China – FASH455 Global Apparel & Textile Trade and Sourcing

What Do We Know about Shein’s Sourcing and Supply Chain Strategies from Its IPO Filing?

According to Reuters, Shein has received the necessary approvals to proceed with its Hong Kong IPO, which could take place as early as this fall. As part of the IPO process, Shein has disclosed detailed information about its business operations. The following analysis focuses specifically on the company’s sourcing strategies and supply chain practices.

Overview of Shein’s market and financials

According to the IPO filing document, Shein serves “more than 273 million active consumers in approximately 160 markets across the world.” In the first quarter of 2026, about 22.5% of Shein’s net revenue came from the US, down from 24.1% in 2025, 27.0% in 2024, and 29.4% in 2023. Over the same period, the EU (about 32.1% in Q1 2026) and the rest of the world (about 45.4% in Q1 2026) accounted for a larger share of Shein’s revenue.

Shein’s gross margin increased from 60.6% in 2024 to 67.9% in 2025 and 70.4% in Q1 2026. This increase partly reflects Shein’s growing third-party marketplace business, in which Shein generally records only “service fees” from third-party merchants rather than the full value of merchandise sold, and does not incur merchandise cost of sales on those transactions. Thus, the increase in gross margin reflects, at least in part, a shift in business mix rather than a comparable improvement in the merchandise profit margin.

Meanwhile, Shein’s net profit margin declined from 8.7% in 2024 to 4.9% in 2025 and a negative 1.1% in Q1 2026. The pressure is particularly evident in fulfillment costs, which increased from around 42% of revenue between 2023 and 2024 to 45.6% in 2025 and 47.7% in the first quarter of 2026. Shein subsequently recorded a net loss of US$99 million in the first quarter of 2026.

What is Shein’s LATR Model?

Behind Shein’s “ultra fast fashion” is what it calls the “Large-scale Automated Test and Reorder (LATR) operating model.” Under this approach, new products are initially produced in batches of approximately 100–200 units, and demand is evaluated using real-time customer data. Products that perform well are replenished rapidly, often within five days. Shein believes this system enables it to simultaneously offer an extremely broad assortment, rapid product refreshment, and low inventory levels, the three objectives that traditional apparel retailers often struggle to achieve.

Warehouses play a critical role in Shein’s LATR model and supply chain. According to the company, it has approximately 6 million square meters of warehouse space across Asia, North America, Europe, the Middle East, and South America as of 30 June 2026. Once Shein’s supply chain partners produce a small batch of products, that batch is shipped to one of Shein’s warehouses. Upon receiving customer orders, Shein packages and ships products directly from its warehouses to customers around the world. Shein has also been increasing its efforts to establish new warehouses around the world to be closer to the markets it serves.

Where are Shein’s apparel products mostly made?

As of 2025, Shein works with 7,500 contract manufacturers as well as “large numbers of merchants, independent designers and other suppliers.” Most of Shein’s partners are small and medium-sized enterprises (SMEs). This suggests that instead of relying on a small number of vertically integrated factories, Shein leverages a large, fragmented, and flexible supplier network. The advantage of SMEs is that they can specialize in particular products or production processes and have unused capacity that can be activated when demand suddenly increases.

Shein also admits that its supply network is “built on a distributed footprint of supply chain and fulfillment locations anchored by a central logistics hub in China.” “In 2025, products stored in our central warehouses in the Chinese mainland represented over 90% of our net revenues.”

Furthermore, unlike most Western fashion brands and retailers, which are pursuing a strategy of “reducing China exposure” and “sourcing diversification,” Shein’s IPO filing document does not indicate a large-scale shift of its production away from China.

What are Shein’s key supplier selection criteria?

Shein says its suppliers do not have to be exclusive. Instead, contract manufacturers are permitted to supply other companies. No individual supplier accounted for more than 10% of Shein’s total purchases, and the five largest suppliers together represented only 14.9%–16.4% of Shein’s purchases from 2023 to 2025.

Shein allocates sourcing orders in part based on each supplier’s expertise, not solely on price. According to Shein, “our cloud-based software solutions enable suppliers to be fully digitally integrated with our supply chain from end to end, giving us full-chain visibility. This allows us to automatically allocate orders to suppliers based on expertise, price, capacity and other factors, helping suppliers maximize capacity utilization.” Thus, Shein’s supplier network seems to be differentiated by production capabilities rather than treated as a pool of interchangeable factories.

Shein also expects its suppliers to be flexible and nimble, with the ability to produce small initial batches and rapidly scale up production when demand is demonstrated. According to the company, “because an initial production batch consists of approximately 100 to 200 items, we can quickly launch a large number of new products with minimal upfront commitment, inventory risk, and resource waste. If a product sells well, we can rapidly scale up its production to meet consumer demand. We can rapidly launch small initial batches, and restock products that are in demand in as few as five days.”

Overall, Shein’s business model means it needs a network of specialized factories with flexible capacity. Its technology essentially acts as the coordination mechanism connecting those factories to rapidly changing demand. Shein also says it connects with its suppliers closely and deeply through digital technologies. Shein argues that such integration helps its suppliers “enjoy more predictable order flow, improved asset utilization and higher returns on investment, even with small batch production.”

How have de minimis removal and tariffs affected Shein?

Shein acknowledged that the removal of the U.S. de minimis exemption has already reduced its U.S. sales, slowed company-wide revenue growth, and increased fulfillment expenses. Shein says it is also aware of the EU de minimis rule changes.

In response to the removal of de minimis, Shein says it “for products previously eligible for the de minimis exemption, we have transitioned from a simple customs entry process for de minimis packages to a customs clearance process that requires more extensive documentation and procedures. Amongst other things, we have adopted necessary protocols for the formal entry process to ensure compliance with the more stringent documentation and other procedural requirements”

Regarding tariffs, Shein says “As a result of the recent developments, our China-origin products have become subject to tax rates ranging from 10% to 87.5% (increased from 0-62.5% during the Track Record Period prior to the removal of the de minimis exemption and the Trump Administration’s recent imposition of additional tariffs).

To mitigate the tariff impacts, Shein has been “pursuing a wide range of options, including increasing our prices in the U.S. market to offset a portion of the increased.”

How does Shein see the impacts of environmental regulations? How does sustainability fit its business model?

Shein argues that its demand-driven production system reduces overproduction by producing only small initial batches and replenishing products only after actual consumer demand has been observed. According to the company, this approach minimizes excess inventory, lowers waste, and improves profitability simultaneously. In other words, sustainability is portrayed as aligned with operational efficiency rather than being a cost imposed by regulation.

However, reducing unsold inventory is distinct from addressing the broader environmental impacts associated with the high-volume apparel overconsumption problem.

In the IPO filing document, Shein also introduces the company’s evoluSHEIN sustainability roadmap, which includes responsible design, material sourcing, circularity initiatives, and decarbonization efforts across the value chain. Shein intends to integrate sustainability into product development, manufacturing, and logistics while continuing to emphasize affordability and efficiency.

Supplier auditing

According to Shein, under its Responsible Sourcing (“SRS”) program, suppliers are audited by both in-house teams and internationally renowned third-party auditors, including Bureau Veritas, Intertek, Openview, SGS, TÜV Rheinland, and QIMA, all members of the Association of Professional Social Compliance Auditors. Shein ran roughly 4,200, 4,550, and 5,150 SRS on-site audits in 2023, 2024, and 2025, respectively, covering contract manufacturers representing about 95% of company-branded procurement value each year. In 2025, over 99% of Shein’s on-site SRS audits were conducted by third-party auditors.

Additionally, Shein discloses that 5, 12, and 5 suppliers were terminated in 2023, 2024, and 2025, respectively, for SRS policy violations. The supplier code of conduct is said to align with the International Labor Organization (ILO) core conventions and the UN Universal Declaration of Human Rights.

However, in the IPO filing document, Shein didn’t mention anything related to forced labor risk, Xinjiang cotton, or UFLPA-related compliance.

What important business issues does Shein see over the next few years?

According to the IPO filing document, Shein sees its future success as depending on the company’s ability to continue expanding internationally while adapting to increasingly complex trade and regulatory environments. Shein regards investments in technology, artificial intelligence, supply chain resilience, fulfillment infrastructure, and marketplace expansion as central strategic priorities.

Importantly, Shein acknowledges that “we have grown rapidly since our inception, and there is no assurance that our growth will continue. In particular, we recorded a net loss of US$99 million for the three months ended 31 March 2026, and there is no assurance that we will achieve or maintain profitability in the future.”

Shein also noted that international tensions are expected to “escalate at an accelerated pace,” potentially creating additional barriers to trade. Its China-based sourcing model therefore represents a strategic vulnerability, even if maintaining production in China remains economically advantageous. As Shein acknowledged, “We sell products to a large number of countries and regions around the world, including the United States and Europe. Currently, the substantial majority of the products sold by us or on our marketplace originate from the Chinese mainland. Tariffs and other trade restrictions imposed by any country where we sell products, particularly on products shipped from China, could significantly hinder our ability to sell products to that country.”

by Sheng Lu

Patterns of U.S. Apparel Imports (updated June 2026)

First, U.S. apparel imports continued to shrink in April 2026, reflecting consumers’ hesitation to spend on clothing amid worsening inflation and ongoing economic uncertainty. Specifically, U.S. apparel imports declined by 12.0% in value and 13.8% in April 2026 compared to the previous year, marking the fourth consecutive month of negative growth. Even after adjusting for seasonal factors, U.S. apparel imports in April 2026 were still 3.2% lower in value and 5.1% lower in quantity than in March 2026. As U.S. inflation rose to 4.2% in May 2026, U.S. apparel imports may not reverse the downward trend anytime soon. [see detailed monthly U.S. apparel import data here]

Second, although Asia still dominates, the U.S. apparel sourcing base is becoming increasingly diverse. By value, about 70.2% of U.S. apparel imports came from Asian countries in April 2026, down from 72.0% a year earlier. Notably, Asia’s declining market share was NOT captured by Western Hemisphere countries, whose share remained at 15.7% in April 2026 (including 13.7% for CAFTA-DR and USMCA members), even slightly lower than the 15.8% recorded in April 2025. Instead, U.S. apparel imports from countries outside Asia and the Western Hemisphere reached a new high of 14.1% in April 2026, up from 12.3% in April 2025 and well above the 7.4% recorded in 2015. This shift reflects U.S. fashion companies’ efforts in recent years to explore emerging sourcing destinations in regions such as Africa, the Middle East, and the EU to mitigate growing sourcing risks and other concerns.

Third, at the country level, U.S. fashion companies have increased sourcing from several key Asian apparel-supplying countries beyond China, as well as from a few emerging sourcing destinations in other regions. Specifically, in the first four months of 2026, while the value of U.S. apparel imports decreased by 12%, imports from Vietnam (up 1.3%), Indonesia (up 2.3%), and Cambodia (up 14.2%) increased. Egypt (up 14.7%) and Turkey (up 6.4%) also became more popular sourcing destinations. In comparison, over the same period, U.S. apparel imports from China (down 50.2%), India (down 28.0%), and Bangladesh (down 11.2%) decreased substantially. Particularly for China and India, the much higher tariff rates imposed on their products were among the critical factors behind their loss of sourcing orders. Regarding Bangladesh, since it primarily produces low-volume items for U.S. fashion companies, it could be disproportionately affected as ordinary U.S. consumers purchase fewer clothing items amid economic stress. [See detailed country market share data here]

Fourth, with the upcoming US-Mexico-Canada Agreement (USMCA) joint review later this summer, the state of U.S. textile and apparel trade with Mexico and Canada has drawn increased attention. On the one hand, the OTEXA data show that the USMCA remained the single largest export market for U.S.-made yarns and fabrics as of 2026. In the first four months of 2026, about 48.4% of U.S. yarn and fabric exports went to USMCA members, including 33.9% destined for Mexico. This share has been highly consistent over the past decades, including when the USMCA replaced NAFTA in 2020. Meanwhile, according to the latest data from the World Trade Organization (WTO), in the first three months of 2026, the U.S. accounted for about 39.3% of Mexico’s textile imports. However, this percentage was noticeably lower than 48% in 2018. Over the same period, China has become an increasingly important textile supplier for Mexico, with its market share rising from 30.3% in 2018 to 38.3%.

On the other hand, in value terms, USMCA accounted for 3.4% of U.S. apparel imports in the first four months of 2026 (including 2.8% from Mexico), slightly up from 3.2% over the same period in 2025. Despite the relatively low market share compared to Asian suppliers, it should be noted that in the first three months of 2026, nearly 98% of Mexico’s apparel exports went to the United States. Data from the U.S. International Trade Commission further show that almost 94% of those exports claimed duty-free benefits under the USMCA in the first three months of 2026, a significant jump from around 80%-83% in the past. USMCA-qualifying apparel has been among the very few products exempt from the tariff hikes since Trump’s second term.

Furthermore, in the first four months of 2026, about 55.3% of U.S. apparel imports from Mexico were cotton apparel, the lowest share since 2021 (around 57%). While the available data did not establish a direct causal relationship, the growing availability of textile inputs from Asia may have contributed to a broader diversification of Mexico’s apparel exports to the U.S. market beyond traditional products such as men’s and boys’ cotton trousers. This trend also underscores the high stakes of USMCA’s review. The agreement’s duty-free preferences and yarn-forward rules have long encouraged the use of U.S.-made textile inputs, especially those cotton-centered, in Mexican apparel production. Without these incentives, Mexican manufacturers could have greater flexibility in sourcing textile inputs from Asia, given the benefits of diversifying their export offerings. Such a shift could reduce demand for U.S. yarn and fabric exports and further weaken traditional Western Hemisphere textile and apparel supply chains.

Additionally, U.S. apparel imports from Sub-Saharan African (SSA) countries declined sharply, down 30.9% in value and 22.3% in quantity in April 2026. So far in the first four months of 2026, SSA countries together accounted for 1.9% of U.S. apparel imports, the same as in 2025. With the African Growth and Opportunity Act (AGOA) renewed for only one year and set to expire at the end of 2026, these results reinforce concerns that U.S. fashion companies are unwilling to expand apparel sourcing from AGOA without a clear long-term policy outlook.

by Sheng Lu

New Study: Are China’s apparel imports a growing opportunity for Asian developing countries (ADCs)?

The study, newly published in the Journal of Chinese Economic and Foreign Trade Studies (peer-reviewed), examines the rapid growth of China’s apparel imports from Asian developing countries (ADCs), including Vietnam, Bangladesh, Cambodia, Indonesia, India, Sri Lanka, and Pakistan.

Using product-level analysis of 8,000 apparel Stock keeping units (SKUs) sold in China’s retail market between 2023 and 2024, the research finds that:

China is becoming an increasingly important apparel export market for Asian suppliers, not just a competing manufacturing base. Trade statistics also showed that the value of apparel imports into China more than tripled from $2.1 billion in 2010 to more than $10 billion in 2024.
China’s apparel imports from ADCs are no longer limited to basic low-end products today. Suppliers from these countries now offer a wide range of apparel categories comparable to domestically made Chinese products.
China’s apparel imports from ADC countries are especially competitive in lower-priced staple items and replenishment-driven categories.
China’s apparel imports from ADCs were found more likely to feature recycled and organic textile materials than domestically produced apparel in China, suggesting growing competitiveness in sustainable apparel manufacturing.

