Will President Trump Redraw Style’s World Sourcing Map?
Upon listening to Donald Trump’s tariff threats in opposition to China and different nations late final yr, Tikki Singleton wasted no time conferring along with her friends.
“I immediately acquired on the cellphone to everybody I knew at each model [and discovered that] most of them are diversifying away from China on [whatever product] classes they’ll,” mentioned Singleton, chief working officer at By no means Absolutely Dressed, a British trend model that not too long ago expanded within the US market.
Singleton was alarmed by the US president’s proposal to impose a staggering 60 p.c levy on all imports from China on high of a common tariff of 10 or 20 p.c on imports from different nations. Whereas some dismiss the tax threats as tactical manoeuvring and others recommend that any new US tariff would most likely find yourself being milder than Trump’s opening gambit — or exclude some trend classes — many sourcing executives are understandably nervous.
“Over half of our sourcing and suppliers are primarily based in China and there’s a concern that the [additional proposed] 60 p.c import responsibility from China to the US would have a extremely giant [negative] impact on our revenue margin,” mentioned Singleton, referring to By no means Absolutely Dressed’s quickly rising US enterprise which incorporates flagship shops in New York and Los Angeles that opened throughout the previous two years.
“So we’re diversifying components of our manufacturing base away from China,” she conceded. Working for a model whose US unit depends primarily on wholesale margins, Singleton felt compelled to arrange for the opportunity of Trump’s ‘worst-case-scenario’ tariffs.
Many trend executives really feel they don’t have any alternative however to take the unpredictable president’s confrontational rhetoric at face worth — particularly this early in his new time period. Singleton notes that whereas the opposite executives she spoke to “haven’t mentioned they’re pulling out of China” they’ve acknowledged “they’ll transfer their merchandise which might be simply moved to [suppliers in] Europe, Vietnam and India.”
However such diversification is neither swift, nor simple. “Transferring [to new] factories will not be a fast factor to do — it’s a must to get them audited [and] get samples made, so that you’re speaking months fairly than weeks.”
China stays the dominant clothes provider to the US regardless of strikes by trend gamers to reduce their dependency on the nation over latest years. It additionally represents a novel cluster of expertise and know-how. “There are some classes the place China actually is finest [in class such as] very intricate and embellished merchandise [including] occasionwear,” Singleton mentioned.
But the impression of Trump’s tariffs — and retaliatory measures from focused nations — on manufacturers within the US is only one half of the story. Style corporations’ worldwide sourcing companions are additionally caught within the crosshairs of the newly inaugurated president’s financial insurance policies.
Certainly, there’s a lot at stake for the numerous factories and garment staff in Asia, Europe, Latin America and Africa that will inevitably really feel the ripple impact of latest US tariffs.
Who may be the final word winners and losers of any commerce wars that comply with?
Diverting commerce flows
“Now we have nice relationships with our suppliers in China. We don’t wish to have an effect on individuals’s companies and folks’s livelihoods,” mentioned Singleton.
She does admit, nonetheless, that some sourcing companions will likely be impacted greater than others. “We’ve had conferences with our key suppliers in China [and explained that] everybody goes to should take among the ache [from new tariffs which is why] …we will likely be re-negotiating costs and completely different [sourcing options].”
“One good factor is that…one in all our suppliers will transfer our provide base to Vietnam as a result of we provide the US,” Singleton famous. “Greater [Chinese suppliers] had been ready [for this] and we’ll work with them as a lot as we presumably can.”
In a bid to mitigate dangers stemming from earlier commerce wars and ongoing US-China geopolitical tensions, many corporations have already deployed ‘China plus one’ methods.
Chinese language suppliers have been investing in satellite tv for pc factories in ‘impartial’ nations like Vietnam, permitting them to proceed to export to the US. Attire from Vietnam — together with giant volumes of jackets, trousers, shirts and underwear — is responsibility free within the US below a bilateral commerce settlement.
“Regardless of the final result of Trump’s tariffs, Vietnam is prone to win,” predicts Leif Schneider, lawyer and vice-chair of the authorized sector committee of the European Chamber of Commerce (EuroCham) in Vietnam. “[However much] China exports to Vietnam, virtually the identical quantity is exported to the US. This diversion of commerce streams is already taking place and can solely enhance.”
Textile and attire export figures from 2022 present China to be the most important exporter to the US by worth with a 26.1 p.c share (totalling round $38 billion), adopted by Vietnam at 13.9 p.c ($20 billion) then India at 8.6 p.c ($12 billion), and Bangladesh in fourth place at 7 p.c ($10 billion), based on World Built-in Commerce Answer (WITS) knowledge from the World Financial institution.
