Inditex: How Trump’s current ‘asymmetric tariffs’ could impact the Spanish mulitnational

Madrid – Of all the possible scenarios, the one emerging from this “pause” of 90 days decreed by US President Donald Trump regarding the new tariff policy of the US, with its “asymmetric tariffs” for China and the EU, appears to be the worst, most unfavourable, and most challenging for the interests of Inditex. What are the reasons? Let's take a look.

Firstly, to provide some context, the Spanish giant is currently on the verge of completing a change among its senior management, welcoming Marta Ortega Pérez as the new non-executive chair, with Óscar García Maceiras already serving as CEO and Pablo Isla still in the role of executive chairman. Meanwhile, as of March 16, 2022, for the financial year 2021, the company recorded a fiscal year with the US positioning itself as its largest global market for the first time since its foundation, second only to Spain. Inditex's management made sure to highlight this in the earnings report for that year, reassuring investors and markets who were concerned about the potential impact of the recent conflict in Europe, following Russia's invasion of Ukraine on February 24, 2022. At that time, Inditex operated in Russia through a commercial network of 502 stores, slightly fewer than at the close of the 2020 financial year, which the company completed with Russia as its second-largest market, both in terms of commercial footprint and business volume, accounting for up to 5 percent of Inditex's total sales for that year.

After the temporary closure of its commercial network in Russia on March 5, 2022, and the sale of its business in the country by the end of October that year, the Spanish giant's ambitions to redirect all its efforts to boost its growth in the US seemed clear. As its management argued in June 2022, the company had only consolidated the US as its second-largest market, offsetting the effects of the paralysis of its operations in Russia and Ukraine, as well as the half-speed performance of its business in China, still affected by the effects of the coronavirus pandemic, thanks to the strong performance of its sales in the US.

Without providing exact figures on its turnover, it seemed clear that Inditex was indeed growing in the US, as evidenced by comparing the accounts for 2019, when Inditex closed its operations in the US with an earnings before tax (EBT) of 84 million dollars (plus 68 percent compared to the previous year's results) and a commercial network consisting of a total of 99 Zara points of sale. With the accounts for 2022, after its exit from Russia, Inditex completed its operations with an EBT of 424 million euros (plus 67.58 percent year-on-year growth) and 98 Zara stores in the US. From before the coronavirus pandemic to after its exit from Russia, Inditex lost one point of sale, but its EBT in the US skyrocketed from 84 million to 424 million euros (plus 404.76 percent).

With the aim of further boosting that upward performance in the North American region, and in view of the “great long-term growth opportunities in the US” that Inditex found at that time, at the close of that same 2022 financial year, the company announced that, between 2023 and 2025, Inditex, together with Zara, would undertake “at least 30 projects” in the US. From looking at the latest accounts for the 2024 financial year, we know that these projects have not led to, nor will they lead to, an exponential growth of its points of sale in relation to the increase in its economic performance in the US since 2019. Inditex closed its business in the United States with an EBT of 415 million euros (plus 5.59 percent year-on-year) and 99 points of sale, with 98 Zara stores and one Massimo Dutti.

These indicators paint a very different picture of the situation in the US compared to the one Inditex was experiencing at the close of 2022 after the sale of its business in Russia, with an EBT that fell from 424 million euros at that time to 415 million euros in 2024 (minus 2.12 percent), and with the same number of stores in total, 99 establishments, with which the company already had in 2019. These figures reflect that Inditex's growth in the US has remained completely stagnant, if not completely declining, since 2022, highlighting the difficulties that the Spanish company is really encountering in its attempt to gain a greater presence and capillarity within an American market that has been particularly challenging for Inditex during the 2023 and 2024 financial years.

Three possible scenarios for Inditex's future performance in the US (and the world)

Following this detailed overview of how Inditex's business in the US has evolved and the situation it is currently in, we will now focus on the three scenarios facing the owner of Zara for its performance in the US, and the rest of the world, as a result of the disruption to these operations caused by the announcement of the new tariff policy for the country decreed by Trump. These three scenarios range from the most conservative, which assumes a complete amendment to these policies, with a return to the situation prior to April 2, to the most demanding and adverse, which would correspond, first, to the implementation of the tariffs, and second, to the current scenario of “pause” in the application of these policies. This last scenario, which is also the current and valid one, is precisely the one that, as we have already mentioned, is worse for the interests and performance of Inditex, and the rest of the European fashion retail companies, and we are no longer just talking about their performance only in the US, but on a global scale. But let's look at the reasons and motivations that lead us to these predictions, paying more precise attention to the potential reality hidden behind each of these three scenarios that we are proposing.

One. ‘Normalised’ scenario, with a return to pre-Trump tariff policies

This scenario is the easiest to analyse, as it corresponds to a return to the situation prior to the announcement of this new tariff policy decreed by President Trump on April 2 for imports into the US. A “normalised” scenario, in which Inditex would not find any need to undertake any kind of change or restructuring of its operations, limiting itself to responding with the same strategies to continue consolidating its presence in the US, and the country as its largest international market behind Spain. For 2025, the company hoped, and continue to hope, to underpin these intentions with new openings such as those planned for Zara in The Grove shopping centre in Los Angeles and in The Forum Shops at Caesars Palace in Las Vegas — already promised for the past 2024 financial year —, both as part of those 30 opening and renovation projects committed to for the 2023 to 2025 financial years.

As we have already warned, these are a series of goals for which the American market was already proving to be particularly challenging for Inditex, in those “normalised” circumstances that existed before President Trump decided to unleash the trade war opened by the US against its main trading partners. That is why this scenario, which already presented its own difficulties for the Spanish company and its growth in the North American country, but for which Inditex already had clear strategies, is precisely the one that now presents itself as the most improbable of the three that the multinational is going to be able to face.