The findings have several important implications:

First, the findings confirmed that ADCs have become a critical source of apparel for the Chinese retail market. This means that even though China may remain the world’s largest apparel producer and exporter in the foreseeable future, it is no longer the case that apparel sold in China is necessarily made domestically, as this study and trade statistics illustrate. Instead, China has become and could continue to expand its role as a growing export opportunity for many ADCs and support trade-led economic growth there. This is especially important and strategic in the medium to long term for hundreds of thousands of apparel producers from ADCs, as their exports to traditional markets, including the United States, face increasing tariff barriers and policy uncertainties since Trump’s second term began in early 2025.

Second, the study’s findings revealed that ADCs as a whole have developed a more competitive and enhanced apparel production capacity than previous studies suggested. Challenging the popular perception that ADCs were limited to producing cheap basic apparel items like T-shirts and bottoms, these countries can now manufacture a wide range of apparel products, almost comparable to those of Chinese companies, as this study found. This progress can be attributed to ongoing foreign investment and capacity-building support in ADCs, including from Chinese companies eager to expand their multi-country production capabilities, which has significantly boosted the scale and scope of apparel manufacturing in ADCs. Because of ADCs’ demonstrated ability to offer a wide range of apparel products, they can also be seen as preferred “alternatives” to sourcing from China, as Western fashion companies aim to build a more diversified apparel sourcing base and depend less on China.

Furthermore, the study’s findings suggested that expanding textile manufacturing capacity in ADCs could be a strategic move to further improve their apparel export competitiveness. It is important, though not surprising, that China’s apparel imports from ADCs were less diverse in fiber content than domestically produced apparel. This result echoed previous studies, which found that many ADCs still rely heavily on textile raw materials imported from China due to a lack of local manufacturing. Expanding textile production in ADCs would enable these countries to develop stronger vertical apparel manufacturing capabilities, broaden their apparel product offerings, and reduce vulnerability to supply chain disruptions in today’s turbulent trading environment. ADCs may particularly consider attracting more investment in strategic areas, such as products made with sustainable textile fibers, where their products appear even more prominent in the market than those made in China.

By Sheng Lu

Also read: China’s Apparel Imports From Other Asian Countries On the Rise (June 11, 2026, Sourcing Journal, by Kate Nishimura)

Is There a Structural Excess Capacity Problem for the Textiles and Apparel Industries?

Background

In March 2026, the Office of the U.S. Trade Representative (USTR) initiated a new Section 301 investigation on Structural Excess Capacity and Production in Manufacturing Sectors. USTR defined “structural excess capacity” as “underutilized industrial production capacity that is sustained through governmental interventions or policies incentivizing companies to maintain or grow their unused capacity inefficiently.”

The investigation departs from a conventional Section 301 investigation in several ways: 1) instead of targeting a single country, the investigation targets as many as 16 countries, including China, the European Union, Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan and India ; 2) instead of targeting a specific policy practice, the investigation targets “structural excess capacity and production,” which can be linked to many different practices, such as government subsidies and state-owned enterprises (SOEs); 3) instead of focusing on a specific sector, the investigation is cross-sectoral, which could include textiles and apparel and extend to the entire manufacturing sector.

During the public comment period, several leading U.S. and foreign textile and apparel trade associations and companies submitted their comments regarding the investigation and proposed policy actions. These comments disagree on whether “structural excess capacity” existed in the textile and apparel industries and on whether additional U.S. import tariffs would be the appropriate approach to address the problem.

Arguments that there is a “structural excess capacity” problem in textiles and apparel

U.S.-based textile manufacturers and associated industry groups, in general, argue that there is a “structural excess capacity” problem in textiles and apparel manufacturing. They believe that excessive capacity exists when production infrastructure is built and maintained beyond what market demand alone would support and justify. They also regard government intervention, such as providing subsidies, as a main cause of the excess capacity problem. These groups primarily cite perceived low utilization of production capacity and government policy documents as their supporting evidence. Specifically:

Unifi Manufacturing Ltd. (“Unifi”) and Nan Ya Plastics “Nan Ya” (note: U.S.-based textile yarn producers): Data from subscription service Wood Mackenzie showed that textured filament production capacity utilization rate in several Asian countries remained “low” or “underutilized,” including Bangladesh (66% in 2025 and 66% in 2026), China (74% in 2025 and 75% in 2026), India (70% in 2025 and 67% in 2026), Malaysia (65% in 2025 and 64% in 2026), Pakistan (both 68% in 2025 and 2026), South Korea (47% in 2025 and 45% in 2026), Taiwan (41% in 2025 and 40% in 2026) and Vietnam (35% in 2024 and 37% in 2026).
National Council of Textile Organizations, NCTO (note: representing U.S.-domestic textile manufacturers): “China’s 15^th Five-Year Plan (2026-2030) indicates textile and apparel production will continue to receive special government attention with its commitment to expand supply of high quality textiles…China’s history of providing subsidies and investment in manufacturing capacity, both centrally and locally, even when demand declines, allows companies operating in the country to maintain high production levels despite declining profits…These market dynamics have led to China’s rise as the world’s number one supplier of cheap apparel, which has dropped in price by roughly 28 percent since 2019.” (Note: No data source provided in the submitted comment, but it could refer to the OTEXA average unit price of U.S. apparel imports from China, calculated by $ per square meter equivalent). NCTO also claimed that Southeast Asian countries such as Vietnam, Bangladesh, and Cambodia heavily rely on textile raw material inputs from China and contribute to the excess production capacity problem that has caused the U.S. trade deficit in textiles and apparel.
Association of the Nonwoven Fabrics Industry, INDA (note: representing the North American nonwoven fabrics and engineered materials industry): Expressed concern that China’s nonwoven production increased by 5.1% in 2024, supported by “government policies including subsidized inputs, low-cost financing, and export promotion.” “Similar dynamics exist or have the potential to exist in other investigated economies (e.g., Vietnam, India, Bangladesh, Indonesia, Cambodia, and Thailand), where textile and nonwoven-related production benefits from export incentives, capacity additions untethered to market demand, and bilateral trade surpluses with the United States.”

Arguments that there is NO “structural excess capacity” problem in textiles and apparel

Industry associations representing U.S. fashion brands, retailers, and importers generally argue that the U.S. trade deficit in textiles and apparel and the high import volume should not be interpreted as the result of “excess capacity,” but rather as the natural outcome of each country’s comparative advantage in trade and today’s global apparel supply chain. Meanwhile, textile and apparel manufacturers from Asian countries argue that their export volumes reflect the sourcing decisions of U.S. fashion brands, not government-subsidized overproduction. Specifically:

American Apparel and Footwear Association, AAFA (note: representing U.S. apparel brands and retailers): U.S. trade deficit in textiles and apparel is NOT an appropriate and relevant measurement of the excess production issue. Instead, “these trade flows reflect the organization of production within globally integrated supply chains, where capacity is developed and utilized in response to commercial sourcing decisions, long-term customer relationships, and evolving demand patterns. Production capacity in these sectors is generally responsive and mobile, and there is no indication of persistent or systemic underutilization of capacity maintained independent of market demand or sustained through policy intervention.”
U.S. Fashion Industry Association, USFIA (note: representing U.S. fashion brands, retailers, and importers): Disagree that in the apparel sector “a country runs a trade surplus with the United States… it displaces existing U.S. domestic production or prevents investment and expansion in U.S. manufacturing production.” Instead, by applying the concept of comparative advantage, USFIA believes that “the cutting and sewing of apparel is the first rung on the ladder of industrial development, a rung the United States climbed long ago. As President Trump recently said: “They {China} can produce things that we don’t want to produce because it’s not really worth our while, making undergarments…. We don’t want to do that, and we can buy them inexpensively from other places in the world.” USFIA also pointed out that “Many countries, including notably the United States, often produce more than they can consume domestically and work to develop foreign markets to absorb that excess production. This is the very definition of international trade and is at the heart of the Trump Administration’s own efforts to dismantle foreign trade barriers.”
Vietnam Textile and Apparel Association, VITAS (note: representing Vietnam textile and apparel manufacturers and exporters): First, “Viet Nam’s textile output is entirely demand-driven, manufactured against firm purchase orders from global brands. Output is manufactured exclusively against firm purchase orders placed by global brands and buyers.“ Second, Vietnam’s textile and apparel manufacturing sector remains profitable, so it continues to attract new foreign investment, indicating no overcapacity problem. In fact, 60% of Vietnam’s textile and apparel export revenues came from foreign-invested enterprises in the country. Third, the Vietnamese textile and garment industry depends heavily on imported raw materials for production; as such, it is unlikely to generate structural excess capacity. In particular, “the U.S. is currently the largest and most important supplier of cotton to Vietnam, accounting for nearly 50% of Vietnam’s total cotton imports.”
Vietnam Cotton and Spinning Association, VCOSA (note: representing enterprises operating in the cotton and spinning industry in Vietnam): In Vietnam, “the cotton and spinning sector comprises about 180 enterprises, approximately 95% of which are privately owned or foreign-invested. In this context, decisions regarding capacity expansion, output levels, and investment are made independently by enterprises based on market signals, including market demand conditions, input costs and competitive pressures.” Similar to VITAS, VCOSA also argued that Vietnam’s cotton spinning industry relies heavily on imported raw cotton, including from the United States.
Confederation of Indian Textile Industry: First, “the Indian Textile & Apparel (T&A) industry’s capacity expansion is closely aligned with domestic economic growth, market demand, and global trade dynamics, and is not driven by non-market interventions.” Second, India’s textile and apparel production “is stagnant or declining across the sector and value chain” due to competitions from countries like Vietnam and Bangladesh. Third, the Indian textile and apparel industry is “with a limited presence of large, vertically integrated players, capacity addition is inherently incremental, fragmented, and responsive to market signals, thereby preventing systemic overcapacity.”
China Chamber of Commerce for Import and Export of Textiles, CCCT (note: representing China-based textile and apparel exporters): Claims that there is no excess capacity issue in China’s textile and apparel industry; however, no detailed data or evidence was provided to address concerns about China’s industrial policy and whether Chinese textile and apparel capacity has been expanded through state policy beyond what market demand would justify.

New Tariffs or Not?

Regarding whether USTR should impose additional tariffs as a result of the Section 301 investigation, textile and apparel industry associations also disagree, although the proposals were even more subtle.

First, U.S.-based textile manufacturers, including NCTO, generally support additional tariffs on finished textile and apparel products from Asia.

Second, U.S. fashion brands, retailers, and importers, including AAFA and USFIA, oppose imposing additional tariffs on textile and apparel imports, given 1) new tariffs are additional and unfair taxes on U.S. companies and consumers; 2) new tariffs will NOT bring back U.S. textile and apparel manufacturing, given the nature of the industry. AAFA also argues that existing mechanisms, such as the National Trade Estimate (NTE) report, should be the right tool to address USTR’s concerns, rather than using Section 301, which is supposed to be country-specific and very targeted.

Third, despite the general support for additional tariffs on finished goods, it is not uncommon for U.S. domestic textile and apparel manufacturers to request “tariff exclusions” for textile intermediates. For example:

National Council of Textile Organizations, NCTO: “Exempt textile manufacturing inputs and machinery not available domestically from additional tariffs above existing MFN duties. American manufacturers need ready access to necessary manufacturing machinery and inputs not made domestically to maintain their global competitiveness against foreign producers who do not face similar tariffs.”
Secondary Materials and Recycled Textiles Association, SMART: “In the wiping and cleaning sector, those tariffs have already had measurable and ongoing negative impacts that should be carefully considered before additional duties are imposed. Over the past several years, tariffs on textile inputs and finished wiping products have increased costs across the supply chain in ways that U.S. companies have largely been unable to avoid.”
Association of the Nonwoven Fabrics Industry, INDA: “address the existing tariff imbalance by aligning the tariff treatment of nonwoven inputs (such as fibers) with that of finished nonwoven roll goods. This would eliminate the unintended cost disadvantage for domestic producers, encourage value-added manufacturing in the United States, and better support the objective of strengthening U.S. supply chain resilience.”

Fourth, there is a strong consensus among U.S. textile and apparel industry groups, including manufacturers, fashion brands, and retailers, against imposing additional U.S. import tariffs on textile and apparel products from the Western Hemisphere and in support of sourcing more apparel from the region.

U.S. Fashion Industry Association, USFIA: “USFIA would like to highlight the importance of Western Hemisphere production for the entire textile and apparel supply chain…We support efforts to incentivize more sourcing from the Western Hemisphere.”
National Council of Textile Organizations, NCTO: “Preserve critically important duty-free treatment for USMCA/CAFTA-DR qualified textiles and apparel. We urge the administration to preserve duty-free treatment for goods that qualify for preferential treatment under U.S. FTAs with Western Hemisphere countries, particularly the USMCA and the CAFTA-DR given the economic significance of these markets to U.S. textile manufacturers.”
Association of the Nonwoven Fabrics Industry, INDA: “Coordinate with allied economies where appropriate and maintain exemptions or targeted approaches for partners (such as USMCA countries) that do not engage in the same distortive practices.”

Additional Assessment from an Academic View

In theory, “excess capacity” is very unlikely in the apparel sector, given the industry’s nature. In particular, apparel manufacturing has relatively low barriers to entry and exit, and workers can move in and out of the sector relatively easily. As a result, if excess capacity emerges, factories typically adjust by scaling back production or reducing employment. Meanwhile, the apparel industry is “buyer-driven,” meaning production decisions are largely based on demand from fashion brands and retailers rather than supply-side expansion by manufacturers. (See the shifting market share in the U.S. apparel import market by supplying countries)

On the other hand, claims of structural overcapacity in the textile and apparel sector are not well supported by evidence. In industries characterized by persistent excess capacity, such as steel or solar panels, the imbalance between supply and demand typically results in sustained price depression and large volumes of unsold industrial output. However, the global apparel markets have not experienced such systematic price collapses, and US apparel imports have become even more expensive, especially in 2025.

Additionally, higher U.S. tariffs on apparel imports are most likely to shift production rather than reduce it. For example, U.S. fashion companies may redirect sourcing to countries or regions with lower tariff rates. At the same time, exporting countries may divert shipments from the U.S. to alternative markets such as the EU, leaving global production capacity largely unchanged. Ironically, higher U.S. market prices driven by tariffs may “encourage” greater global production, as suppliers, including those in the U.S., expand output to capture a higher margin, thereby worsening the “excess capacity” problem.

by Sheng Lu

H&M’s Evolving Apparel Sourcing Base (updated April 2026)

Founded in Sweden in 1947, H&M is widely regarded as a leading fast-fashion retailer, known for offering a high volume of trend-driven products at competitive prices. To better understand H&M’s fast fashion business model and its implications for the company’s sourcing practices, this study analyzed H&M’s detailed factory list published in February 2026, which includes 1,455 entries.

