The trade relationship between the United States and China has reached a boiling point, significantly impacting the fashion industry. Following the recent announcement by the U.S. government to impose tariffs on Chinese imports as high as 145%, and in some cases escalating to 245%, the effects are rippling through supply chains globally. This move targets a range of products, including everything from inexpensive t-shirts from Temu to high-end footwear like Balenciaga. In retaliation, China has implemented its own tax measures, creating turmoil in the fashion supply chain.
Brands that rely heavily on affordable Chinese manufacturing, such as Shein and Temu, are facing existential threats. Retailers like Amazon, which have built their business models around low-cost imports, are now scrambling to adapt. For instance, Five Below has halted shipments, while Steve Madden has slashed the percentage of products made in China from 95% to 70%, fearing a staggering increase in costs—up to 78% in some cases.
The escalating tariffs are forcing brands to reconsider their sourcing strategies. Smaller brands that depend on China's flexible manufacturing capabilities now find themselves with limited options, as alternative countries either have higher production costs or impose strict minimum order quantities. Consequently, consumers are likely to see increased prices and reduced availability of products.
One significant aspect of this trade war is the De Minimis rule, which allows certain low-value goods to enter the U.S. duty-free. However, this exemption will be lifted for all goods from China starting May 2, 2025, impacting brands that sell directly to consumers. This change compels many to either raise prices or shift their supply chains to countries like Vietnam or Turkey. However, companies like Shein and Temu face substantial challenges in diversifying their manufacturing bases, given their heavy reliance on Chinese production.
Moreover, U.S. brands selling in China, a critical growth market, now face the risk of consumer boycotts and government pressures. A notable example is PVH, the parent company of Calvin Klein and Tommy Hilfiger, which was listed by China as an "unreliable entity" due to its statements regarding Xinjiang cotton.
As uncertainty looms over the duration of these tariffs and the broader conflict, many brands are restructuring their supply chains and pricing strategies. Some are leveraging tools like Clear, a feature in Swap's software that helps e-commerce brands manage logistics and comply with changing regulations. This software calculates the correct tax rates and prepares necessary documentation, crucial as the De Minimis exemption is lifted for Chinese and Hong Kong goods.
The fashion industry finds itself trapped in an economic conflict with no clear resolution in sight. Brands are under immense pressure to adapt quickly or risk substantial losses. The recent tariff hikes—initially set at 145% and now rising to 245%—have profoundly affected fashion items such as clothing, shoes, and accessories, leading to increased import costs. Brands must either raise prices or alter their supply chains, particularly those like Shein and Temu that depend on inexpensive Chinese goods.
Despite the chaos, there is a silver lining for Thai products as the De Minimis rule remains intact for imports from other countries. However, the situation could change as the U.S. government is considering extending De Minimis exemptions to all countries in the future, contingent upon sufficient infrastructure to manage customs procedures effectively.
In the meantime, the U.S. fashion market is projected to reach approximately $365.70 billion in 2025, with a compound annual growth rate (CAGR) of 2.11% until 2028. The market's reliance on imports remains high, with around 97-98% of clothing sold in the U.S. being sourced from abroad, primarily from China, followed by Vietnam, Bangladesh, India, Indonesia, and Mexico.
As brands reassess their sourcing strategies, many are turning towards nearshoring and friendshoring—prioritizing production in nearby or allied countries to mitigate risks associated with trade volatility. This shift could potentially increase the market share of products sourced from countries like Mexico or Central America.
Consumer demand for sustainable and ethically produced goods is also influencing trends in the fashion industry. Many brands are now incorporating recycled materials and organic cotton into their offerings, while the second-hand fashion market is expected to grow, accounting for about 8% of total clothing industry revenue by 2025.
In summary, the U.S.-China trade war is reshaping the fashion landscape, with significant implications for brands, retailers, and consumers alike. As the industry grapples with these challenges, the potential for growth in alternative sourcing regions remains, albeit with uncertainties about how quickly and effectively brands can pivot to maintain their market positions.