Two. Scenario with the “reciprocal tariffs” of April 2 in force

The second of the possible scenarios that is likely to occur in the future, and much more so than the previous one, is the one that contemplates the imposition of a situation such as that reflected in Trump's executive order of April 2, which decreed this new tariff policy for imports into the US. In this scenario, both the minimum “universal” tariff of 10 percent for all imports into the US and the “aggravated tariffs” for 57 trading partners remain unchanged, in percentages ranging from 50 percent for Lesotho, to 34 percent for China, or 20 percent for imports from the US.

Faced with this potential scenario, which came into force for a few hours on April 9, also including an additional “punishment” against China, Inditex, through its chief executive officer, García Maceiras, limited itself to giving the same response that Maceiras himself already offered last March during the presentation of the results for the 2024 financial year. In view of the uncertainty aroused by the tariffs, the response consisted of highlighting the “competitive advantage” that the Spanish fashion multinational maintains that its diversified production system gives it, with a special focus on “proximity” production, understood as that carried out in countries close to Europe and Spain, such as Spain, Portugal, Morocco, and Turkey. This advantage, in view of this new tariff policy presented by President Trump, really presented itself as true by redistributing its production among the different 10 clusters around its production in 2024 – in Spain (20 percent tariffs), Portugal (20 percent), Morocco (10 percent), Turkey (10 percent), India (27 percent), Bangladesh (37 percent), Pakistan (30 percent), Vietnam (46 percent), China (34 percent) and Cambodia (49 percent) – it seemed clear that Inditex was going to be able to avoid, better than its competitors, the impact of the tariffs. In Europe, this was not going to imply any greater challenges than those the company was already facing, while in the US, Inditex was not only going to be able to show itself to be more competitive compared to other European companies present in the country, but also compared to the American companies themselves that depended on greater imports from Asia.

Three. Scenario with the “asymmetric” tariffs of the 90-day “pause”

As a last and third scenario, we come to the one that opened on April 9 after President Trump decided to decree a “pause” of 90 days in the application of this new tariff policy. This is the current situation, and for which, in the absence of any new ups and downs that end up printing an even greater uncertainty, “asymmetric” tariffs have ended up being established in general terms for imports into the US between China and the rest of the world, with, on the one hand, added tariffs of 0 percent for practically all of the US' trading partners, and 10 percent for the countries for which these “aggravated tariffs” were decreed in the first place, with the exception of China.

For this country, aggravated tariffs of 245 percent have ended up being agreed, which added to the 20 percent with which Chinese imports into the US were already being taxed. This scenario, in addition to being the current one, is also threatening to become the most likely one once this 90-day period has passed, in the absence of agreements to correct it, and it entails a series of complexities for Inditex, both in the US and in Europe, which are what lead it to be the most complex and challenging for the Spanish fashion multinational.

Effects in the US

Focusing on the case of Inditex, this new scenario does not eliminate the “competitive advantage” that its management claimed they were going to be able to defend themselves within the US against the country's new tariff policy, far from it, but it does blur it. Not so much against the American companies that have their main production centres for their proposals in China, and against which Inditex could try to continue taking advantage of its diversified value chain; but against the rest of the European and Asian retail companies that also have production centres located outside China.

In this way, these fashion groups will only end up facing the minimum “asymmetric tariffs” of 0 to 10 percent, the same range in which Inditex's network of suppliers moves more favourably, which would no longer be alone in its presumed advantage over American retailers, which Trump is forcing to return to producing within the US, or in particularly close countries, in order to be competitive precisely against competitors such as Inditex. In summary, after the imposition of this scenario, the company finds a panorama in the US that is naturally more favourable than the previous one due to the lower burden on imports, but at the same time more challenging, insofar as its competitive advantage based on its diversified value chain does not disappear, but it does weaken compared to other European, Asian, and also American operators that produce outside China; a circumstance that, like Inditex, will prevent them from having to face those maximum tariffs that have ended up being imposed against imports into the US from the Asian giant.

Effects in Europe

If the American market is going to be more competitive for Inditex in this scenario, even more so than in that second one that we were analysing due to that greater pressure that it is going to be able to find from other foreign and American operators in the country, the European market is expected to be much more so for the Spanish multinational. This is because it is in Europe where the greatest complexities and challenges for the company that derive from this scenario are really going to arise. To clarify this point, firstly it should be noted that Europe represents, with data from the close of the 2024 financial year, 65.7 percent of all of Inditex's annual income, compared to the 18.6 percent presented by the entire region of the Americas, with Spain representing 15.1 percent by itself, and the rest of the European countries the remaining 50.6 percent of all of the Spanish multinational's annual sales.

This weight within Inditex's accounts is nothing more than a reflection of the good positioning and growth (plus 11.19 percent year-on-year) that the Spanish company has been able to sign throughout Europe, a common market that everything points to is on the verge of becoming a real battlefield for fashion companies. The reason and cause are that, after the closure of the American market to Chinese imports — because the added tariffs of 34 percent were a blow, at 125 percent they are unaffordable —, its companies, like the European ones are trying to do with their products, are going to go out to look for new markets towards which to direct their exports; and in that objective, Europe presents itself as the most likely destination. This could easily lead to a saturation of the European market, which has the potential to end up being flooded with fashion proposals at really low prices, from all those Chinese exports that are not finally being imported into the US. This is a complex situation, which would affect not only Inditex, but also the rest of the fashion retailers with a presence in Europe, and it will now be of interest to see and analyse how the retail chains are preparing for these potential contingencies, in a very challenging and fully uncertain context, and with the forecast of not only affecting their own value chains, but also the competitiveness in markets that are beyond the borders of the US.