Will President Trump Redraw Fashion’s Global Sourcing Map?

Upon hearing Donald Trump’s tariff threats against China and other countries late last year, Tikki Singleton wasted no time conferring with her peers.

“I straight away got on the phone to everyone I knew at every brand [and discovered that] most of them are looking at diversifying away from China on [whatever product] categories they can,” said Singleton, chief operating officer at Never Fully Dressed, a British fashion brand that recently expanded in the US market.

Singleton was alarmed by the US president’s proposal to impose a staggering 60 percent levy on all imports from China on top of a universal tariff of 10 or 20 percent on imports from other countries. While some dismiss the tax threats as tactical manoeuvring and others suggest that any new US tariff would probably end up being milder than Trump’s opening gambit — or exclude some fashion categories — many sourcing executives are understandably nervous.

“Over half of our sourcing and suppliers are based in China and there is a fear that the [additional proposed] 60 percent import duty from China to the US would have a really large [negative] effect on our profit margin,” said Singleton, referring to Never Fully Dressed’s rapidly growing US business which includes flagship stores in New York and Los Angeles that opened within the past two years.

“So we are looking at diversifying parts of our manufacturing base away from China,” she conceded. Working for a brand whose US unit relies mainly on wholesale margins, Singleton felt compelled to prepare for the possibility of Trump’s ‘worst-case-scenario’ tariffs.

Many fashion executives feel they have no choice but to take the unpredictable president’s confrontational rhetoric at face value — especially this early in his new term. Singleton notes that while the other executives she spoke to “have not said they are pulling out of China” they have stated “they will move their products that are easily moved to [suppliers in] Europe, Vietnam and India.”

But such diversification is neither swift, nor straightforward. “Moving [to new] factories is not a quick thing to do — you have to get them audited [and] get samples made, so you’re talking months rather than weeks.”

China remains the dominant clothing supplier to the US despite moves by fashion players to lessen their dependency on the country over recent years. It also represents a unique cluster of skills and technology. “There are some categories where China really is best [in class such as] very intricate and embellished products [including] occasionwear,” Singleton said.

Yet the impact of Trump’s tariffs — and retaliatory measures from targeted countries — on brands in the US is just one half of the story. Fashion companies’ international sourcing partners are also caught in the crosshairs of the newly inaugurated president’s economic policies.

Indeed, there is a lot at stake for the countless factories and garment workers in Asia, Europe, Latin America and Africa that would inevitably feel the ripple effect of new US tariffs.

Who might be the ultimate winners and losers of any trade wars that follow?

Diverting trade flows

“We have great relationships with our suppliers in China. We don’t want to affect people’s businesses and people’s livelihoods,” said Singleton.

She does admit, however, that some sourcing partners will be impacted more than others. “We’ve had meetings with our key suppliers in China [and explained that] everyone is going to have to take some of the pain [from new tariffs which is why] …we will be re-negotiating prices and looking at different [sourcing options].”

“One good thing is that…one of our suppliers will move our supply base to Vietnam because we supply the US,” Singleton noted. “Bigger [Chinese suppliers] were prepared [for this] and we’ll work with them as much as we possibly can.”

In a bid to mitigate risks stemming from previous trade wars and ongoing US-China geopolitical tensions, many companies have already deployed ‘China plus one’ strategies.

Chinese suppliers have been investing in satellite factories in ‘neutral’ countries like Vietnam, allowing them to continue to export to the US. Apparel from Vietnam — including large volumes of jackets, trousers, shirts and underwear — is duty free in the US under a bilateral trade agreement.

“Whatever the outcome of Trump’s tariffs, Vietnam is likely to win,” predicts Leif Schneider, lawyer and vice-chair of the legal sector committee of the European Chamber of Commerce (EuroCham) in Vietnam. “[However much] China exports to Vietnam, almost the same amount is exported to the US. This diversion of trade streams is already happening and will only increase.”

Textile and apparel export figures from 2022 show China to be the biggest exporter to the US by value with a 26.1 percent share (totalling around $38 billion), followed by Vietnam at 13.9 percent ($20 billion) then India at 8.6 percent ($12 billion), and Bangladesh in fourth place at 7 percent ($10 billion), according to World Integrated Trade Solution (WITS) data from the World Bank.