The factories on the list were classified using information from the “Product Type” and “Factory Type” columns. Specifically, Apparel suppliers are factories that produce finished garments (e.g., denim, knitwear, woven apparel) and are listed as “Manufacturing unit”. Factories that did not provide product information were excluded from the analysis.

Key findings:

First, like most other leading apparel brands and retailers, H&M utilized a geographically diverse sourcing base. Specifically, as of February 2026, H&M sourced apparel from nearly 800 factories across 23 countries and about 550 factories producing textile raw materials in 15 countries.

However, compared to its 2024 sourcing base, H&M seemed to have consolidated the number of factories it sourced from.

Notably, H&M appears to maintain long-term relationships with its suppliers. Among the nearly 800 contracted apparel factories, 314 (nearly 40%) have worked with H&M for more than 10 years, and another 126 for 6–10 years. Only 261 factories (about 33%) have fewer than 3 years of relationship. According to H&M’s website, it “onboard new suppliers or factories and, occasionally, phase them out according to our business needs.”

Second, while Asia remains H&M’s largest apparel sourcing base, other regions, particularly Europe and Africa, also play a critical role. As of February 2026, seven of the top ten countries with the most contracted factories for H&M were located in Asia. However, Türkiye, Portugal, and Morocco also ranked among the top ten. Compared to U.S. fashion companies, which tend to rely more heavily on Asian sourcing, these countries generally play a more limited role in their sourcing portfolios, highlighting H&M’s relatively greater emphasis on regional diversification and proximity sourcing. In particular, sourcing from Europe and Africa can provide H&M with shorter lead times and greater responsiveness to EU market demand, which aligns well with the speed-to-market requirements of its fast fashion business model.

Third, at the country level, in terms of the number of contracted factories, China remains H&M’s single largest apparel sourcing destination (over 230 factories, or 29.5%) as of February 2026. H&M also sourced the widest range of apparel product categories from its China-based factories, covering woven apparel (85 factories), jersey (56 factories), knitwear (32 factories), and denim (11 factories). In other words, China is one of the few countries that can make almost all types of products for H&M. In comparison, H&M was inclined to source more narrow product categories from other top-supplying countries, such as Türkiye for jersey, denim and knitwear; India for denim, Indonesia for underwear/swimwear; and Pakistan for denim and socks. This finding aligns with recent studies indicating that Western fashion companies commonly regard China as highly competitive for its product variety, which is difficult for other countries to match.

It is also noteworthy that most of H&M’s contracted factories in China are relatively small, with over 76% employing fewer than 500 workers. This pattern is consistent with China’s role in supplying more variety-driven orders with small- to medium-sized minimum order quantities (MOQs). In contrast, H&M’s contracted factories in other major Asian sourcing countries, such as Bangladesh, Pakistan, and Indonesia, are more concentrated in large-scale production, typically employing over 1,000 workers. Notably, 41% of H&M’s contracted factories in Bangladesh and nearly 40% in Pakistan have more than 4,000 workers, indicating their role in producing high-volume orders for the company.

Additionally, H&M contracted garment factories have commonly received material certification, led by those related to organic and recycled content. For example, as of February 2026, among H&M’s contracted apparel factories, 49.6% held the Recycled Claim Standard (RCS), followed by Global Recycled Standard, GRS (39%) and Organic Content Standard, OCS (38.5%). The results align with H&M’s stated material goals of increasing the use of recycled or sustainably sourced materials in commercial products to 100% by 2030, including reaching 50% recycled materials. Most of H&M’s top apparel-supplying countries already have 50–70% of factories holding at least one type of material-related certification. The ability to obtain such certifications is increasingly becoming a baseline expectation for H&M suppliers.

by Sheng Lu

Additional reading: H&M’s Evolving Sourcing Map Speaks to Global Supply Chain Shifts (Sourcing Journal, April 2026)

Fashion Doesn’t Exist in a Vacuum: Reflections on the 2026 World Economic Forum

by Emilie Delaye

Fashion and apparel aren’t just about fabric or seams. It is not just about the clothes that you put on your body. Don’t believe me? Well, I am going to show you just how interconnected the fashion industry is to everything around us. My hope is to show you just how important it is to understand the world around us, especially in the industry we are all about to enter. This deep connection between fashion and the world around us is exactly why global organizations like the World Economic Forum matter.

For those of you who don’t know, the World Economic Forum (WEF) is an independent international organization headquartered in Geneva, Switzerland, dedicated to improving the state of the world through public-private cooperation. Recently, the WEF held the 56th Annual Meeting of the World Economic Forum, which brings together stakeholders from government, business, civil society, and the scientific and cultural domains to have real conversations, solve problems together, and highlight new innovations.

I had the opportunity to watch three sessions from this year’s World Economic Forum. As noted in my summary below, although these sessions did not specifically mention fashion, their insights are highly relevant to the fashion industry in today’s global economy.

“Geopolitical Risks Outlook for 2026 “

Summary: The world is changing in ways that feel both risky and promising. While technology, politics, and globalization are creating instability, investments in green energy are driving growth and new opportunities. How countries respond will shape what comes next.
Connection to the Fashion Industry: These global changes directly impact the fashion industry by reshaping how clothes are made, sold, and regulated. AI is changing design, production, and supply chains, while political shifts and new global rules affect sourcing, labor, and trade. At the same time, the push for green energy and sustainability is forcing fashion brands to rethink materials, manufacturing, and long-term social responsibility. As a fashion student, it is critical to understand these changes, as they could shift career paths, redefine job roles, and reshape the industry’s future.

“US and China: Where Will They Land?”

Summary: The U.S. and China are locked in a long-term competition over power, technology, and security, and while neither side wants war, the rivalry creates instability and misunderstanding. Without clear guidelines, consistent trade policies, and a shared framework, especially around AI and emerging technologies, managing this relationship remains difficult and uncertain.

Connection to the Fashion Industry: This relationship affects the fashion industry through tariffs, trade uncertainty, and supply chain disruptions. This is especially true given China’s major role in global apparel manufacturing. This relationship strain makes it more difficult for fashion brands to plan and source their products. As a student of fashion, the relationship between these two countries is an important matter to consider.

“An Honest Conversation on AI and Humanity”

Summary: AI is changing from a tool into something that can think, decide, and communicate on its own, challenging human control. This creates urgent questions about how society will manage AI before it reshapes jobs, power, and responsibility on its own.
Connection to the Fashion Industry: Specifically, the fashion industry will be dramatically impacted by AI by changing how clothes are designed, produced, and sold, and by reshaping the roles people play within the industry. As fashion students, it is important to understand both the benefits and drawbacks of AI, especially since our generation will likely be responsible for making these decisions.

In the end, clothing is a direct reflection of the world around us. Global politics, technology, and ethical responsibility all influence how fashion is created and consumed. For those entering the fashion industry, understanding these forces is essential, as fashion does not exist in a vacuum; it evolves alongside the world that shapes it.

About the author: Emilie Delaye is a graduate instructor in Fashion and Apparel Studies at the University of Delaware. She is also a member of the 2025-2026 Fair Labor Association (FLA) Student Committee.

[Discussion for this post is closed]

New Paper: Evolving Patterns of World Apparel Trade amid Trump’s Hiking Tariffs

Since Trump’s second term began in early 2025, the world apparel trade has faced significant challenges caused by unprecedented high tariffs and trade policy uncertainty. Both fashion companies and their suppliers have struggled to mitigate the ongoing tariff impacts, from diversifying sourcing bases and diverting export markets to adjusting pricing. These mitigation strategies have also resulted in a noticeable but nuanced shift in the patterns of world apparel trade, creating both winners and losers.

Based on the latest monthly trade data collected from the World Trade Organization (WTO) and other international organizations, this article highlights the evolving patterns of world apparel trade in 2025 amid Trump’s hiking tariffs. The findings offer valuable input for the fashion business community and policymakers to understand the apparel-specific impacts of tariffs from a global perspective and to support the development of related response strategies.

Overall, the findings indicate that Trump’s hiking tariffs have impacted the world apparel trade far beyond the U.S. market. As high tariff rates are expected to remain in 2026, we might see trade diversion and price competition among key suppliers become more evident in the new year. On the other hand, the findings call for greater attention to the tariff’s impacts on small and medium-sized apparel exporting countries, especially those in Asia, South America, and Africa that are less competitive than established, mature suppliers. The ripple effects of the hiking tariffs could increase competition pressures on these small players, resulting in more vulnerability in their export-oriented garment sector and millions of workers.

Key findings:

Pattern 1: Trump’s hiking tariffs appeared to suppress the U.S. import demand for clothing compared with other major import markets.
Pattern 2: Facing higher tariff barriers in the U.S. market, several leading apparel-supplying countries have been diverting exports to the EU and the UK to mitigate tariff impacts.
Pattern 3: Except for the case in the U.S., China’s market share remained relatively stable in other key apparel import markets in 2025.
Pattern 4: Apparel-producing countries in Asia, South America, and Africa faced growing pressure from Chinese products in the domestic market.
Pattern 5: No evidence suggested that Trump’s hiking tariffs have benefited near-shoring.

Read the full paper HERE (Global Textile Academy, International Trade Centre, Geneva, Switzerland)

Patterns of U.S. Apparel Imports (updated January 2026)

Jointly affected by weak import demand and rising tariffs, US apparel imports in October 2025 sharply declined by 18.5% in value and 21.1% in volume compared to a year earlier. This was the worst performance so far in 2025 and marked a third consecutive month of decline in US apparel imports. Notably, the volume of US apparel imports has become more volatile in 2025 than in previous years, as fashion companies rushed to adjust their original shipping schedules and bring products in early to offset tariff impacts. It is likely that US apparel imports will stay at lower levels in the coming months, especially from December to January, the usual slow import season. (see detailed import data here)

US apparel imports from China experienced another significant decline in October 2025, reflecting US fashion companies’ ongoing strategy of “reducing China exposure.” Specifically, in October 2025, US apparel imports from China dropped by 53.3% in value and 43.1% in quantity year over year, performing much worse than the world average. As a result, in October 2025, China accounted for only 11.3% of US apparel imports in value (down from 19.8% in October 2024) and 25.3% in quantity (down from 35.1% in October 2024), one of the lowest levels in decades. (see detailed market share data here)

It should also be noted that, measured in dollars per square meter equivalent (SME), the unit price of US apparel imports from China decreased by 10.6% so far in 2025 (January to October), whereas the unit price of total US apparel imports increased by 1.6%. (see detailed unit price data here) These apparently “contradictory” results suggest that the decline in US apparel imports from China may not be driven solely by pricing or even tariffs. Instead, they might also be influenced by US fashion companies’ assessment of sourcing risks and geopolitical issues involving China.

US apparel imports from Asia continued to demonstrate resiliency overall. So far in 2025 (January to October), in value, Asian countries together accounted for 73.0% of US apparel imports, higher than 71.6% in 2024 over the same period. (see detailed Asia market share data here) In October 2025, the value of US apparel imports from top Asian suppliers, excluding China and India, remained relatively stable and even increased. Countries including Vietnam, Bangladesh, Cambodia, Indonesia, and Pakistan also gained additional market share in October 2025 compared to a year ago. These results revealed US fashion companies’ sourcing diversification strategy amid hiking tariffs and policy uncertainty, as well as the competitiveness of these Asian countries in meeting importers’ demand.

US apparel imports from India declined by nearly 30% in October 2025, highlighting the negative impact of high tariffs on the country’s appeal as a sourcing destination for U.S. fashion companies. Notably, U.S. apparel imports from India were subject to an average tariff of 63.4% in October 2025, even higher than the 50.8% tariff on Chinese products. (See the detailed tariff rates data here) Considering President Trump’s recent comments on sanctioning countries that buy Russia’s oil, the prospects for reducing the punitive tariffs on U.S. apparel imports from India remain uncertain.

In relative terms, Western Hemisphere suppliers gained a small share in US apparel imports in October 2025, including Mexico (rising from 3.1% to 3.5%) and CAFTA-DR members (up from 9.1% to 9.5%). However, in absolute terms, U.S. apparel imports from Mexico and CAFTA-DR still dropped by 8.5% and 15.3% in October 2025, respectively. It also remains uncertain how the recent turmoil related to Venezuela might impact US fashion companies’ assessment of trading and geopolitical risks in the region and their willingness to expand sourcing from the Western Hemisphere in the coming year.

As a silver lining regarding near-shoring from the Western Hemisphere,so far in 2025 (January to October), about 76.1% of US apparel imports from the CAFTA-DR claimed duty-free benefits under the agreement, up from 72.9% in 2024 over the same period. The improved CAFTA-DR utilization so far in 2025 was driven by a higher volume of imports that complied with the yarn-forward rules of origin. However, the utilization rate of the agreement’s short supply mechanism decreased from 2.8% to 1.2% despite more products being added to the list. (See detailed CAFTA-DR utilization data here).

Likewise, in the first ten months of 2025, about 88.3% of US apparel imports from the USMCA claimed duty-free benefits under the agreement, up from 86.4% over the same period in 2024. Notably, in the past, only about 20% of US apparel imports from Canada met the yarn-forward rules of origin; however, this rate increased significantly to 63% in 2025. (See detailed USMCA utilization data here)

by Sheng Lu

Additional reading: Geopolitics Will Shake Up Sourcing—Again—In 2026 (Sourcing Journal)

[discussion for this post is closed; please see the updated analysis]

Interview with Modaes (Spain) about the Shifting Global Apparel Trade and Sourcing Patterns (November 2025)

Full interview in English HERE ; Spanish version HERE

Below is the interview summary

Q1. Since the pandemic, has the global fashion supply chain changed?

Key point: The pandemic taught fashion companies the importance of flexibility and agility in sourcing. Heavy reliance on China caused major disruptions during lockdowns, prompting companies to diversify their sourcing base and develop stronger supplier relationships to reduce various sourcing risks.

Q2. Is supply security now more important than price in sourcing decisions?

Key point: Security and sourcing are becoming more closely linked. Leading fashion companies understand that sourcing now requires balancing cost with other important factors such as flexibility, regulatory compliance, and risk management. New regulations related to sustainability demand increasingly detailed supply-chain documentation and transparency. Meanwhile, geopolitical tension between the U.S. and China further adds complexity to fashion companies’ sourcing decisions.

Q3. Are companies continuing to reduce the number of suppliers, and why?

Key point: Recent studies show that many fashion companies are diversifying sourcing beyond China, importing more from emerging supplying countries like Vietnam, Bangladesh, Indonesia, Cambodia, Pakistan, Egypt, and more. However, there are two divergent strategies: some brands expand their supplier base to spread risk and enhance capabilities in sustainable fibers, while others consolidate suppliers to strengthen partnerships with large vendors operating across multiple countries, many of which are still based in China.

Q4. Can the value chain function without China?

