Most factories in Europe are clearing the decks and production is entering its final stages before the summer holiday season begins. The general situation has not changed in recent weeks.

In international politics most decisions continue to originate with the US president, and the fact that announcements increasingly play out on social media is accelerating the pace of information even further. As a result, political decisions are less and less the result of calm discussions in parliaments and government buildings and more and more the result of impulsive outpourings from individuals.

We will refrain from listing the individual tariff threats and agreements that have been made in recent weeks. Ultimately, it is not so much the individual threats and deals that are decisive, but rather the high degree of uncertainty they cause. 

When talking to many of those affected in the supply chain in Europe today, the content of the conversations is mostly similar. But one thing unites almost all of them. There is a sense of great fatigue and the impression that the reaction is, increasingly, a shrug of the shoulders and less on actually dealing with the problems that directly or indirectly affect the leather industry. To sum it up briefly, it seems that people are simply waiting for the holiday break and do not want to deal with problems, big or small, for a few weeks. Of course, people are not so naive as to believe that everything will be fine again after they return.

We have no choice but to address customs duties once again. In our opinion, the indirect influences are particularly problematic. Owing to the long supply chains, customs duties cannot be viewed bilaterally. This is particularly true for high-quality leather manufactured in Europe. If this leather is delivered to third countries to be made into a final products there, the question of who is affected by tariffs and to what extent is one issue. But then there is the other issue of how the possible customs burden should be distributed.

However, we also believe that the consideration and discussion of tariffs overlooks a very important point. The tariffs must be paid by the buyers in the US and not by the exporters. In the public perception, there is a growing impression that tariffs are a direct burden on those who supply goods. The discussion and analysis of how and to what extent the increased prices will affect US purchasing behaviour is, in our opinion, far from sufficient. Despite all the hope that the president has regarding his goals, it should not be forgotten that, at the moment, US consumers and companies are still dependent on imports of many products. It can therefore be assumed that almost all countries could be affected by tariffs in some form, which raises the question of how the competitiveness of the individual supplier countries will develop.

There are quite a number of products that cannot be immediately and easily imported and replaced by the US. Ultimately, the question is whether there will be a significant increase in inflation there and how purchasing behaviour might change.

Even though high-quality products will not be left unscathed, higher-end products that are either manufactured in Europe or made from European materials in third countries will probably feel less of an impact than others. Nevertheless, there is still a possibility that leather could be less affected by tariffs and therefore become more competitive as a material. Due to historically low prices for raw materials, the pure costs are often no longer the most significant obstacle.

In any case, if the tariffs are actually implemented, there will most likely be a significant change in supply chains and purchasing behaviour in the US. This does not even take into account the impact of possible counter-tariffs, which in turn could bring about additional changes for individual products and countries. However, the situation is so complex and so many parameters are still unclear that it is virtually impossible to make a truly comprehensive and reliable analysis and projection. This explains why so many players in the leather supply chain are currently overwhelmed and, in some cases, even desperate about whether and how their products will be affected by these developments. This explains why this feeling of paralysis is so widespread in Europe.

In this context, the diverse discussions with our partners in Asia, and especially in China, have also been interesting. We have naturally tried to gather information and impressions from China as well, to find out how the trade conflict between China and the US is perceived there, given that it will have a much more decisive impact on the Chinese market. We readily admit that we did not have high expectations for the discussions. To be honest, we expected pessimism and fear. As much as people lament the current situation in the leather industry in China and as much as they are already suffering from tariffs and restrictions, it is surprising that this is not necessarily linked to negative expectations for the future.

Our questions were actually based on the assumption that we would receive information about why, under the current conditions, so many US hides still appear in the export statistics for China. If the outlook is so poor and larger stocks have allegedly already been built up, why buy even more, and in significant quantities, over the last few weeks? At the beginning of the talks, this was explained relatively simply. Essentially, a small number of companies that are either wholly or partly supported by the state are engaging in this. This at least clarified the question of how the purchases were financed. In the second stage, this was justified by orders for the military and security agencies. Ultimately, this is also plausible. When the questions went further and also focused on the production centres in the north of China, it was confirmed that this activity in the raw material market is by no means as low as one might expect given the mood and the situation. However, it must also be mentioned in this context that the only interest is in the cheapest hides. Only price makes the deal.