Next comes Indonesia, Mexico, Pakistan, Cambodia, Honduras and Turkey in that order, with the list of top twenty fashion exporting countries to the US rounded out by Nicaragua, Italy, Sri Lanka, Jordan, Guatemala, El Salvador, Egypt, South Korea, Canada and Thailand.

Vietnam has deftly managed to maintain close enough relations to China without alienating Western countries like the US which are increasingly at odds with Beijing. Schneider believes that the Southeast Asian country’s stability and amenable government will help it attract even more foreign investment from the likes of Europe, China and Taiwan.

Vietnam’s popularity as a sourcing hub could diminish, however, if China invades nearby Taiwan, one of many risks that has further motivated brands to diversify away from the region.

New costs for nearshoring

One way that brands have tried to reduce risks and transportation costs in Asia is by pursuing nearshoring and so-called ‘friendshoring’ strategies.

Since onshoring production to the US has proven too costly to do at scale, the obvious alternative is the country’s own backyard. But President Trump’s recent tariff threats of 25 percent on all imports from Mexico and Canada, America’s nearest neighbours, could temper brands’ enthusiasm for bringing manufacturing closer to home.

Mexico is the sixth largest textile and apparel exporter to the US with a 3.9 percent share, valued at $5.7 billion in 2022 according to WITS data. While this figure is dwarfed by that of Asian countries, the Mexican sector is tightly entangled with US domestic yarn and textile production.

“Imposing tariffs on Mexican and Canadian imported goods that come in duty-free under the USMCA (United States-Mexico-Canada Agreement) would undermine the [three countries’] co-production chain, which is vital to the US textile industry and supports thousands of jobs here and in Mexico and Canada,” explains Kim Glas, the Washington-based president and CEO of the US National Council of Textile Organizations.

“The US textile industry exports 53 percent of its textile products to Mexico and Canada alone [and these] come back as finished products to the United States under the [USMCA free trade] agreement,” added Glas who believes that Trump’s proposed tariffs would therefore spell disaster for both countries’ industries.

“This co-production chain competes directly with China and Asia and has supported an estimated two million workers directly in the US and the [Western] hemisphere,” she added, underlining the potential threat tariffs pose to workers’ livelihoods. “We look forward to educating the incoming Trump administration about these critical nuances and stressing the need for a more surgical and measured approach on those tariffs.”

Previous Congressional inaction on renewing expiring trade agreements, and new threats to existing ones including the USMCA, have cast doubt on any US administration’s ‘beyond-China’ diversification strategy. In June 2024, The Americas Act was introduced in Congress to stimulate Western Hemisphere trade but, as an un-enacted bill, the act expired when the legislature adjourned in December.

“Other unfinished business from the last Congress that also needs immediate action includes the retroactive renewal of the GSP (Generalised System of Preferences) programme and the swift, and long term, renewal of the soon to expire Haiti and AGOA [free trade] programmes,” said Stephen Lamar, president of the American Apparel and Footwear Association (AAFA).

There are concerns about the Trump administration’s stance on AGOA (the African Growth and Opportunity Act), a free trade agreement between the US and a group of eligible sub-Saharan African countries. Though Ethiopia has lost its beneficiary status, other countries that currently export apparel, footwear or textiles to the US, such as Kenya and Madagascar, are considered emerging sourcing hubs.

“We need to give long term predictability to these [trade] programmes,” said Lamar. Right now, “congressional inaction… speaks volumes and tells my [US sector] members that these programmes are not a priority.”

“And if the goal of [Trump’s] tariffs is to get companies to diversify away from China [then the alternative sourcing options] should be understood before new tariffs are [put] in place,” Lamar added. “How do you factor in [his] proposed tariffs on other countries [which] could then [inadvertently] help China [by shifting orders back]?”

India is one potential alternative, but it is also part of the BRICS country alliance, which Trump has threatened with 100 percent tariffs if member nations follow through with proposals to replace the US dollar with a new rival currency to trade amongst themselves. The 10-nation group comprises Brazil, Russia, India, China, South Africa and newer entrants Indonesia, Iran, Egypt, Ethiopia and the United Arab Emirates.

But how likely is it that Trump will actually go through with these many and varied tariff threats?