Subsequent comes Indonesia, Mexico, Pakistan, Cambodia, Honduras and Turkey in that order, with the checklist of high twenty trend exporting nations 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 keep up shut sufficient relations to China with out alienating Western nations just like the US that are more and more at odds with Beijing. Schneider believes that the Southeast Asian nation’s stability and amenable authorities will assist it entice much more overseas funding from the likes of Europe, China and Taiwan.
Vietnam’s recognition as a sourcing hub may diminish, nonetheless, if China invades close by Taiwan, one in all many dangers that has additional motivated manufacturers to diversify away from the area.
New prices for nearshoring
A technique that manufacturers have tried to scale back dangers and transportation prices in Asia is by pursuing nearshoring and so-called ‘friendshoring’ methods.
Since onshoring manufacturing to the US has confirmed too pricey to do at scale, the apparent various is the nation’s personal yard. However President Trump’s latest tariff threats of 25 p.c on all imports from Mexico and Canada, America’s nearest neighbours, may mood manufacturers’ enthusiasm for bringing manufacturing nearer to house.
Mexico is the sixth largest textile and attire exporter to the US with a 3.9 p.c share, valued at $5.7 billion in 2022 based on WITS knowledge. Whereas this determine is dwarfed by that of Asian nations, the Mexican sector is tightly entangled with US home yarn and textile manufacturing.
“Imposing tariffs on Mexican and Canadian imported items that are available in duty-free below the USMCA (United States-Mexico-Canada Settlement) would undermine the [three countries’] co-production chain, which is important to the US textile business and helps hundreds of jobs right here and in Mexico and Canada,” explains Kim Glas, the Washington-based president and CEO of the US Nationwide Council of Textile Organizations.
“The US textile business exports 53 p.c of its textile merchandise to Mexico and Canada alone [and these] come again as completed merchandise to america below the [USMCA free trade] settlement,” added Glas who believes that Trump’s proposed tariffs would due to this fact spell catastrophe for each nations’ industries.
“This co-production chain competes straight with China and Asia and has supported an estimated two million staff straight within the US and the [Western] hemisphere,” she added, underlining the potential risk tariffs pose to staff’ livelihoods. “We look ahead to educating the incoming Trump administration about these essential nuances and stressing the necessity for a extra surgical and measured method on these tariffs.”
Earlier Congressional inaction on renewing expiring commerce agreements, and new threats to present ones together with the USMCA, have forged doubt on any US administration’s ‘beyond-China’ diversification technique. In June 2024, The Americas Act was launched in Congress to stimulate Western Hemisphere commerce however, as an un-enacted invoice, the act expired when the legislature adjourned in December.
“Different unfinished enterprise from the final Congress that additionally wants speedy motion contains the retroactive renewal of the GSP (Generalised System of Preferences) programme and the swift, and long run, renewal of the quickly to run out Haiti and AGOA [free trade] programmes,” mentioned Stephen Lamar, president of the American Attire and Footwear Affiliation (AAFA).
There are considerations concerning the Trump administration’s stance on AGOA (the African Development and Alternative Act), a free commerce settlement between the US and a bunch of eligible sub-Saharan African nations. Although Ethiopia has misplaced its beneficiary standing, different nations that at the moment export attire, footwear or textiles to the US, corresponding to Kenya and Madagascar, are thought-about rising sourcing hubs.
“We have to give long run predictability to those [trade] programmes,” mentioned Lamar. Proper now, “congressional inaction… speaks volumes and tells my [US sector] members that these programmes usually are not a precedence.”
“And if the objective of [Trump’s] tariffs is to get corporations to diversify away from China [then the alternative sourcing options] must be understood earlier than new tariffs are [put] in place,” Lamar added. “How do you think about [his] proposed tariffs on different nations [which] may then [inadvertently] assist China [by shifting orders back]?”
India is one potential various, however additionally it is a part of the BRICS nation alliance, which Trump has threatened with one hundred pc tariffs if member nations comply with via with proposals to exchange the US greenback with a brand new rival foreign money to commerce amongst themselves. The ten-nation group includes Brazil, Russia, India, China, South Africa and newer entrants Indonesia, Iran, Egypt, Ethiopia and the United Arab Emirates.
However how doubtless is it that Trump will really undergo with these many and diverse tariff threats?