Key point: Not realistically. While China’s share of finished garment exports is declining, it still dominates in textiles raw materials. Even when apparel is made in other countries (like Vietnam and Cambodia), much of its fabric, investment, or ownership is Chinese. The newly released OECD data also show that about 30% of Southeast Asian apparel exports include Chinese content.

Q5. Which countries could take advantage of China’s declining role?

Key point: China’s dominance comes not only from its low costs but also from its capacity to produce almost any product category at large scale. To replicate this, companies need to use multiple sourcing locations — a “many-country model” instead of relying on just one. Therefore, diversification, rather than substitution, is the most practical approach. Firms seek to avoid over-dependence on any single country, especially given the volatility of tariffs and supply-chain disruptions.

Q6. Does “friendshoring” apply to fashion?

Key point: Politically appealing but impractical for apparel sourcing. The idea of friendshoring — trading only with “like-minded” nations — doesn’t fit with fashion’s global manufacturing system. Europe and the U.S. share values, but Europe lacks large-scale apparel production. Over 70% of U.S. apparel imports still come from Asia, where most countries are not formal U.S. allies. Therefore, political alignment cannot guide sourcing strategy in fashion; cost, capacity, and speed are more important.

Q7. Will geopolitics and the trade war reshape fashion sourcing in Europe or the U.S.?

Key point: Nearshoring remains a popular concept. European companies explore Eastern Europe and the Mediterranean; U.S. firms consider the Western Hemisphere and limited domestic production. Sustainability has emerged as the new opportunity for near-shoring. Fashion companies now aim to use more sustainable fibers in their clothing products. EU sustainability rules could also attract new investment to expand production in the EU. However, in general, small-sized firms need more resources and support to meet these high environmental standards, both to comply with the law and sustain their businesses.

Q8. Is de-globalizing production possible?

Key point: True de-globalization is unlikely. Instead, globalization is shifting toward greater transparency and accountability. Companies now need to track and report where products are made and how workers are treated, including the sourcing of raw materials. This encourages brands to work closely with their suppliers and promote stronger and strategic collaboration.

Q9. Are there enough incentives for production automation in fashion?

Key point: Yes — Automation provides a way to increase efficiency in high-wage countries like the U.S. With labor costs high and factories shrinking, machines and AI are being adopted to boost productivity and customization. Automation can also help cut down on overproduction — one of fashion’s major waste issues — by supporting made-to-order or small-batch manufacturing.

Q10. Why don’t we see full automation yet?

Key point: Cutting, sewing, and material handling today still require human labor, although factories increasingly use automated tools to boost productivity. Asian suppliers are upgrading equipment to handle smaller, faster orders. Automation is bringing back niche manufacturing (e.g., sock production in the U.S.) and supporting recycling efforts, such as sorting used garments. It helps lower minimum order quantities, matching production to uncertain consumer demand.

Q11. How can Europe maintain relevance amid the U.S.–China trade war?

Key point: Europe continues to be a key player in both textile and apparel manufacturing and consumption. Nearly half of the apparel in the EU is produced locally, often in high-wage countries like Italy, Germany, and France. Asian countries are looking for more market access to the EU because of higher tariffs imposed by the US (e.g., trade diversion). Europe also leads in sustainability and regulatory standards. Complying with EU rules often means meeting the highest global standards. Luxury branding (“Made in Italy/France”) remains highly influential, and the EU’s proactive trade agreements might even enable it to export textiles for processing in Asia, expanding supply chain integration.

Q12. Why hasn’t Africa become a viable textile hub yet?

Key point: Africa’s potential greatly relies on trade preferences like the African Growth and Opportunity Act (AGOA), which recently expired. Without duty-free U.S. access, U.S. companies are less likely to source there. However, the EU could help bridge the gap by forging partnerships for recycled textile materials and sustainable production. Regional collaboration could unlock Africa’s place in circular fashion supply chains.

For students in FASH455: Feel free to share your thoughts on any of the interview questions above. You may also challenge and debate any points raised in the interview and present your arguments.

Updated Impact of Increasing Tariffs on U.S. Fashion Companies’ Sourcing and Businesses

This study aims to examine the impacts of the Trump administration’s escalating tariffs on U.S. fashion companies’ apparel sourcing practices. Based on data availability, transcripts of the latest earnings calls from about 30 leading publicly traded U.S. fashion companies were collected. These earnings calls, held between August and October 2025, covered company performance in the second quarter of 2025 or later. A thematic analysis of the transcripts was conducted using MAXQDA.

Key findings:

First, U.S. fashion companies reported a more significant impact of the increasing tariffs on their financial performance as the tariff increase expands from China to other countries. Many companies regarded tariffs as one of their top-most pressing external challenges to profitability in 2025, especially in the second half and beyond. For example:

G-III Apparel: “We expect the total incremental cost of tariffs to be approximately $155 million, up from the $135 million original estimate, and this is based on the latest tariff increases implemented for Vietnam, India and Indonesia, among others.”
American Eagle: “On tariffs, yes, we are providing the guidance here for the third and fourth quarter. About $20 million of impact from Q3. $40 million to $50 million in Q4. So that will pressure gross margin a bit.”
Hanesbrands: “When you think about tariffs and the impact on our business, first of all, we won’t be really experiencing that cost until Q4 because of the inventory that we have and the way cost flows off of our balance sheet.”
Victoria’s Secret: “Our projected net tariff impact of $100 million in 2025 is up $50 million versus our assumption embedded in our previous guidance. With approximately $10 million of net tariff impact already recognized in the first half of the year, our guidance assumes approximately $20 million of net tariff pressure in the third quarter with $70 million impact in Q4.”
Tapestry: “We are facing greater than previously expected profit headwinds from tariffs and duties, with the earlier-than-expected ending of de minimis exemptions being a meaningful factor. In aggregate, the total expected impact on profitability this year from tariffs is $160 million, representing approximately 230 basis points of margin headwind.”
Carter’s: “We’ve assessed the higher incremental tariffs, which have already been implemented, an additional 10% duty for all countries and higher incremental duties for products from China, Vietnam and Indonesia. Relative to a few months ago, we’re preparing for a world with higher and more permanent tariffs above the over $100 million in duties, which we have paid historically. Our estimate of the additional baseline tariffs is that it would represent a gross additional tariff amount between $125 million and $150 million on an annualized basis.”

Second, despite the higher tariff burdens, most U.S. fashion companies still try to avoid across-the-board price hikes due to concerns about losing consumers. Instead, most companies opt for selective price increases, value-based pricing, and closely monitor consumers’ price sensitivity. However, price increases could be more noticeable down the road. For example:

Oxford industries: “We’ve not done sort of an across-the-board approach to pricing. We’ve really looked at it on an item-by-item basis and balanced the need to protect our margins and try to recover some of the tariff impact with not wanting to get too far ahead of ourselves because that tariff number…as we get into spring ’26… And on average, that’s led to sort of low to mid-single digit or low mid-single-digit price increases…we’re just being very cautious about increasing the price too much before we really know where things are settled out.”
URBN: “our pricing strategy…is really to look at some gentle price increases where we feel like there’s the value that contributes to that. So making sure that we’re protecting some of the opening price points that the customer counts on and some programs that we know drive a lot of volume…Recognizing the value equation is really important to all of our consumers.”
TJX: “I think you’re gonna see a more of a little bit of a gradual increase in pricing as the tariffs come in…I don’t think you’ll see step all of a sudden Right. With the tariffs set,because I don’t wanna, I think, turn off customers immediately by seeing a dramatic price shift. So I think they might they might they might absorb it initially for a little bit, and eventually, they’ll get there.”
Columbia Sports: “We expect higher prices for many consumer goods will negatively impact consumer demand…In fall ’25, we’re working with our retail partner to deliver value to consumers and keep inventory and dealer margins healthy. As a result, we’re not making any significant price changes to our fall ’25 product line and expect to absorb much of the incremental tariff costs this year…Our goal is to offset higher tariffs over time through a combination of actions, including price increases, vendor negotiations, SG&A expense efficiencies and other mitigation tactics.”
Ralph Lauren: “The big unknown sitting here today is the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer is. And that’s what we’re watching very closely as we head into the second half.”
Ross stores: “Some of the India tariffs, especially if the 25 goes to 50…I think that you’ll see this go into next year, and I think we would expect to see price increases. And — but over time…we think it will reach equilibrium, and it will be business as usual.”
Burlington stores: “we are seeing that competitors are taking up retail prices. So far, though, I would say that those price increases have been quite selective and quite restrained…Part of it may just be the time lag between imports arriving in the country and those goods showing up in stores. But also my sense is that wholesalers and retailers have been reluctant to make decisions on raising prices until they know what the final tariff rates are going to be. Now it does feel like there is more clarity on this now than there was a couple of months ago. So it wouldn’t be surprising if retail prices were to go up across the industry in the back half of the year. Now of course, we know that our customer is very, very price sensitive.”
VF Corporation: “we have actions in place to mitigate the tariff impact through sourcing savings and pricing actions that will take effect later this year.”

Third, while U.S. fashion companies overall continue to reduce their apparel sourcing from China amid the current tariff and geopolitical tensions, some companies still regard China as a viable sourcing base given its many unique advantages, such as speed to market, production efficiency, and well-developed supply chain infrastructure. For example:

Carter’s Inc: “We’ve meaningfully reduced our exposure to China manufacturing over the last number of years. And now, as summarized here, our largest countries of origin are Vietnam, Cambodia, Bangladesh, and India.”
Abercrombie & Fitch: “Our approach and underlying principles for tariff mitigation remain unchanged, supported by a deep playbook and experience. We continue to expect China sourcing share in the U.S. will be in the low single digits for the year.”
Steve Madden: “Since the last call…We have moved certain production for fall back to China, where we felt it would be difficult to ensure on-time delivery, appropriate product quality and/or reasonable pricing in an alternative country. For fall 2025, we currently expect to source approximately 30% of our U.S. imports from China, down from 71% for the full year 2024..
Oxford industries: “With the recent tariff increases announced during the second quarter, including increased tariffs in countries like Vietnam and India that were included as part of our shift away from China, largely offset by the mitigation efforts we have undertaken, including accelerated inventory receipts and quickly shifting our sourcing network.”
American Eagle: “If you start with all the country of origin remixing…China where we know we were at a higher penetration coming into the year is mid-single digit now in a full year.”

Fourth, establishing a geographically diverse sourcing base continues to be a crucial strategy employed by U.S. fashion companies to mitigate tariff impacts and policy uncertainty. U.S. fashion companies are also intentionally adding speed, flexibility, and agility to their sourcing base and supply chain. However, given the complex sourcing factors fashion companies have to consider, plus the broad scope of “reciprocal tariffs, there is no clear winner. For example:

Kohl’s: “We have a diversified sourcing strategy from a country standpoint. We’re not heavily reliant on any one particular country, and we have the flexibility and agility to actually move production to other countries if necessary.”
PVH: “We work closely with an established network of global sourcing partners across more than 30 countries, and we continue to leverage our deep long-standingrelationships to further optimize our sourcing and production costs.”
American Eagle: “If you start with all the country of origin remixing…India is small for us. Rebalancing some things out of Vietnam.”
Steve Madden: “we were focused on moving a lot of product to Brazil. We’re going to have to wait and see what happens. I think that really goes not just for Brazil, but for a lot of the countries that we work with. So we’ve tried to create a more diversified sourcing footprint. And — but there’s obviously a lot of uncertainty still about where the ultimate tariff rates will land by country. And so we’re going to have to wait and see what happens and then react accordingly. That’s all we can do.”
Hanesbrands: “when you think about tariffs and the impact on our business…not only do you have the Q4 impact, but you have to think about those other offsets about meaningful U.S. content that we have in our products that are exempt from reciprocal, the good East-West balance that we have in our supply chain…”
Land’s End: “With regard to sourcing…we have been intentionally repositioning our sourcing network to better serve the business we are building leading to a more balanced supply chain that enables us to bring new solutions to customers with more speed and frequency throughout the year. For example, our licens epartners are becoming part of our sourcing network…By tapping into the full breadth of our sourcing matrix, we are able to swiftly and strategically reposition fabric and manufacturing as tariff conditions evolve.”

Fifth, as part of their tariff cost mitigation strategy, many U.S. fashion companies have been strategically but cautiously building preemptive stock, adopting a data-driven approach to optimize inventory, and simplifying product assortment. For example:

Levi’s: “And for Q4, we declared a dividend of 14¢ per share, which is up8% to prior year. We ended the quarter with reported inventory dollars up 12%, driven by purposeful investment ahead of the holiday and higher product cost than a year ago due to tariffs. In unit terms, inventory was up 8% versus last year. As of today (October 9, 2025), we have 70% of the product in the US needed for holiday.”
Ralph Lauren: “So we feel good about our inventory levels as we head into the fall season. So we ended Q1 (2025), as you know, with inventories up 18% versus Q1 of last year (2024)…if you think about sort of our Q2 revenue guide of up high single digits, relates to the strategic acceleration of largely core inventory receipts into the U.S. in Q1 during the tariff pause period…So if you back out that tariff-related strategic pull up, our inventory growth is actually a little behind our double-digit top line growth for Q1 and right in line with our expected high single-digit top line growth for next quarter, Q2. And…for the year to go, we expect inventories to moderate as we move throughout the fiscal year, and we plan on ending fiscal ’26 with levels generally in line with demand.”
PVH: “Inventory at quarter end (Q2, 2025) was up13% compared to Q2 last year (2024), including a 1% increase due to tariffs, and reflects a planned improvement compared to up 19% in Q1.”
Hanesbrands: “we’re leveraging advanced analytics with the use of AI to drive operational improvement around the globe, including inventory and assortment management as well as demand planning and forecasting.”
Tapestry: “We’re bringing more innovation to the assortment while we streamline our offering, reducing handbag styles by over 30% by fall, allowing us to stand behind our big ideas with clarity and intention.”

by Sheng Lu

Patterns of Global Textile and Apparel Trade Measured by Origin of Value Added (updated October 2025)

Textiles and apparel today are produced through a global supply chain. For clothing labeled as “Made in Vietnam,” it is likely that the textile raw materials, such as yarns, fabrics, and trims, are sourced from elsewhere.

According to the newly released 2025 OECD trade in value added estimation, as of 2022, a country’s apparel exports commonly contain value added created in another country due to the use of imported textile materials and other inputs. This is the case for exports from leading apparel exporting countries in Asia, such as Vietnam (44% foreign value added), ASEAN members (35% foreign value added), Cambodia (45% foreign value added), India (21% foreign value added), and Jordan (42% foreign value added). Other emerging apparel sourcing destinations in North, South, and Central America, as well as the EU, also used substantial imported inputs for their apparel exports, such as Mexico (27.3% foreign value added), Türkiye (23.9% foreign value added), and Egypt (19.7% foreign value added). [See detailed data here]

Notably, among the sixteen countries and regions examined, they mostly increased the use of non-domestic value added in textile and apparel exports between 2015 and 2022 (note: paired T-test result was statistically significant at the 99% confidence level). This suggests that co-production through regional or global supply chains, rather than 100% domestic production, has become a more prominent phenomenon in the textiles and apparel industry. [See detailed data here]

Furthermore, the value added from China appears to be increasing in the textile and apparel exports of many countries. Specifically, between 2015 and 2022, textile and apparel exports from several countries contained a higher percentage of value added from China, including not only Asian countries such as Vietnam (up 6 percentage points), ASEAN (up 4.1 percentage points) and Jordan (up 6.1 percentage points), but also those in other regions such as Egypt (up 3.3 percentage points), Mexico (up 1.7 percentage points), and South & Central America as a whole (up 4.7 percentage points). [See detailed data here] This result reflected China’s deliberate effort to expand its global economic presence through foreign direct investment, Belt and Road initiatives, and new trade agreements in recent years.