Political bargaining chips

Some industry leaders believe Trump’s threats should be seen as an offensive move in the context of his combative leadership style.

“Trump is the archetypal businessman, using the threat of tariffs to negotiate better terms with trading partners,” said Colin Browne, CEO of Cascale, a global non-profit alliance of 300 leading fashion and textile industry organisations formerly called the Sustainable Apparel Coalition.

Lamar agrees, adding that Trump uses tariffs as “a threatening mechanism” instead of a more conventional approach which is “to just invite countries to the table to negotiate.”

Others believe Trump is using tariff threats as leverage to instigate political action on areas of concern for his voting base, namely crime, immigration and economic security.

“After [Trump] mentioned [the new tariffs], just five or six days later the Mexican government made the biggest detention of fentanyl in the history of drug cartels in Mexico. What this means is that the Mexican government is responding to the United States [which is putting] pressure on them to do their job,” said Jorge Plata, founder and CEO of Mexico-based yarn and textile factory Argentum Textil.

Echoing Plata’s view is Ernesto Garcia, a sourcing executive born and raised in Mexico who has over three decades of experience procuring products globally for US brands and retailers, including Victoria’s Secret and Walmart. Garcia now works with American brands seeking to divert sourcing from Asia to nearshore locations in Latin America.

But Garcia adds that Trump’s Mexico and Canada tariff threats also illustrate “how fragile trade agreements can be.” This reality is a warning against dismissing Trump’s threats merely due to the existence of the USMCA.

Ultimately, Garcia believes that the economic interdependence of the two countries in other key sectors like automobile manufacturing will probably prevent Mexico from being subjected to severe US tariffs.

Complex contingency plans

Despite the likelihood of trade tensions flaring between the US and Mexico in the meantime, Garcia maintains that “nearshoring makes perfect sense for America,” and has been well underway for the apparel industry since the pandemic hit in 2019, when such efforts were to mitigate shipping risks and price volatility.

But discussions about nearshoring have recently become more complicated.

In an effort to shield Mexico’s domestic industry from competition beyond the region, the Mexican government increased tariffs on finished textile goods (from 20 to 35 percent) and raw materials and components (from 10 to 15 percent) in December. The tariffs aim to dissuade temporary importation of these products under the IMMEX programme (Industria Manufacturera, Maquiladora y de Servicios de Exportación), which refers to the country’s manufacturing, maquila and export services industry scheme.

Major trade bodies from both Mexico and the US have since penned a joint letter to Mexican president Claudia Sheinbaum endorsing her government’s tariff decree.

“Despite the legal efforts of Mexico and the United States to prevent the importation of goods that are undervalued, made with forced labor or with tariff or regulatory restrictions, we have seen firsthand how the Asian market has gained an unfair advantage through predatory trade practices, displacing companies and workers in the USMCA industries and undermining our critical co-production chain,” wrote Mexico’s National Chamber of the Textile Industry (CANAINTEX) and the US-based National Council of Textile Organizations (NCTO).

With the USMCA in place, it’s clear that Mexico’s tariff move hurts China disproportionately. China is the biggest exporter of textiles and clothing by value to Mexico (accounting for 34 percent) followed by the US (27 percent) then Vietnam, Bangladesh and India, each with around 4 percent.

While Mexico is becoming less attractive for some US apparel companies (as the country focuses on higher value industries like automobile and electronics production), sourcing is expanding further into the Latin America region under the CAFTA-DR — a free trade agreement between the US and Central American and Caribbean subregion countries Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua and the Dominican Republic.

The expansion of yarn and textile production across Central America has surged thanks to CAFTA-DR and foreign investment from manufacturers in countries including South Korea, the US, Canada and Spain.

Investment has been especially notable in Guatemala, Garcia says, where a large workforce and amenable government have assisted in rapid upskilling and capacity expansion. In 2021, an evaluation by global consulting firm Gherzi Textile Organization found that nearly $1 billion of new facilities were under construction in Guatemala and Honduras alone.

Besides Central America and Vietnam, India is also in the mix as a potential winner if the US imposes higher tariffs on China. India’s portion of apparel imports to the US has remained flat since 2019, but a US Fashion Industry Association (USFIA) benchmarking study in 2024 revealed that American companies are exploring new sourcing destinations in increasing numbers. After China and Vietnam, India is the third most favoured destination for expansion.