In addition to the already familiar standard explanation that cheap hides and the revenue from the splits alone are a reason and opportunity to maintain production, there were other interesting comments. When asked how it can be that, despite the great difficulties in exporting leather and leather products from China, today’s raw material purchases still seem to point to a better future, we received a relatively simple explanation. Firstly, if leather is competitively priced, and that is the case, then Chinese consumers would still be very willing to buy leather products and still consider them to be of higher quality than the alternatives. Secondly, with a population of almost 1.4 billion people, China still represents a very large domestic market, and if the government makes the right decisions, it could very well manage on its own with significantly reduced exports. Thirdly, this led to the information that the government is currently working on the next five-year plan. This, the fifteenth five-year plan, will cover the period from 2026 to 2030. Here, too, opinions may be divided on the decisions of the central government, but in principle every Chinese business will try to comply with the guidelines and plans. In any case, many of our sources were firmly convinced that further stimuli for domestic consumption will definitely play a major, if not the most important, role in the next plan and this will guide company decisions. Preparations are being made already. Acquiring cheap raw materials is certainly not the worst idea.

If confidence in the competence and decisions of the government proves to be justified, then investing in cheap raw materials is no great surprise. A look at the history of the last 25 years shows us that it was always Chinese buyers who reacted to cheap prices and whose speculation, with the simultaneous protection and support of government policy, was successful for a certain period of time. Admittedly, the overall situation worldwide today is somewhat different from in the past, but fundamentally it would be wrong to ignore the psychology and mindset in China.

Of course, this may not help other leather producers around the world very much. In the past, rising prosperity and a great willingness to consume in China also led to massive growth in imports. Many in the leather industry have benefited from this for years. If the focus is now on domestic production and domestic brands, this will probably have less of an impact on the prospects for exporters to China. The focus on national brands, the consideration of whether the higher price for imported products is really justified, and a healthy dose of nationalism will probably create a much more difficult environment for the export of leather and leather products from Europe to China. Either way, it would be advisable for many stakeholders to monitor further developments in China closely, as this is where leverage on developments in the supply chain is still the strongest.

Another welcome piece of news last week was that the German Leather Industry Association, VDL, announced a legal victory in protecting the term ‘leather’. In the second instance, a manufacturer was prohibited from labelling products made from alternative materials (in this case apple peel) as ‘leather’. Even if it is only a local decision, it sends a signal about the commitment and tenacity of the German association, for which we can only be grateful in this case. However, it is to be hoped that these decisions will then be widely publicised, because rejoicing within the leather industry about this does relatively little for the material in the consumer goods sector.

It should also be noted here that more and more small brands are addressing the issue of the circular economy and the use of hides and skins for leather production. The general global mainstream opposition to the material is slowly encountering some resistance, and many smaller brands are also seeing an opportunity to counter the general consensus. The only problem in this context, however, is that the big names are once again lagging behind in this development, which means that the general public still has a different impression.

Much will now depend on whether these initial attempts are successful, because one thing is certain: in the end, the big players do not set trends, they merely follow them. In this context, it would be very desirable if a company such as adidas, which is currently enjoying great success with its leather shoes, were finally prepared to acknowledge this and make it clear that it is also making a very significant contribution to the circular economy. How unfortunate it is not to capitalise on one's own good decisions. In principle, the motto should be: do good and talk about it.

We will leave the area of sheepskins out again, as there are no really new findings or developments. Presumably, only the Lineapelle trade fair in Milan at the end of September will show whether there could be a return to widespread use of leather from sheep, goats and other skins in this sector as well.

The overall picture for split leather has not changed. There is a certain shortage of certain items, particularly suede split material. The decline in leather production continues to play an important role, of course. The summer break in Europe is another factor. However, what we find difficult to understand is the fact that there are endless alternatives for manufacturing the same or similar products at comparable prices, if only we were a little more creative in our use of the available raw materials.

The next few weeks will be dominated by the holidays in the northern hemisphere, so we wish our readers in this region a wonderful and relaxing holiday. We will keep our finger on the pulse and report on any important events and major changes that occur during the holiday season.

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