Political bargaining chips
Some business leaders imagine Trump’s threats must be seen as an offensive transfer within the context of his combative management fashion.
“Trump is the archetypal businessman, utilizing the specter of tariffs to barter higher phrases with buying and selling companions,” mentioned Colin Browne, CEO of Cascale, a world non-profit alliance of 300 main trend and textile business organisations previously known as the Sustainable Attire Coalition.
Lamar agrees, including that Trump makes use of tariffs as “a threatening mechanism” as a substitute of a extra standard method which is “to simply invite nations to the desk to barter.”
Others imagine Trump is utilizing tariff threats as leverage to instigate political motion on areas of concern for his voting base, specifically crime, immigration and financial safety.
“After [Trump] talked about [the new tariffs], simply 5 – 6 days later the Mexican authorities made the most important detention of fentanyl within the historical past of drug cartels in Mexico. What this implies is that the Mexican authorities is responding to america [which is putting] strain on them to do their job,” mentioned Jorge Plata, founder and CEO of Mexico-based yarn and textile manufacturing unit Argentum Textil.
Echoing Plata’s view is Ernesto Garcia, a sourcing govt born and raised in Mexico who has over three many years of expertise procuring merchandise globally for US manufacturers and retailers, together with Victoria’s Secret and Walmart. Garcia now works with American manufacturers looking for to divert sourcing from Asia to nearshore areas in Latin America.
However Garcia provides that Trump’s Mexico and Canada tariff threats additionally illustrate “how fragile commerce agreements could be.” This actuality is a warning in opposition to dismissing Trump’s threats merely because of the existence of the USMCA.
Finally, Garcia believes that the financial interdependence of the 2 nations in different key sectors like car manufacturing will most likely stop Mexico from being subjected to extreme US tariffs.
Advanced contingency plans
Regardless of the chance of commerce tensions flaring between the US and Mexico within the meantime, Garcia maintains that “nearshoring makes excellent sense for America,” and has been properly underway for the attire business because the pandemic hit in 2019, when such efforts had been to mitigate transport dangers and worth volatility.
However discussions about nearshoring have not too long ago change into extra difficult.
In an effort to protect Mexico’s home business from competitors past the area, the Mexican authorities elevated tariffs on completed textile items (from 20 to 35 p.c) and uncooked supplies and elements (from 10 to fifteen p.c) in December. The tariffs purpose to dissuade momentary importation of those merchandise below the IMMEX programme (Industria Manufacturera, Maquiladora y de Servicios de Exportación), which refers back to the nation’s manufacturing, maquila and export providers business scheme.
Main commerce our bodies from each Mexico and the US have since penned a joint letter to Mexican president Claudia Sheinbaum endorsing her authorities’s tariff decree.
“Regardless of the authorized efforts of Mexico and america to stop the importation of products which might be undervalued, made with compelled labor or with tariff or regulatory restrictions, now we have seen firsthand how the Asian market has gained an unfair benefit via predatory commerce practices, displacing corporations and staff within the USMCA industries and undermining our essential co-production chain,” wrote Mexico’s Nationwide Chamber of the Textile Trade (CANAINTEX) and the US-based Nationwide Council of Textile Organizations (NCTO).
With the USMCA in place, it’s clear that Mexico’s tariff transfer hurts China disproportionately. China is the most important exporter of textiles and clothes by worth to Mexico (accounting for 34 p.c) adopted by the US (27 p.c) then Vietnam, Bangladesh and India, every with round 4 p.c.
Whereas Mexico is turning into much less enticing for some US attire corporations (because the nation focuses on increased worth industries like car and electronics manufacturing), sourcing is increasing additional into the Latin America area below the CAFTA-DR — a free commerce settlement between the US and Central American and Caribbean subregion nations Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua and the Dominican Republic.
The growth of yarn and textile manufacturing throughout Central America has surged due to CAFTA-DR and overseas funding from producers in nations together with South Korea, the US, Canada and Spain.
Funding has been particularly notable in Guatemala, Garcia says, the place a big workforce and amenable authorities have assisted in speedy upskilling and capability growth. In 2021, an analysis by international consulting agency Gherzi Textile Group discovered that just about $1 billion of latest amenities had been below development in Guatemala and Honduras alone.
Moreover Central America and Vietnam, India can also be within the combine as a possible winner if the US imposes increased tariffs on China. India’s portion of attire imports to the US has remained flat since 2019, however a US Style Trade Affiliation (USFIA) benchmarking examine in 2024 revealed that American corporations are exploring new sourcing locations in rising numbers. After China and Vietnam, India is the third most favoured vacation spot for growth.