The latest data from the World Trade Organization (WTO) also shows that while China’s market share in the world clothing exports fell to 29.6% in 2024—the lowest level since 2010—China’s market share in textile exports increased to 43.3% in 2024, up from 41.5% a year earlier. In other words, consistent with the stage of development theory, China’s role as a major textile supplier to other apparel-exporting countries continues to grow, despite a decline in its finished garment exports. [See detailed data here]

In comparison, while the United States remained an important contributor to the value added of textile and apparel exports from Mexico and Canada, its contribution slightly declined between 2015 and 2022 (i.e., from about 12%-14% to 11%). As the USMCA undergoes its mandated six-year review, it is critical to strengthen, rather than weaken, this North American co-production supply chain, which has a significant impact on the economic interests of the U.S. textile and apparel industry. This is particularly important given that supply chain collaboration between the U.S. and Asian or EU countries for textile and apparel production has been limited, with little indication of growth: According to OECD data, the U.S. value added in Asian and EU countries’ textile and apparel exports remained only around 1.5% [See detailed data here].

by Sheng Lu

(This post is not open for discussion due to its technical nature)

Patterns of U.S. Apparel Imports (updated September 2025)

First, as a result of the IEEPA reciprocal tariff, the average tariff rate for U.S. apparel imports (HS Chapters 61 and 62) reached 26.4% in July 2025, marking a new high in decades (note: was 25.4% in June, 23.8% in May and 20.2% in April 2025), and a substantial increase from 14.7% in January 2025, prior to Trump’s second term. Even apparel imports from traditional U.S. free trade agreement partners, such as CAFTA-DR members, now have to be subject to about 10% applied tariffs. And apparel imports from Mexico still enjoyed a relatively low 1.6% tariff rate in July 2025. [Check the applied US apparel import tariff rate here]

Second, U.S. apparel imports fell in July 2025, negatively impacted by the hiking of tariffs and consumers’ growing hesitancy in clothing spending amid uncertainty about their household financial outlook. Specifically, U.S. apparel imports in July 2025 decreased by 3.0% in value and 5.2% in quantity from a year ago, indicating both an overall shrinking import demand and a more notable import price increase. [Check U.S. apparel import index here]

Statistics also show that after removing the seasonal factor, the average U.S. apparel import price went up by nearly 3% from April to July. This trend could become even worse in the coming months as more countries face even higher “reciprocal tariffs” starting from August 2025. However, the average U.S. apparel retail price has not significantly increased, likely because fashion companies fear losing sales at a time when consumers’ clothing spending is already weak. [Check the U.S. clothing retail price index here]

Third, continuing the trends from previous months, U.S. apparel imports from China again fell sharply in July 2025. Facing nearly 50% tariff rates—much higher than those applied to other sourcing countries—U.S. apparel imports from China decreased by 38.4% in value and 27.3% in quantity in July 2025 from a year ago. As a result, in value, China’s market share fell to just 15.6% in July 2025 (was 24.6% in July 2024), significantly lower than Vietnam’s 22.1% (was 19.1% in June 2024). In other words, it may signal a new era where China is no longer the top source of U.S. apparel imports. [Check market shares in U.S. apparel imports here]

Fourth, while Asia as a whole still dominates, trade data suggests more notable trends of sourcing diversification. In July 2025, about 72.9% of U.S. apparel imports came from China, far exceeding the Western Hemisphere (14.8%) and the rest of the world (12.4%). However, Asia’s market share in July 2025 was slightly lower than 74.7% a year ago, suggesting that more imports came from other regions. For example, at the country level, US apparel imports from several emerging Asian suppliers and those in the Middle East and Africa enjoyed fast growth, including Vietnam (up 12.5%), Cambodia (up 25.2%), Pakistan (up 14.7%), Jordan (up 21.6%), and Egypt (up 30.3%).

Meanwhile, U.S. apparel imports from India in July 2025 also increased by over 15%, although the newly imposed higher tariffs on India could alter the trend in the next few months.

Additionally, there is still no evidence that Trump’s tariff policy has meaningfully boosted nearshoring from the Western Hemisphere. On the contrary, in July 2025, U.S. apparel imports from Mexico grew by just 0.5%, despite the significant tariff advantage offered to USMCA-qualifying products. Similarly, imports from CAFTA-DR members decreased by 2.7%. The results revealed the adverse effects of uncertainty in the Trump administration’s tariff policy on encouraging long-term sourcing and investment commitment to the region.

(note: this post is not open for discussion)

By Sheng Lu

2025 August Sourcing at MAGIC Recap

The latest Sourcing at MAGIC, one of the largest and most influential fashion apparel trade shows in North America, was held from August 18 to 20, 2025 in Las Vegas. Drawing thousands of apparel manufacturers, textile raw material suppliers, brands, and retail buyers from over 30 countries around the globe, the event provides a unique opportunity to observe the latest U.S. apparel sourcing trends and market sentiment.

Aligned with the results of the 2025 Fashion Industry Benchmarking Study released by the United States Fashion Industry Association (USFIA), the hiking tariffs imposed by the Trump administration and ongoing policy uncertainty were among the top concerns for MAGIC attendees. One major tariff impact often heard at the MAGIC show was the growing inflationary pressure. It was a prevailing view among vendors, brands, and retailers that a price increase had begun and would become even more noticeable to U.S. consumers in the upcoming months. Some also argue that “tariff is no longer a sourcing problem,” but how brands and retailers should handle their “profit margin, product assortment, and pricing.”

Meanwhile, apparel suppliers care significantly about the additional “reciprocal tariff” rates they face compared to their key competitors. For instance, a jeans supplier from Pakistan said they were relieved to see more order inquiries come in, as their Indian competitors faced significantly higher tariff rates threatened by the Trump administration.

Still, nearly 600 exhibitors from China attended MAGIC, making it the largest delegation from any country. Two interesting phenomena revealed how Chinese suppliers try to stay competitive in today’s challenging business environment. One is to offer various value-added sourcing services beyond physical products. For example, there was a dedicated session at this year’s MAGIC show that featured Chinese manufacturers that provide services such as drop shipping (i.e., when a customer places an order, the retail store never physically handles the product. Instead, the manufacturer is responsible for inventory, packing, and shipping), director to consumer (DTC) e-commerce and warehousing. Meanwhile, some Chinese vendors accept small orders (i.e., 6 pieces or less) or low minimum orders (i.e., 300 pieces) and promise a short lead time of 45 days. In comparison, the minimum order quantity (MOQ) required by suppliers in other Asian and Western Hemisphere countries typically exceeds thousands of pieces.

On the other hand, it is not uncommon to see that vendors from Bangladesh, Vietnam, Cambodia, or even Egypt and Ghana were actually owned by Chinese investors. Several Chinese factories purposefully highlight that they own factories across the world, from China and Southeast Asia to Africa. According to the USFIA benchmarking study, some U.S. fashion companies also prefer vendors with production capabilities in multiple countries to reduce sourcing risks.

As U.S. fashion companies continue to diversify their sourcing beyond the traditional top three—China, Vietnam, and Bangladesh—emerging destinations are increasingly optimistic about their U.S. export prospects. For instance, a supplier from Jordan noted that recent U.S. tariff hikes have boosted Jordan’s competitiveness, given the zero most-favored-nation (MFN) tariff under the U.S.-Jordan Free Trade Agreement and a 15% reciprocal tariff rate, which was lower than many Asian suppliers face.Jordanian suppliers speak highly of the capacity-building support from international organizations such as the International Trade Centre (ITC), particularly in areas like skills training and market intelligence.

Similar to Jordan, Egypt’s apparel exports can benefit from a zero most-favored-nation (MFN) tariff, provided they meet the rules of origin under the Qualifying Industrial Zones (QIZ) initiative. However, unlike Jordan, suppliers from Egypt tend to specialize in cotton and other natural-fiber–intensive apparel, leveraging their advantages in producing locally made, high-quality natural textile fibers.

Clothing made from preferred sustainable fibers, particularly those incorporating recycled textiles, has grown increasingly popular. Nearly every country represented at MAGIC, including developing nations in Asia and Africa, showcased such products.

It should be noted, however, that producing clothing with sustainable textile fibers requires suppliers to obtain certifications such as GOTS (Global Organic Textile Standard), Global Recycled Standard (GRS), and Better Cotton Initiative (BCI). Although these certifications add costs, most vendors view sustainability as an opportunity to enhance export competitiveness rather than a threat in the long term. Some also mentioned that buyers were often willing to pay a premium for products made with sustainable materials, providing a significant financial incentive.

On the other hand, achieving sustainable sourcing and production is becoming increasingly comprehensive, requiring continuous innovation in both technology and business models. For example, at the show, some vendors showcased apparel products that integrated multiple sustainability concepts, ranging from material development and eco-design to social responsibility and post-consumption solutions.

by Sheng Lu

2025 USFIA Fashion Industry Benchmarking Study Released

The 2026 fashion industry benchmarking study is now available.

The full report is HERE.

Key findings of this year’s report:

#1 This year, the top business challenges facing U.S. fashion companies center on the Trump Administration’s escalating tariff policy and its wide-ranging impacts on companies’ sourcing and business operations.

100 percent of respondents rated “Protectionist U.S. trade policies and related policy uncertainty, including the impact of the Trump tariffs” as one of their top business challenges in 2025. This included as much as 95 percent of respondents who ranked the issue among their top two concerns.
Respondents also expressed significant concerns about the wide-ranging effects of Trump’s tariff policy, including “Inflation and economic outlook in the U.S. economy” (80 percent), “Increasing production or sourcing cost” (nearly 50 percent), and “Protectionist trade policies and policy uncertainty in foreign countries, including retaliatory measures against the U.S.” (52 percent).
Over 70 percent of surveyed companies reported that the higher tariffs increased sourcing costs, squeezed profit margins, and led to higher consumer prices. Approximately half of the respondents reported a decline in sales, and 22 percent stated that they had to lay off employees due to increased tariffs.

#2 Maintaining a geographically diverse sourcing base has been one of the most popular strategies adopted by U.S. fashion companies to mitigate the impact of rising tariffs and policy uncertainty.

This year, respondents reported sourcing apparel products from 46 countries, similar to the 48 countries reported in 2024 and an increase from 44 countries in 2023. At the firm level, approximately 60 percent of large companies with 1,000+ employees reported sourcing from ten or more countries in 2025, a notable increase from the 45–55 percent range reported in 2022 and 2023 surveys.
- Amid escalating tariffs and rising policy uncertainty, Asia has become an ever more dominant apparel sourcing base for U.S. fashion companies in 2025. Respondents reported increased use of several Asia-based sourcing destinations other than China in 2025 compared to the previous year, including Vietnam (up from 90 percent to 100 percent), Cambodia (up from 75 percent to 94 percent), Bangladesh (up from 86 percent to 88 percent), Indonesia (up from 75 percent to 77 percent), and Sri Lanka (up from 39 percent to 53 percent).As part of their sourcing diversification strategy, U.S. fashion companies are also gradually increasing sourcing from emerging destinations in the Western Hemisphere and beyond, such as Jordan, Peru, and Colombia.
- Most respondents intend to build a more geographically diverse sourcing base and broaden their vendor network over the next two years. Nearly 60 percent of respondents plan to source apparel from more countries, and another 40 percent plan to source from more suppliers or vendors. Reducing sourcing risk, especially to minimize the impact of rising tariffs and tariff uncertainty, is a key driver of companies’ sourcing diversification strategies

#3 U.S. fashion companies remain deeply concerned about the future of the U.S.-China relationship during Trump’s second term and intend to further “reduce China exposure” to mitigate sourcing risks.

While 100 percent of respondents reported sourcing from China this year, a record-high 60 percent of respondents reported sourcing fewer than 10% of their apparel products from China, up from 40 percent in 2024. Approximately 70 percent of respondents no longer used China as their top apparel supplier in 2025, representing a further increase from 60 percent in 2024 and significantly higher than the 25-30 percent range prior to the pandemic.
Despite the announcement of the reaching of a U.S.-China “trade deal” in May 2025, more than 80 percent of respondents plan to further reduce their apparel sourcing from China over the next two years through 2027, hitting a new record high. Many large-scale U.S. fashion companies are already limiting or plan to limit their apparel sourcing from China to a “low single-digit” percentage by 2026 or earlier, mainly due to concerns about the increasing geopolitical and trade policy risks associated with sourcing from the country.
Still, respondents rated China as highly economically competitive as an apparel sourcing base compared to many of its Asian competitors regarding vertical manufacturing capability, low minimum order quantity (MOQ) requirements, flexibility and agility, sourcing costs, and speed to market. However, non-economic factors, particularly the perceived extremely high risks of facing U.S. import restrictions, geopolitical tensions with the U.S., and concerns about forced labor, are driving U.S. fashion companies to continue their de-risking efforts.

#4 No evidence indicates that the Trump Administration’s tariff policy has successfully encouraged U.S. fashion companies to increase domestic sourcing of “Made in the USA” textile and apparel products or to expand sourcing from the Western Hemisphere.

Only about 44 percent of respondents explicitly say that they would expand sourcing from the Western Hemisphere, and even fewer respondents (17 percent) plan to source more textiles and apparel “Made in the USA” amid the tariff increase.
This year, fewer respondents reported sourcing apparel from Mexico and Canada (down from 60 percent in 2024 to 50 percent in 2025) and members of the Dominican Republic-Central America Free Trade Agreement, CAFTA-DR (down from 75 percent in 2024 to 64 percent in 2025).
About half of the respondents plan to expand apparel sourcing from Mexico and CAFTA-DR members over the next two years. Notably, nearly all of these companies also intend to increase sourcing from Asia, indicating that U.S. fashion companies view near-shoring from the Western Hemisphere as a complement, not a replacement, to their broader sourcing diversification strategy.
Respondents consider the most urgent capacity-building needs within CAFTA-DR lie in the production of textile raw materials (e.g., spandex) and accessories (e.g., zippers, threads, and buttons). Meanwhile, USMCA members are considered to have relatively stronger capacities in yarn and fabric production but face more pressing shortages in accessories.

#5 Respondents overall remain highly committed to sustainability, social responsibility, and compliance issues in the sourcing process.