But how might Trump’s proposed universal tariff affect Indian suppliers’ prospects? Shubhra Agarwal, trade advisor at India’s Ministry of Textiles says there is little point in being concerned about widespread tariffs, since “there’s no scope for us to negotiate that.”

“I don’t see tariffs as a big obstacle [as the] US has [already] been broad-basing its sourcing to not have its eggs in one basket,” Agarwal explained, referring to existing tariffs and free trade agreements already being an effective mechanism for pushing some US companies to implement more diversified sourcing footprints.

Premal Udani, chairman of the export promotion committee at the country’s Apparel Export Promotion Council added: “[We] don’t expect major tariffs and we’re not a cheap or subsidised sector as far as apparel goes. We feel [the US president] is looking to build a strong relationship with India [and the] business community in India was rooting for Trump to win.”

Not everyone is feeling quite so unruffled by the new administration or the likelihood of trade wars. Many are worried that Trump won’t be as pragmatic as American fashion sector companies — and their key international partners — need him to be.

“[Trump is] very erratic and I believe this is going to lead to [overseas players] starting to make their calculations without US [counterparts’ involvement],” predicts Schneider.

Tariffs and consumer inflation

If new tariffs do materialise, the upshot of Trump’s two key proposals have been modelled for consideration. Currently, the average tariff on imported apparel to the US is 14.7 percent. Under Trump’s 10-20 percent on imports from all countries, this tariff would rise to an average of 37.5 percent, and in the worst-case scenario of a 100 percent tariff, up to 56 percent on average for apparel, according to research firm Trade Partnership Worldwide.

The knock-on effect to American shoppers would amount to a 20.6 percent increase on the retail price of apparel, resulting in an estimated $24 billion in lost consumer buying power per year with the tariffs in place.

With fashion industry growth languishing at 2-3 percent in 2024 and projected to remain flat or climb marginally in 2025, experts believe tariffs would hurt the already declining revenues of some of America’s major retailers and brands.

Despite the tough retail climate, Never Fully Dressed’s Singleton said the UK brand will not pass any tariff increases onto US customers. “We’ve done all the sums; we absolutely can cope [if we] … take the hit ourselves. It’s not going to break the company [if severe tariffs are introduced]. It will just mean a lower profit margin [for our US business].”

But the company has started to deploy contingency plans for new tariffs and other risks including the further diversification of its sourcing base. “We’ve already brought on a couple of factories in Turkey. We’re working more with Romania, and we actually do as much as we can in the UK, [particularly for] knitwear.”

It’s smaller companies like Never Fully Dressed that are particularly vulnerable to tariff disruptions because of their narrow sourcing base, according to research by Dr Sheng Lu, professor and director of graduate studies in the fashion department at the University of Delaware in the US.

Dr Lu authored a 2024 USFIA benchmarking study demonstrating that apparel companies in the US with fewer than 1000 employees (amounting to 99 percent of such companies) tend to source mostly from ten or fewer countries, and a third of them from five or fewer, with China being a sourcing country in every case.

“SMEs don’t have the resources to establish [broad] vendor relationships,” said Dr Lu. “China offers a wide range of product categories, in contrast to Vietnam and Bangladesh [for example] which tend to be more specialised”. Furthermore, “Vietnam and Bangladesh typically require high minimum order quantities (MOQs) of 3000 to 4000 pieces, which does not meet [SME] business needs…in the 200-300 pieces range. Only China can do that, and with the breadth of products [that SMEs require].”

“Made in China might be more expensive, but it is a one-stop-shop that works well for SMEs. Shein still sources most products from China for this reason: small MOQs,” he added.

On the subject of China-founded ultra-fast fashion e-tailers like Shein and Temu, Dr Lu highlighted yet more possible unintended consequences of Trump’s proposed tariffs.

“[Fashion players] will have an even stronger incentive to exploit the de minimis threshold,” whereby imported packages of goods below $800 in value are exempted from tariffs.

“This will create an even bigger problem and there will be a series of ripple effects and additional policies needed to help achieve the goal [of diversifying sourcing away from China], including [the US government] reforming the de minimis threshold.”