe the mutual respect of two stellar performers in a field. It is often used to describe athletes, entertainers and businessmen.

It certainly applies to Donald Trump and Bernard Arnault, the LVMH (CBOE: MC) owner, who is the fifth wealthiest person in the world with a net worth of $172 billion, according to Forbes. And now Arnault hopes Trump will refrain from slapping tariffs on his company.

The two business titans became friends in the early 1980s, when both of them were vying to become real estate heavyweights in New York City, The Wall Street Journal reports.

As Arnault built his luxury empire, which includes Louis Vuitton bags and Moet & Chandon champagne, the ties between him and Trump increased. For example, Louis Vuitton rents its store in midtown Manhattan from the Trump Organization. The two have grown close personally as well, as various family members formed friendships.

During his first term as president (2017-2021) Trump threatened to impose tariffs on the European luxury industry. But LVMH opted to increase its handbag production in the US, with Arnault and Trump jointly publicizing the move. The tariff idea was dropped.

Trump’s explanation

“I can’t tax him, because he moved to the United States. He was very smart. He was way ahead,” Trump said, according to The Journal. That gives you an idea of just how personal policy can get.

Flash forward to the present: Trump is now threatening 200% tariffs on all European alcoholic beverages exported to the US. The conflict started with Trump’s recent tariffs on steel and aluminum products. Europe responded with a 50% tariff on imports of US whiskey. And Trump responded to that with his threat on European alcoholic beverages.

A 200% tariff would put a major dent in LVMH’s champagne sales, as the US is a major market for the bubbly. In addition to Moet & Chandon, LVMH’s brands include Veuve Clicquot, Dom Pérignon, Champagne Krug, Ruinart and Chandon.  

So the question now is would LVMH be able to escape the new tariff. One thing that might help the company: it’s considering putting more money into its US manufacturing facilities over the next two years, a company spokesman told The Journal. LVMH also plans to invest more in Tiffany, its US jewelry store.

Trump responds very positively to companies that announce they will invest more in the US, but he sounds eager to discipline the European Union as well. So we’ll have to see whether the president chooses to support his old friend or expand the trade war with Europe.