This year, the top sustainability and compliance areas where respondents plan to allocate more resources include “Investing in technology to enhance supply chain traceability or isotopic testing” (53 percent), “Providing sustainability and social compliance training for internal employees” (50 percent) and “Providing sustainability and social compliance training for suppliers” (50 percent).
As part of U.S. fashion companies’ sustainability efforts, all respondents (100 percent) report sourcing clothing made with “sustainable textile fibers” in 2025. Having 11–50% of apparel products containing various “sustainable textile fibers” is the most common (40 percent of respondents), followed by having 1–10% of the total sourcing value or volume(30 percent of respondents).
Moreover, most respondents (over 70 percent) plan to increase their use of various “sustainable fibers” in clothing over the next three years. This trend is especially strong for recycled materials, with 80 percent of respondents indicating they intend to increase their use.
The top three positions with the highest demand among respondents from 2025 through 2030 are “Environmental sustainability-related specialists or managers,” “Trade compliance specialists,” and “Data scientists”—more than 40 percent of respondents plan to increase hiring. There is also strong demand for “Textile raw material specialists” and “Sourcing specialists.”

#6 With the upcoming expiration of the trade preference program this September, respondents again underscore the importance of immediate renewal of the African Growth and Opportunity Act (AGOA) and extending the agreement for at least another ten years.

Due to the upcoming expiration of AGOA and uncertainty about its future, this year, respondents sourced from only six SSA and AGOA members (i.e., Kenya, Ethiopia, Ghana, Madagascar, Mauritius, and Tanzania), fewer than the seven countries in 2024. And none of these countries were used by more than 20 percent of respondents.
Nearly 80 percent of respondents support “renewing AGOA for at least another ten years,” and no one opposes. This shows a consistent and wide base of support for AGOA among U.S. fashion companies.
More than 70 percent of respondents say that securing a long-term renewal of AGOA for at least ten years is essential for expanding apparel sourcing from the region. Similarly, another 60 percent of respondents believe that a long-term renewal of AGOA is necessary for U.S. fashion companies and their supply chain partners to commit to new investments in the region.
Respondents warned that AGOA’s pending renewal has already begun to harm the region’s prospects as an apparel sourcing base. Approximately 30 percent of respondents explicitly stated that they had already reduced sourcing from AGOA members due to the uncertainty surrounding the agreement’s renewal.

About the study

Authored by Dr. Sheng Lu in collaboration with the United States Fashion Industry Association (USFIA), this year’s benchmarking study was based on a survey of executives from 25 leading U.S. fashion companies from April to June 2025. The study incorporated a balanced mix of respondents representing various businesses in the U.S. fashion industry. Approximately 85 percent of respondents were self-identified retailers, 60 percent were self-identified brands, and about 50 percent were importers/wholesalers.

The survey respondents included large U.S. fashion corporations and medium-sized companies. Around 90 percent of respondents reported having over 1,000 employees; the rest (10 percent) represented medium-sized companies with 100-999 employees.

Average Tariff Rates for U.S. Apparel Imports under Trump’s “Reciprocal Tariff” Policy (Updated July 2025)

The latest data from the U.S. International Trade Commission (USITC) indicates that Trump’s “Reciprocal Tariff” has led to higher import duties on U.S. apparel imports, although the impact on sourcing appears to be more nuanced than expected. Specifically:

As a result of the reciprocal tariff, the average tariff rate for U.S. apparel imports (HS Chapters 61 and 62) reached 23.8% in May 2025, increased further from 20.8% in April 2025 and much higher than 13.9% in May 2024 and 14.7% in January 2025, prior to Trump’s second term. This tariff rate also hit its highest level in decades. Similarly, while the value of U.S. apparel imports in May 2025 decreased by 7% from May 2024, the import duties skyrocketed by nearly 60% over the same period. [View detailed data HERE]

Due to numerous punitive tariffs beginning in February 2025, the average tariff rate for U.S. apparel imports from China reached an unprecedented 69.1% in May 2025, a further increase from 55.0% in April 2025, 37.0% in March 2025 and 22.1% in January 2025. In theory, U.S. apparel imports from China in May should be subject to a tariff rate of over 145%, as mandated by a series of executive orders. However, as “goods loaded onto a vessel at the port of loading and in transit on the final mode of transit before 12:01 a.m. eastern daylight time on April 5, 2025,“ were excluded from Trump’s reciprocal tariffs, it explains why the actual tariff rate in April and May 2025 appeared lower than the theoretical one.

Nonetheless, affected by the high tariffs, the value of US apparel imports from China in May 2025 was cut by more than half from a year ago (down 52%). China’s market share in US apparel imports in May 2025 also dropped to 9.9%, a new low in decades (note: was 19.9% in May 2024). [View detailed data HERE]

Additionally, the average tariff rate for U.S. apparel imports from countries other than China reached 18.9% in May 2025, up from 15.2% in April 2025. Although this rate was higher than approximately 12-13% before Trump’s second term in early 2025, the increase was still much more modest than the theoretical 10% universal reciprocal tariff rate announced by the Trump administration. The average tariff rates for U.S. apparel imports from leading Asian suppliers such as Vietnam, Bangladesh, and Cambodia followed similar patterns (i.e., higher tariff rates but well below a 10% increase). Similar to China’s case, it appears that U.S. apparel imports from other countries in April 2025 included a significant proportion of products that were exempt from reciprocal tariffs because they were “loaded onto a vessel” early enough. [View detailed data HERE]

It is interesting to note that the reciprocal tariff resulted in the most significant increase in tariff rates on U.S. apparel imports from CAFTA-DR members. While imports from these countries were supposed to be duty-free under the trade agreement, the average tariff rate reached 10% in May 2025, up from 6.7% in April 2025. In other words, the short shipping distance unintentionally “disadvantaged” near-shoring imports from being exempted from the reciprocal tariffs, as they could be mostly loaded after the deadline.

Overall, it remains uncertain how the U.S. apparel tariff rates will continue to evolve in response to Trump’s shifting tariff policy. It appears that the trade volume and timing of shipment will be highly sensitive to short-term tariff rate changes, whereas adjusting sourcing bases and product structures will be a consideration for U.S. fashion companies in the medium to long term.

By Sheng Lu

Additional reading: Apparel Tariffs Climbed to Historic Highs in April (Sourcing Journal, June 13, 2025)

[This blog post is no longer open for discussion and comment]

Impacts of Trump’s Escalating Tariffs on Apparel Sourcing: U.S. Fashion Companies’ Perspective

Updated study available: Updated Impact of Increasing Tariffs on U.S. Fashion Companies’ Sourcing and Businesses (October 2025)

(Note: The figure above shows how frequently the term “tariff” was mentioned alongside other key issues in the earnings calls. A higher frequency indicates a more significant impact and a closer connection between tariffs and a specific theme.)

This study aims to examine the impacts of the Trump administration’s escalating tariffs on U.S. fashion companies’ apparel sourcing practices. Based on data availability, transcripts of the latest earnings calls from approximately 25 leading publicly traded U.S. fashion companies were collected. These earnings calls, held between mid-May and June 2025, covered company performance in the first quarter of 2025. A thematic analysis of the transcripts was conducted using MAXQDA.

Overall, the results indicate that the Trump administration’s escalating tariffs and policy uncertainties have financially hurt U.S. fashion companies and disrupted their apparel sourcing practices. To mitigate these impacts, most companies plan to further reduce their “China exposure,” maintain a geographically diversified sourcing base, and prioritize flexibility in sourcing and shipping. However, there is no clear evidence that the current policy environment has successfully incentivized U.S. companies to expand apparel sourcing from the Western Hemisphere, let alone commit to new long-term investments. Meanwhile, U.S. fashion companies have adopted a strategic pricing approach by not passing the entire cost increase to consumers through widespread retail price hikes.

A few key findings:

First, far from surprising, many leading U.S. fashion companies expressed concerns that the Trump administration’s escalating tariffs have resulted in higher sourcing costs and cut companies’ profit margins. For example:

Company G (specialty store): if current tariffs of 30% on most imports from China and 10% on most imports from other countries remain for the balance of the year, we estimate a gross incremental cost of approximately $250 million to $300 million.
Company O (a parent company of several leading apparel brands): We expect that gross margin will contract approximately 200 basis points for the year. This contraction includes $40 million in additional tariff costs.
Company V1 (underwear brand): gross tariff impact of approximately $120 million, which assumes 30% China tariffs and 10% non-China, with tariff mitigation of approximately $70 million for a net impact to fiscal year 2025 of approximately $50 million.

Second, with the hiking tariff rate on U.S. apparel imports from China and increasing strategic competition between the two countries, many leading U.S. fashion companies plan to reduce their apparel sourcing from China to a single-digit, if not move out of the country entirely. For example:

Company A1 (apparel brand): We’re on track to reduce our sourcing exposure to China to under 10% this year with fall and holiday season down to low single digits.
Company A2 (specialty store): For China specifically, we have worked for some time now to relocate the supply resources, and this year’s sourcing volume from China will be in the low single digits.
Company L (apparel brand): Less than 8% of our purchase order dollars last fiscal year were utilized on buys of China.
Company O (a parent company of several leading apparel brands): By the second half of 2026, we currently plan to be substantially out of China.
Company V2 (a parent company of several leading apparel brands): over the past several years we’ve strategically diversified our supply chain and proactively reduced our US finished goods sourced from China to less than 2%.
Company K2 (a parent company of several leading apparel brands): China for us is de minimis.

Third, maintaining a geographically diverse sourcing base remains a popular strategy for U.S. fashion companies to mitigate the impacts of increasing tariffs and ongoing policy uncertainties. Companies particularly intend to avoid “putting too many eggs in one basket” and limiting the reliance on any single supplying country. For example:

Company K1 (retailer): our talented and experienced global sourcing team has done an incredible job diversifying our countries of production to ensure that we are not overly reliant on any one country. Although tariffs remain a fluid and uncertain situation, the teams continue to work to reduce our exposure to high tariff countries by leveraging our diverse factory network to move production, adjusting orders based on pricing elasticity analysis.
Company G (specialty store): Most other countries represent less than 10%, Vietnam and Indonesia represented 27%, and 19% of our sourcing last year, respectively, and our goal is for no country to account for more than 25% by the end of 2026.
Company R (apparel brand): While tariffs will primarily impact our gross margins… we have a proven toolkit to manage cost inflation headwinds. This includes first, significant supply chain diversification…No single country accounts for more than 20% of our production volumes, with most countries representing a single-digit percentage.
Company U (retailer): The remaining third is strategically diversified across a number of other countries, each representing a low to mid-single-digit percentage. This deliberate diversification creates a well-balanced portfolio, reducing reliance on any single market and enhancing our ability to navigate geopolitical, costs and supply chain complexities from a position of strength.

Notably, while a limited few companies specifically mentioned the possibility of expanding sourcing from the Western Hemisphere amid the current business environment, most did not. For example:

Company L (apparel brand): We intentionally drove significant change in our supply chain as we accelerated production in the Western Hemisphere, giving us both speed and additional avenues to mitigate tariffs and provide resiliency.
Company G (specialty store): Diversification also means near-shoring as well as domestic investment.

Fourth, U.S. fashion companies have leveraged shipping timing, piled up inventory, and delayed or cancelled existing orders to mitigate the tariff impacts as much as possible. For example:

Company C (sportswear): For products that are impacted by the reciprocal tariffs, we are accelerating shipments to the extent possible in order to receive products during the 90-day tariff.
Company K1 (retailer): Inventory was up 1.7% compared to last year, driven by inventory strategies implemented to navigate the tariff pressure, including the pull forward of receipts and pack in holding seasonal inventory to be sold in the back half of the year.
Company B (off-price retailer): Our reserve inventory was 48% of our total inventory versus 40% of our inventory last year. In dollar terms, our reserve inventory was up 31% compared to last year, reflecting the great deals we were able to make to get ahead of tariffs.
Company M (retailer): With the recent announcement of these tariffs, we’ve renegotiated orders with suppliers, and we’ve canceled or delayed orders where the value proposition is just not where it needs to be.

It should be noted, however, that adjusting shipping and inventory could incur additional costs. For example:

Company V1 (underwear brand): More than half of the gross margin rate pressure in the quarter was due to a combination of elevated and expected airfreight rates, some tariff-related order adjustments…

Fifth, despite higher sourcing costs and increasing financial pressures, many U.S. fashion companies have avoided widespread price hikes but have implemented selective increases in less price-sensitive apparel categories. For example:

Company V1 (underwear brand): [price increase driven by higher tariffs] And so we are going to sort of play in the middle where we see value. So and it won’t be across all categories. As we think about our business, it’s really that strategic case by case, category by category look that we’re taking.
Company U (retailer): gently and sparingly raising some prices. Please note that any price increases will be very strategic, protecting opening price points and only targeting areas where we believe we could raise prices without affecting the overall customer experience.
Company A2 (specialty store): we are not planning broad-based ticket increases. As we’ve done season after season, our goal is to deliver high-quality product and align inventory and promotions with our customers’ value perception.
Company P (a parent company of several leading apparel brands): We will evaluate strategic discounts to mitigate the potential tariff impact. While we are focused on delivering price value for the consumer, we are also ready to take calibrated targeted pricing actions where we have pricing power.

by Sheng Lu

Additional reading: Tariffs Upend Fashion Sourcing and Disrupt Cash Flow Amid Widening Trade Gap (Sourcing Journal, June 27, 2025)

USDA Released 2025 China Cotton Report

The U.S. Department of Agriculture (USDA) recently released its latest annual China cotton report. Below are the key findings most relevant to U.S. apparel sourcing from the country.

First, China’s retaliatory tariffs could severely impact US cotton exports. Faced with geopolitical tensions and rising competition from other suppliers like Brazil, U.S. cotton exports to China fell sharply by 73% in the first seven months of Marketing Year (MY) 24/25 (i.e., August 2024-February 2025), resulting in a decrease in the U.S. market share to 17.1%, down from 29.6% during the same period in MY 23/24. As noted in the report, “Beijing’s imposition of 140 percent tariffs on U.S. cotton will all but stop further imports from the United States.” Meanwhile, China’s overall demand for raw cotton could fall to a five-year low in MY 24/25, due to insufficient domestic demand and limited growth in textile and apparel exports.

Second, Xinjiang still dominated cotton production in China. Despite the Uyghur Forced Labor Prevention Act (UFLPA), Xinjiang accounted for approximately 92.3% of cotton production in China during MY 24/25 (note: was 90.9% in MY 23/24) and enjoyed an 11.4% year-on-year increase in total production. According to the USDA report, cotton production, yarn spinning, and textile manufacturing in Xinjiang received numerous subsidies from the government, such as support provided to farmers and cotton planting incentives.

The USDA report also noted that, in addition to raw cotton, textile production has experienced substantial growth in Xinjiang. For example, by the end of 2024, Xinjiang’s yarn spinning capacity reached 29.1 million spindles with 62,400 looms in operation, both marking the highest growth rates in history. “The spinning capacity is expected to rise further as the Xinjiang government plans to spin 45 to 50 percent of the Xinjiang cotton by 2028,” according to the USDA.