However how may Trump’s proposed common tariff have an effect on Indian suppliers’ prospects? Shubhra Agarwal, commerce advisor at India’s Ministry of Textiles says there may be little level in caring about widespread tariffs, since “there’s no scope for us to barter that.”
“I don’t see tariffs as an enormous impediment [as the] US has [already] been broad-basing its sourcing to not have its eggs in a single basket,” Agarwal defined, referring to present tariffs and free commerce agreements already being an efficient mechanism for pushing some US corporations to implement extra diversified sourcing footprints.
Premal Udani, chairman of the export promotion committee on the nation’s Attire Export Promotion Council added: “[We] don’t anticipate main tariffs and we’re not an affordable or subsidised sector so far as attire goes. We really feel [the US president] is trying to construct a powerful relationship with India [and the] enterprise neighborhood in India was rooting for Trump to win.”
Not everyone seems to be feeling fairly so unruffled by the brand new administration or the chance of commerce wars. Many are frightened that Trump gained’t be as pragmatic as American trend sector corporations — and their key worldwide companions — want him to be.
“[Trump is] very erratic and I imagine that is going to result in [overseas players] beginning to make their calculations with out US [counterparts’ involvement],” predicts Schneider.
Tariffs and client inflation
If new tariffs do materialise, the upshot of Trump’s two key proposals have been modelled for consideration. Presently, the typical tariff on imported attire to the US is 14.7 p.c. Beneath Trump’s 10-20 p.c on imports from all nations, this tariff would rise to a mean of 37.5 p.c, and within the worst-case state of affairs of a one hundred pc tariff, as much as 56 p.c on common for attire, based on analysis agency Commerce Partnership Worldwide.
The knock-on impact to American customers would quantity to a 20.6 p.c enhance on the retail worth of attire, leading to an estimated $24 billion in misplaced client shopping for energy per yr with the tariffs in place.
With trend business progress languishing at 2-3 p.c in 2024 and projected to stay flat or climb marginally in 2025, specialists imagine tariffs would damage the already declining revenues of a few of America’s main retailers and types.
Regardless of the powerful retail local weather, By no means Absolutely Dressed’s Singleton mentioned the UK model won’t go any tariff will increase onto US prospects. “We’ve executed all of the sums; we completely can cope [if we] … take the hit ourselves. It’s not going to interrupt the corporate [if severe tariffs are introduced]. It’ll simply imply a decrease revenue margin [for our US business].”
However the firm has began to deploy contingency plans for brand new tariffs and different dangers together with the additional diversification of its sourcing base. “We’ve already introduced on a few factories in Turkey. We’re working extra with Romania, and we really do as a lot as we will within the UK, [particularly for] knitwear.”
It’s smaller corporations like By no means Absolutely Dressed which might be significantly susceptible to tariff disruptions due to their slim sourcing base, based on analysis by Dr Sheng Lu, professor and director of graduate research within the trend division on the College of Delaware within the US.
Dr Lu authored a 2024 USFIA benchmarking examine demonstrating that attire corporations within the US with fewer than 1000 workers (amounting to 99 p.c of such corporations) are likely to supply principally from ten or fewer nations, and a 3rd of them from 5 or fewer, with China being a sourcing nation in each case.
“SMEs don’t have the sources to determine [broad] vendor relationships,” mentioned Dr Lu. “China affords a variety of product classes, in distinction to Vietnam and Bangladesh [for example] which are typically extra specialised”. Moreover, “Vietnam and Bangladesh usually require excessive minimal order portions (MOQs) of 3000 to 4000 items, which doesn’t meet [SME] enterprise wants…within the 200-300 items vary. Solely China can do this, and with the breadth of merchandise [that SMEs require].”
“Made in China may be dearer, however it’s a one-stop-shop that works properly for SMEs. Shein nonetheless sources most merchandise from China for that reason: small MOQs,” he added.
With regards to China-founded ultra-fast trend e-tailers like Shein and Temu, Dr Lu highlighted but extra doable unintended penalties of Trump’s proposed tariffs.
“[Fashion players] could have an excellent stronger incentive to use the de minimis threshold,” whereby imported packages of products under $800 in worth are exempted from tariffs.
“This can create an excellent greater downside and there will likely be a collection of ripple results and extra insurance policies wanted to assist obtain the objective [of diversifying sourcing away from China], together with [the US government] reforming the de minimis threshold.”
