April 15, 2025

The power of consumers

One of the fundamentals underlying current geopolitics is two sets of consumers. American consumers spend rather than save, while Chinese consumers are less willing to spend and chose to save.

High consumer spending and low savings leads to imports, borrowings and trade deficits. Total U.S. borrowing is currently over US$36 trillion. The other means to maintain growth and GDP has to keep on exporting what it produces.

Most large economies are dominated by consumption and the U.S. is particularly so, with consumer spending close to 70% of GDP. The U.S. has a very low historic personal savings rate. There was a savings increase during Covid, but it was soon spent, and the U.S. returned to normal and its economy has been doing very well.

American consumers mostly finance consumption with credit, using credit cards, automobile loans, student loans, and mortgages. Household debt levels are therefore high, which is both a growth driver but also a risk. A cultural attitude supports an ethos of consumption as a measure of success and wellbeing. Leather has seen this through the lens of U.S. consumers buying far more pairs of shoes per capita than other countries. Retail therapy is ingrained.

The U.S. is a large and rich country with strong natural resources, innovative and advanced industries balancing this spending which is pivotal in driving their own economic growth and also global demand. Albeit the leather industry would have preferred that demand was for more long-lasting leather goods rather than cheap plastic goods.

Chinese consumers are more cautious

Chinese consumer spending by contrast remains stubbornly low at 40% of GDP and with inadequate pensions, health and social safety nets and this is hard to shift. The government has been focusing on building infrastructure and producing for export and has only recently started to look at ways to increase domestic consumption, being themselves responsible for consumers wanting to save this is proving difficult. There is a long-standing preference for saving overspending.

Since the new tariffs intend to effectively stop all Chinese exports to the U.S. in the long term, it is an additional spur for China to better balance its economy and persuade consumer spending to move up towards 60%. A new 30-point plan has been unveiled and includes improvements in civil service pay, pensions, medical insurance, childcare subsidies and promises to resolve property sector which has been in disarray.

Local authorities have been giving new borrowing rights to pay of their debts and get things moving. Ambitious trade-in programs for cars, electronics, and home appliances is being expanded and as well as boosting spending will get energy consuming products replaced by efficient new models. The plan appears to have been welcome, and it all seems to depend on a cautious government actually seeing it through.

Trump 2.0 era

This all sounds good, but the Trump 2.0 era has created new problems with this erratic, personal and somewhat whimsical approach to policy. The U.S. finance and business sector expected fast and determined growth based on the sweeping away of regulations and have instead been shocked by the unexpected immediacy and aggression of the tariffs, which is causing huge disruption. Secondly, U.S. consumer confidence has clearly been shaken as even the remaining tariffs after all the U-turns and postponements will still impact prices. Thirdly, the likelihood of a U.S. recession is now openly being discussed, and this will affect the entire globe, given the size of its economy.

This latter matters as the economic recovery after Covid favoured the richer groups in the U.S. while lower-income consumers felt the brunt of inflation and housing costs. In much of the world we are seeing richer consumers going out and spending money on holidays while at the other end the poorer ones are struggling to buy basics. Part of this has been a consequence of the transfer in wealth that came with globalisation, and then with the way the financial crisis was resolved with quantitative easing. Sorting the long-standing issues related to deindustrialisation will not be achieved by penalising the trade in goods and those who produce cheaper or better goods.

Consumer concerns

Consumer concerns are already obvious in both China and the U.S. Luxury spending in China was reportedly down around 20% in 2024, while that in the U.S. fell 3% in the first quarter of this year. The 5% year-on-year fall in profits by the Fashion and Leathergoods division of LVMH that has been just reported fits this and with so much uncertainty around the tariff policy the outlook remains weak.

Despite this overall the luxury sector sells mostly to wealthy sectors who are impacted less, and for the leather industry the so-called “affordable” luxury would do much better rebranding itself as trusted, high quality: the sort of brands that the middle classes and aspiring middle class used to save up to buy. Goods that would last, could be repaired, represented good value and promoted a solid image. Instagram and TikTok need to be educated in this aspect of life if they are to continue.

In general, we need to remember that garments are discretionary purchases and fashion driven, while leather footwear, especially for work or daily wear, is less elastic and correlates more with employment stability; albeit the trends in work in many western societies are disrupting this. Both tanners and governments should take note. It is time for new standard clothing items that consumers would buy as a staple.

In both countries, people aged 25 and under are shying away from leather, which gets seen as old fashioned and not on trend. Leather usage does slowly increase as we move up the age range, although elderly Chinese do not consume much unless wealthy or living in a tier 3 or 4 city or rural setting, where leather clothing is seen as practical outerwear (and is not influenced by social media).

While the politicians like to make sure they are constantly in the spotlight, for leather it is the consumer who counts. The leather industry needs to keep a close watch.

Michael Redwood

Leather chemist, writer, and advisor on responsible leather manufacturing and material strategy. This article was originally written for ILM.