Third, China’s textile and apparel exports are facing growing headwinds. The USDA report predicted that “With ongoing market turbulences and uncertainties, China’s textile and apparel exports are expected to decrease in the remainder of MY 24/25” due to higher tariffs and the de minimis rule changes. While large-scale textile and apparel companies in China have been relocating some production to Southeast Asia, small-scale companies with limited resources may struggle to adapt. Additionally, according to the USDA, citing industry sources, the profit margin on China’s clothing exports to the US might be 10% or even lower and “the established textile manufacturers will face increased costs and administrative burdens for all import values, potentially disrupting their supply chains and reducing profit margins” due to the recent de minimis rule changes.

Further reading: U.S. and Xinjiang Cotton Are Locked in a Trade War of Their Own (Sourcing Journal)

FASH455 Current Event Discussion: Ongoing Tariff War and Apparel Sourcing and Trade (Updated April 2025)

Video 1: Is U.S. Clothing Manufacturing at Risk? Tariffs and Competition Threaten Jobs (RT≠ Endorsement)

Video 2: Northern Virginia T-shirt brand faces challenges (RT≠ Endorsement)

Video 3: Tariffs could raise wedding dress prices for American brides (RT≠ Endorsement)

Video 4: Bangladeshi garment industry sweating on Trump tariffs (RT≠ Endorsement)

Video 5: Trump’s Tariff Twist: Can Pakistan’s Textiles Fill China’s Shoes? (RT≠ Endorsement)

Video 6: Tariffs: Europe’s textile sector holds its breath

For FASH455 class: When writing your blog comment, consider addressing the following aspects:

#1 Based on the videos, how do you expect the apparel sourcing strategy of US fashion companies to evolve in response to the tariff increase? For example, will companies continue to diversify sourcing, wait and see, or focus on expanding sourcing to countries or regions regarded as “safe havens”?

#2 Do you expect the higher tariffs on U.S. imports, including textiles and apparel, to benefit domestic “Made in the USA” production? Why or why not?

#3 As consumers, how do you perceive the impact of the tariffs on your shopping behavior and experiences? Have you noticed any changes, such as in price and product availability, while shopping for clothing recently? Feel free to share your observations.

#4 Are there any other notable impacts of the tariff increase on the global fashion apparel industry that we should be aware of? What additional questions do you have in mind about the tariff impacts?

Patterns of U.S. Apparel Sourcing and Imports (updated April 2025)

The following analysis was based on the latest trade statistics from the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce.

First, the growth of U.S. apparel imports significantly slowed as fashion companies shifted from eagerly piling up stock to the wait-and-see mode. Specifically, in February 2025, U.S. apparel imports moderately went up 3.2% in value and 1.5% in quantity, much lower than the 18-19% increase seen in late 2024 and January 2025. The much-slowed growth confirmed that the earlier U.S. apparel import surge was largely driven by fashion companies’ worries about the upcoming tariff hikes rather than an actual increase in consumer demand.

Adding to the concern, U.S. consumer confidence fell sharply, which could lead to a steep drop in U.S. apparel imports ahead. For example, the Consumer Confidence Index dropped to a two-year low of 92.9 in March 2025, down from 100.1 the previous month (1985=100). Similarly, the Expectations Index—which measures consumers’ short-term outlook for income, business, and labor market conditions—plunged to 65.2, marking its lowest level in 12 years. With the announcement of reciprocal tariffs and the growing likelihood of an economic recession, U.S. consumer demand for clothing may decline significantly, potentially leading to the cancellation of many sourcing orders.

Second, apparel imports have become more expensive. Measured in dollars per square meters equivalent (SME), the unit price of U.S. apparel imports averaged $3.06/SME in the first two months of 2025, up from $3.03/SME a year ago (or a 1.3% increase). The unit price of U.S. apparel imports from many leading Asian countries rose at a notably higher rate, including China (up 2.9%), Vietnam (up 3.6%), and Bangladesh (up 2.6%), as well as those from Mexico (up 4.7%) and CAFTA-DR (up 0.6%). This result reflected the growing pressure of sourcing and production costs facing U.S. fashion companies and their suppliers, driven by rising labor costs and raw material prices among other factors. Indeed, if Trump’s reciprocal tariffs ultimately take effect, import prices could increase even more significantly.

Third, U.S. fashion companies’ sourcing diversification efforts appeared to slow amid rising uncertainty. In February 2025, Asian countries collectively accounted for 71.5% of the total value of U.S. apparel imports—unchanged from a year earlier. Similarly, in the first two months of 2025, the top five suppliers (China, Vietnam, Bangladesh, Cambodia, and India) made up 63.7% of total apparel imports by value, up from 59.7% during the same period in 2024. Even China’s market share remained largely stable at 18.4% in value and 32% in quantity, compared to a year ago.

These figures suggest that U.S. fashion companies somehow have become more hesitant to adjust their sourcing base in response to the universal tariffs imposed by the Trump administration, which target nearly all U.S. trading partners. As a result, U.S. fashion companies may find the sourcing diversification strategies no longer as effective as in the past in effectively mitigating their sourcing risks.

Meanwhile, data from the United Nations (UN Comtrade) show that Asian countries’ dependence on the U.S. market for apparel exports varied. In 2024, Vietnam, Sri Lanka, and ASEAN members exported about 40% of their apparel to the U.S., whereas the U.S. accounted for only about 20% of China’s and Bangladesh’s total apparel exports to the world. At the same time, the U.S. remained the single largest export market for Mexico and CAFTA-DR members, due to the integrated Western Hemisphere textile and apparel supply chain.

Fourth, no evidence shows that the current trading environment has benefited from near-shoring from the Western Hemisphere. On the contrary, measured in quantity, in February 2025, only 7.6% of U.S. apparel imports came from CAFTA-DR members, a notable drop from 9.6% a year ago. Similarly, Mexico accounted for 2.3% of U.S. apparel imports in February 2025, also lower than 2.4% a year earlier.

As a silver lining, the utilization rate of CAFTA-DR reached 81.1% in 2025 (January to February), much higher than 73.8% over the same period in 2024. About 75.3% of U.S. apparel imports from CAFTA-DR in 2025 (January to February) complied with the yarn-forward rules of origin compared to 67.4% a year ago. However, the use of “short-supply” remained low–only about 2.0% in 2025 so far.

by Dr. Sheng Lu

Related analysis: Lu, S. (2025). Patterns of U.S. Apparel Imports in 2024. Global Textile Academy, International Trade Centre, Geneva, Switzerland.

Gap Inc.’s Evolving Apparel Sourcing Base: 2021-2024

Gap CEO talks tariff impacts (Feb 2025)

Established in 1969, Gap Inc. is a leading American clothing retailer that operates several prominent brands, including Old Navy, Gap, Banana Republic, and Athleta, catering to diverse consumer segments.

The following analysis is based on Gap Inc.’s publicly released factory list. Only factories identified as producing “apparel” products were included in the analysis.

First, like several other leading U.S. fashion companies, Gap Inc. maintained a geographically diverse global sourcing base but reduced the number of factories it sourced from between 2021 and 2024. Specifically, as of October 2024 (the latest data available), Gap Inc. sourced apparel from 24 countries, an increase from 21 countries as of March 2021. Gap Inc.’s apparel sourcing reached almost all continents, including Asia, the Americas, Europe, and Africa.

However, between March 2021 and October 2024, Gap Inc. decreased the number of apparel factories it contracts with from 548 to 502, a reduction of 46. Most of the cuts occurred in China (down 40 factories), Vietnam (down 32 factories), and Cambodia (down 8 factories). This pattern aligned with the findings of other industry studies, which indicate that many U.S. fashion companies, particularly larger ones, are consolidating their vendor base to prioritize operational efficiency and strengthen the relationships with key vendors.

Second, Gap Inc. has significantly reduced its reliance on China and actively explored emerging sourcing destinations in the rest of Asia, Central America and beyond. According to Gap Inc.’s 2023 annual report (the latest available at the time of writing), its two largest vendors represented approximately 9 percent and 7 percent of the total dollar amount of the company’s purchases. In value terms, in 2023, approximately 29 percent of Gap Inc.’s products were sourced from Vietnam, followed by Indonesia (18 percent).

While China remained the largest source of U.S. apparel imports according to official trade statistics, China now plays a relatively minor role in supplying finished garments for Gap Inc. As of October 2024, the company sourced apparel from 36 factories in China, representing just 7.2 percent of its total apparel sourcing base, making China only the sixth-largest supplier after Vietnam, India, Indonesia, Bangladesh, and Sri Lanka. In an interview conducted in early 2025 (the video above), Gap Inc.’s CEO disclosed that less than 10 percent of the company’s products are sourced from China.

On the other hand, between March 2021 and October 2024, Gap Inc. expanded its sourcing network beyond the traditional top three (China, Vietnam, and Bangladesh), with significant growth in other parts of Asia and Central America, led by India (added 8 more factories) and Guatemala (added 9 more factories). In 2022, Gap Inc. pledged to source around $150 million in apparel products each year from Central America by 2025.

Third, Gap Inc.’s apparel sourcing base varies by product category. For example, approximately 45% of the company’s contract factories producing denim and woven bottoms were located in Vietnam and Bangladesh, likely due to the availability of cotton and a relatively abundant low-cost labor force. In contrast, factories in Sri Lanka primarily manufactured intimates, performance wear, and swimwear (IPSS) for Gap Inc. Meanwhile, half of the company’s sweater factories were located in China, largely due to the complex manufacturing process and raw material requirements for these products. Additionally, India played a critical role as a sourcing base for Gap Inc.’s woven apparel.

Furthermore, Gap Inc.’s contract garment factories worldwide vary in size, reflecting the company’s diverse sourcing needs. Specifically, in Asia, garment factories in China are typically small or medium-sized, with fewer than 1,000 workers (94.3%). In contrast, nearly 80% of Gap Inc.’s contract garment factories in Bangladesh have more than 1,000 workers, with similar patterns observed in Vietnam (48.7%), India (50%), Indonesia (63.2%), and Pakistan (57.1%). This pattern aligns with other industry studies suggesting that U.S. fashion companies source apparel products from China primarily for orders with relatively small minimum order quantities (MOQs) and those requiring a great variety.

Meanwhile, most garment factories in Central American countries producing products for Gap Inc. have fewer than 1,000 workers, such as Guatemala (100%), Nicaragua (71%), Haiti (67%), and El Salvador (100%). A similar pattern is observed in other regions, such as Egypt (67%) and Turkey (82%). This result suggests that Gap Inc. may still need to rely on Asia to fulfill orders for large-volume items, as it takes time to expand production capacity in other regions.

by Sheng Lu

Interview with the National Committee on U.S.-China Relations: The Geopolitics of Fast Fashion–U.S.-China & the World

About the interview: Fashion is possible because of international trade. Each year, the global fashion industry generates more than $4 trillion USD and provides families with affordable clothing options. However, as fast fashion continues to grow, so does awareness of pressing issues such as labor standards and environmental sustainability. How are the United States and China involved in the global fashion industry? How can they collaborate on the issues facing the global fast fashion industry, from production to consumption?

Sheng Lu joins the National Committee to discuss how fast fashion is a global phenomenon and how the United States and China can address common areas of concern.

Learn more about the National Committee on U.S.-China Relations (NCUSCR)

FASH455 Video Discussion: This ‘Loophole’ Lets $54B of Products Into the U.S. Tariff-Free (WSJ)

Discussion questions:

What makes the de minimis rule controversial?
Who might be the winners and losers of the suspension of the de minimis provision for U.S. imports from China? Why?
Imagine you are part of the sourcing department of a U.S.-based fashion company that currently sources from China. How would you respond to the situation in the video, and what recommendations would you make regarding your company’s sourcing strategies?
Do you have any other thoughts or reflections on the video?

Additional reading:

Shein, Temu, Amazon Haul set for price hikes as US shuts trade loophole (Reuters)
China’s E-Commerce Exports and U.S. De Minimis Policies (Congressional Research Service)
Event Recording: Regulating and Reforming De Minimis (October 2024)

Outlook 2025–Key Issues to Shape Apparel Sourcing and Trade

In December 2024, Just-Style consulted a panel of industry experts and scholars in its Shape of apparel sourcing in 2025 briefing. Below is my contribution to the report. Welcome any comments and suggestions!

What’s next for apparel sourcing

Although the world economy is predicted to grow at a similar pace in 2025 from 2024, the slowing US and Chinese economies could impose new challenges to apparel sourcing, from weakened demand to intensified price competition.

Regarding the macroeconomic environment in 2025, which “sets the tone” for apparel sourcing, the International Monetary Fund (IMF) and the World Bank estimated that the world economy would grow by approximately 2.7-3.2 percent in 2025, with almost no change from the previous year. Similarly, the World Trade Organization (WTO) projected that world merchandise trade would increase by 3.3 percent in 2025, slightly higher than 2.6 percent in 2024.

Despite this incremental improvement, the world’s two largest economies–the US (with 2.2 percent GDP growth in 2025, down from 2.8 in 2024 and 2.9 in 2023) and China (with 4.5 percent GDP growth in 2025, down from 4.8 in 2024 and 5.2 in 2023) are expected to experience slower economic growth in the new year ahead. This slowdown means that apparel producers around the world, particularly those developing countries making large-volume basic items, will likely continue to struggle with a shortage of souring orders in 2025 due to overall weak import demand.

Even more concerning, as China grapples with declining domestic sales, the world clothing market could see an additional influx of low-cost Chinese products, especially through new e-commerce channels. Notably, less than half of China’s clothing production is exported, indicating its significant untapped export capacity. Furthermore, while China’s wage levels are higher than those in many other Asian apparel-producing countries, the unit price of U.S. apparel imports from China measured in dollar per square meter equivalent ($/SME) dropped by more than 21% between 2018 and 2024 (up to October). In contrast, U.S. apparel import prices from the rest of the world increased by 7.8% over the same period. Related to this, what is often overlooked is that even Shein, the “ultra-fast fashion” retailer known for its exceptionally competitive pricing, deliberately opted out of the vast Chinese market due to concerns about the intense price competition there. In other words, disregarding the new Trump tariff, 2025 could see an escalation of trade tensions targeting Chinese products in the US market and beyond.

Meanwhile, due to concerns about rising geopolitical tensions worldwide and trade policy uncertainty during Trump’s second term, fashion companies will likely continue to leverage sourcing diversification to mitigate risks. However, the “reducing China exposure” and sourcing diversification movement has yet to substantially benefit near-shoring or emerging sourcing destinations such as the Western Hemisphere and Sub-Saharan Africa (SSA). This result was mainly because fashion companies utilized China to source a wide range of various products, whereas Western Hemisphere and SSA suppliers can only produce a few basic categories.

