Fashion: Navigating Change in the Face of Tariffs and Uncertainty

Although paused until early July, the new US tariffs announced by President Trump have created huge uncertainty which is having a far-reaching impact on the globalised fashion industry. The US market faces higher prices and shifts in consumer behaviour, while Chinese companies seek new export markets for their surpluses, redesigning the global trade landscape. Moreover, brands in the US and beyond will explore sourcing diversification strategies to mitigate future risks related to trade dependencies and deglobalisation.

Higher COGS likely to result in higher retail prices for US consumers

The introduction of new US tariffs on key textile producers is expected to result in higher retail prices for the US market, as a vast majority of apparel and footwear consumed in the US is imported. The immediate consequence would be increased consumer prices due to the higher costs of imported goods, primarily from China, Vietnam, and other major manufacturing hubs. With 80% of apparel and 75% of footwear in the US being import-driven, the fashion industry will face substantial supply chain disruptions. This is expected to lead to inflationary pressures, leading to higher retail prices for US consumers, and to fuel demand for the second-hand market, which is likely to become increasingly appealing to some consumers seeking greater value-added options.

80% of apparel items consumed in the US are imported in 2024

^{Source: Euromonitor Tariffs and Trade Dashboard, 2025}

Chinese players’ diversification strategy impact on global retail markets

New retail routes and trade agreements will also emerge in response to the growing uncertainty and the threat of new tariffs, with Chinese manufacturers now looking to new markets for their surpluses. Emerging economies like India, Brazil, and Indonesia stand to gain as prime targets for Chinese exports, as these markets offer large young populations (with growing disposable income levels that drive demand for affordable fashion products) and good growth prospects. Moreover, the merging of production hubs with retail markets is a strategic approach that Chinese brands might opt for, to build resilience. Hence, Shein has recently returned to India, on the condition that nearly 80% of items sold in the country would be produced there in the near future.

The pressure will also grow on European markets to protect their fashion industry, and the EU already announced in May 2025 that it would start charging a flat fee of EUR2 (USD2.26) on parcels valued at less than EUR150 (USD169) coming from outside the bloc. More measures could be taken in future, as Europe will try to protect its economy from an influx of Chinese goods.

Supply chain diversification becomes a strategic priority

Fashion brands and manufacturers will seek to mitigate risks and reduce dependency on any single country as the recent developments have shown the limits of the “China+1” and “Vietnam+1” strategy. In response to geopolitical uncertainty, fashion brands are expected to explore nearshoring and reshoring opportunities, particularly in Latin and Central America, Central Europe, and within Southeast Asia, to shorten their supply chains and reduce costs. However, these regions face their own set of challenges including limited capacity and resources, which means that significant public and private investments will be necessary to develop new clusters. For instance, countries like Brazil, Mexico, and Nicaragua account for a small share of global production and will need substantial infrastructural and legislative support to emerge as viable alternatives to the traditional Asian manufacturing hubs.

Finally, as the industry navigates these turbulent times, strategic mergers and acquisitions (M&A) are expected to increase, not only because private equity firms are buying distressed assets but because M&A can help companies to achieve economies of scale, diversify their supply chains and access new markets. Ultimately, building resilience through diversified supply chains, technological investments, and strategic pricing will be crucial for fashion brands to survive and thrive amidst the ongoing geopolitical and economic uncertainties.

To know more about the impact of uncertainty and Trump’s policies on the fashion industry, please read our briefings, New Tariffs, New Rules: Impact of Trump’s Tariffs on Fashion