For example, my latest studies show that in the first nine months of 2024, even excluding major platforms like Shein, Amazon, and Temu, US fashion companies sourced more than 60K Stock Keeping Units (SKUs) of clothing items from China. In comparison, India and Vietnam each supplied approximately 15K SKUs, Cambodia and Bangladesh each contributed 3,000 SKUs, Mexico provided only 2K SKUs, and CAFTA-DR and AGOA member countries supplied around 200 SKUs each. Therefore, even if fashion companies report sourcing from more countries, they are likely to stay sourcing from more Asian countries with closer export capacity and structure to China. Meanwhile, the total value or volume of trade may not fully capture the whole picture of sourcing diversification. This trend may persist in 2025, even with new tariff escalations.

Apparel industry challenges and opportunities

Today’s fashion business is highly global and relies heavily on the frequent movement of goods and services across borders. Thus, the uncertain and protectionist nature of U.S. trade policy during Trump’s second term could present significant challenges to the fashion industry in 2025. Of particular concern is that Trump’s new tariff actions would raise fashion companies’ sourcing costs, create additional inflationary pressure, reduce US consumers’ purchasing power on clothing, and trigger retaliatory trade measures from U.S. trading partners, ultimately hurting the U.S. economy. Notably, when the 7.5% Section 301 tariff was imposed on selected Chinese clothing products in 2018, the U.S. Consumer Price Index (CPI) growth was relatively low at 1.9%. However, imposing a 20% global tariff, a 60% tariff on Chinese products, and the existing 15%-30% regular tariff on clothing when the CPI is historically high is like “adding fuel to the fire.”

Besides tariffs, in 2025, if not sooner, U.S. fashion companies and many e-commerce suppliers worldwide will closely watch how Congress and the new Trump administration reform the de minimis rule, which currently exempts small-value shipments under $800 from tariffs and most customs procedures. With Trump’s new tariffs looming, some argue that closing the de minimis “loophole” has become even more urgent, as it creates more financial incentives to use the rule to bypass the tariff increase. Meanwhile, proposals under consideration suggest removing textile and apparel products entirely from de minimis, a move that could be an “earthquake” for those fashion companies utilizing the rule heavily.

Trump’s approach and philosophy toward conventional trade agreements and trade preference programs in 2025 also deserve attention. During his first term, Trump launched a few bilateral trade negotiations, from the one with the United Kingdom and Japan to Kenya. Back then, Trump saw a bilateral agreement would give the U.S. more leverage for a better “deal.” Specifically related to apparel sourcing and trade, two flagship U.S. trade preference programs–the African Growth and Opportunity Act (AGOA) and the Haiti HOPE/HELP Act, will expire in September 2025. It remains uncertain whether the new Trump administration will support the early renewal of these two trade preference programs with minimal changes or prefer to renegotiate them and add new bilateral elements.

Additionally, even though the new Trump administration may not prioritize addressing climate change, it is an irreversible trend for fashion companies to allocate more resources to comply with upcoming or newly implemented sustainability and environmental-related legislation, whether from the EU or the US state level. Unlike in the past, when being more sustainable only meant adding operational costs or paying a “one-time fee,” today’s new generation of sustainability-focused regulations—such as Extended Producer Responsibility (EPR)—requires companies to shift their mindset and demonstrate continuous improvement. Interestingly, my recent study tracking apparel products’ sustainability claims shows that vague terms like “sustainable” and “eco-friendly” are gradually being replaced by more neutral, fact-based keywords such as “regenerative,” “textile waste,” and “low impact.”

Meanwhile, offering “sustainable” apparel products and those using “preferred sustainable fibers” could provide fashion companies new opportunities to diversify their sourcing base and expand their vendor networks. For example, studies show that in the U.S. market, China and many other Asian countries are not necessarily the top suppliers of clothing made with recycled materials. Instead, Europe and countries in the Western Hemisphere or even Africa present unique sourcing advantages and capacities due to the unique nature of such products. Therefore, in 2025, we can expect an ever-closer collaboration between design, product development, merchandising, sourcing, and legal teams within fashion companies, working together to meet the growing demand for sustainable apparel and ensure compliance with evolving regulations.

by Sheng Lu

New Study: Exploring India as an Apparel Sourcing Base for U.S. Fashion Companies

The full article is published in Just-Style and below is the summary:

India’s Textiles and Apparel Production

Data from the United Nations Industrial Development Organization (UNIDO) shows that India produced around $76.5 billion in textiles and $26.64 billion in wearing apparel in 2022. Although still smaller than China’s, this production scale has already surpassed that of most other Asian countries, including Vietnam. Behind these numbers were India’s over 4,000 ginning factories, 3,500 textile mills, and around 45 million workers directly employed by the textile and apparel sector.

India is one of the world’s largest textile fiber producers, including regular cotton, organic cotton, silk, polyester, and viscose. India also has more advanced local textile manufacturing capabilities than most other developing apparel-exporting Asian countries, allowing it to benefit from a vertically integrated local textile and apparel supply chain. A recent U.S. International Trade Commission (USITC) study noted that more than 90 percent of India’s textile raw materials needed for its apparel production can be sourced domestically. In comparison, as the World Trade Organization (WTO) global value chain analysis estimated, more than 64 percent of Vietnam’s apparel exports in 2022 contained foreign-made content (i.e., imported yarns and fabrics), 57 percent for Cambodia, 49 percent for Indonesia, and 33 percent for Bangladesh.

India’s Apparel Export

India remained a much smaller apparel exporter than China, Vietnam, and Bangladesh. According to the World Trade Organization (WTO), India exported about $15 billion in apparel in 2023, ranked the world’s sixth largestor 2.8 percent of the global total. Similarly, in 2023, India accounted for 5.5 percent of U.S. apparel imports and 3.5 percent of the EU, showing its position as a significant supplier but not among the largest. However, unlike most other developing Asian countries, India exports less than half of its apparel output due to its massive domestic market with a population of 1.43 billion. This implies that India’s substantial untapped apparel export potential should not be ignored.

Why Sourcing from India?

Firstly, aligned with trade statistics, many U.S. fashion companies already source from India, although in a relatively small volume. For example, the USFIA benchmarking survey respondents consistently ranked India as the 3^rd or 4^th most utilized apparel sourcing base from 2021 to 2024, after China and Vietnam. However, U.S. fashion companies typically place less than 10 percent of their total sourcing value or volume in India. The recent USITC study also raised concerns that India’s apparel factories were primarily small and medium-sized, which could limit their ability to fulfill large-volume sourcing orders.

Secondly, “Made in India” clothing is not necessarily cheap but could be perceived as “worth the value.” Notably, from January to October 2024, clothing labeled “Made in India” sold in the U.S. retail market was, on average, priced much higher than imports from Bangladesh and Vietnam, particularly in the mass market segment. Meanwhile, in the premium market segment, clothing “Made in India” was, on average, priced relatively lower than “Made in China,” such as dresses, tops, and bottoms. These results suggest that U.S. fashion companies do not typically consider India a preferred sourcing base for basic and price-sensitive items. Instead, India may be seen as a more cost-effective alternative to China for high-quality, value-added clothing.

Thirdly, India has been strengthening its competitiveness in export flexibility and agility, enabling its vendors to quickly adjust the delivery, volume, and product of the sourcing order upon customers’ requests. In the latest 2024 USFIA survey, respondents rated India’s sourcing flexibility and agility second only to China, surpassing Bangladesh, Cambodia, and Central American countries. Likewise, India was regarded as one of the few Asian countries that could fulfill apparel sourcing orders with relatively low “minimum order quantity (MOQ)” requirements.

One major factor contributing to India’s perceived advantages in sourcing flexibility and agility is its ability to produce a wide range of apparel products. For example, the Herfindahl-Hirschman Index (HHI) calculated using trade data at the 6-digit HS code level indicates that U.S. apparel imports from India cover more diverse product categories than most Asian countries.

Moreover, due to India’s position as one of the world’s leading cotton producers, in the first ten months of 2024, nearly 60 percent of U.S. apparel imports from India contained cotton fibers, including 13 percent using organic cotton. This percentage was much higher than imports from other Asian suppliers such as China and Vietnam. In comparison, over the same period, U.S. apparel imports from India appear less likely to contain man-made fibers like polyester, nylon, spandex, and recycled polyester. This fiber composition explains why India has yet to become a leading supplier of certain apparel product categories, like outerwear, which more commonly uses man-made fiber than cotton.

Additionally, in the first ten months of 2024, over 45 percent of India’s apparel newly introduced to the U.S. market targeted the luxury and premium segment, closely matching China’s nearly 50 percent and exceeding other Asian suppliers such as Vietnam (20 percent), Bangladesh (13 percent), Cambodia (5 percent), and Indonesia (18 percent). This result explains why U.S. fashion companies increasingly consider India a strategic alternative to sourcing from China, given the similarities in their product offerings.

Reflections

India’s large country size and population, the presence of an already highly integrated and sophisticated textile and apparel supply chain, and its ability to make a great variety of high-quality products suitable for various market segments position it well in the export competition. U.S. fashion companies’ eagerness to reduce sourcing from China due to rising geopolitical concerns and the limited sourcing capacity elsewhere created historical opportunities for India to expand its apparel exports to the U.S. market further.

Nevertheless, it remains a question mark whether India is fully committed to expanding labor-intensive apparel production and exports, given the country’s economy is moving toward more capital and technology-intensive sectors. Notably, in value, apparel only accounted for about 5.6 percent of India’s total merchandise exports in 2023, similar to China’s 5.3 percent but much lower than other lesser-developed Asian countries, including Vietnam (10 percent), Bangladesh (88 percent), and Cambodia (44 percent).

Moreover, while India is not a primary focus for compliance issues like forced labor, sourcing from the country still carries general social and environmental compliance risks similar to those in most developing countries (note: see the 2024 USITC report). It remains to be seen whether India’s textile and apparel mills are technically and financially prepared to meet more stringent social and environmental standards being adopted in the U.S. and can effectively compete in the growing market for “sustainable apparel.”

by Gabriella Giolli (Honors Marketing major & Fashion management minor, University of Delaware) and Sheng Lu

New Study: How Has the Uyghur Forced Labor Prevention Act (UFLPA) Affected U.S. Apparel Import?

Implemented in June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) prohibits U.S. companies from importing apparel wholly or in part produced in China’s Xinjiang region. UFLPA could significantly alter U.S. apparel import patterns as fashion companies have begun or anticipate adjusting their sourcing base to comply with the law and mitigate the forced labor risks in the supply chain.

This study quantitatively evaluated the impacts of the UFLPA on U.S. apparel imports nearly two years after the law’s implementation. Unlike existing studies primarily focusing on UFLPA’s political or legal aspects, this study’s findings would enhance our understanding of the economic and trade implications of the new law.

A panel regression model was adopted to evaluate the quantitative impact of UFLPA on U.S. apparel imports based on data collected from OTEXA (2024) and USITC (2024), the most authentic government data source. Four countries in three categories were included in the study: 1) China; 2) Vietnam and Bangladesh representing top Asian apparel exporting countries other than China; 3) member countries of the Central America Free Trade Agreement (CAFTA-DR) representing near-shoring sourcing destinations. The annual trade activities of these four countries from 2010 to 2023 (the latest available) were used for the analysis.

The panel regression model suggests several interesting findings*:

Firstly, the results showed that holding other factors constant, U.S. cotton apparel imports from China decreased significantly by approximately 350 million square meter equivalent (SME) annually following UFLPA’s implementation. In other words, the result confirmed that UFLPA had negatively affected U.S. cotton apparel imports from China. This result is far from surprising as Xinjiang accounted for nearly 90% of China’s cotton production, causing significant forced labor risks associated with importing cotton apparel from China.

Secondly, holding other factors constant, U.S. cotton apparel imports from Vietnam and Bangladesh and CAFTA-DR also respectively decreased by approximately 81 million SME, 51 million SME, and 20 million SME annually after UFLPA’s implementation in 2022. The results revealed U.S. fashion companies’ concerns about UFLPA compliance risks associated with sourcing from countries other than China, particularly Asia, due to their heavy reliance on cotton yarns and fabrics from China through a highly integrated regional supply chain.

Thirdly, the results revealed a more significant positive relationship between U.S. cotton exports to China, Vietnam, Bangladesh, and CAFTA-DR countries and U.S. cotton apparel imports from these countries after UFLPA’s implementation. Related, trade data also showed a declining ratio of U.S. cotton apparel imports from China, Vietnam, Bangladesh, and CAFTA-DR countries relative to these countries’ cotton imports from the U.S. This pattern implies a closer alignment in the trade flow of raw cotton from the U.S. to these countries and the return of finished cotton apparel to the U.S. It could be the case that leading apparel exporting countries increasingly used US cotton after UFLPA to mitigate the forced labor risks.

Additionally, there was a negative relationship between U.S. cotton apparel imports from China, Vietnam, Bangladesh, and CAFTA-DR members and U.S. MMF apparel imports from these countries. In other words, cotton apparel and MMF apparel appear to compete within the total U.S. apparel import market. However, UFLPA’s implementation has not significantly impacted the relationship. Nonetheless, MMF apparel has accounted for a growing share of China’s total apparel exports to the United States after UFLPA’s implementation (down from 46% in 2010 to only 19% in 2023).

The study’s findings revealed a broad trade impact of UFLPA’s implementation that goes far beyond China. Notably, cotton apparel exporters from other Asian countries and those in the Western Hemisphere also appeared to be negatively affected by the new law. Also, unlike theoretical prediction, no clear evidence shows that UFLPA has significantly expanded the near-shoring of U.S. cotton apparel imports from the Western Hemisphere, such as CAFTA-DR members.

Meanwhile, the results call for further investigation of the net impact of UFLPA on U.S. cotton exports. While UFLPA may help U.S. cotton gain more shares in the global marketplace, the reduced U.S. import demand for cotton apparel due to forced labor risk concerns may also unexpectedly “shrink the pie size.”

*:The fixed effects (FE) model was selected for the study based on the likelihood ratio test results (p<.01). The result of the F-test suggests the FE model is statistically significant at the 99% confidence level (p<.01). The value of R2 exceeds 0.90, indicating an overall high goodness-of-fit of the panel regression. All the independent variables were statistically significant at the 99% confidence level (p<.01).

By Sheng Lu and Emilie Delaye

Note: The study will be presented at the 2024 International Textile and Apparel Association (ITAA) annual conference in November 2024.

[This blog post is not open for comment]

New Study: PVH Corporation’s Evolving Apparel Sourcing Strategies (updated Septmeber 2024)

PVH Corporation (PVH), which owns well-known brands including Calvin Klein, Tommy Hilfiger, Van Heusen, Arrow, and Izod, is one of the largest US fashion companies with nearly $9.2 billion in sales revenues in 2022.

By leveraging PVH’s publically released factory lists, this article analyzes the company’s detailed sourcing strategies and changes from 2021 to 2022. Key findings:

Trend 1: PVH adopts a diverse apparel sourcing base and continues to work with more vendors. Specifically, in 2022, PVH sourced apparel from as many as 37 countries in Asia, Europe, America, the Middle East, and Africa, the same as in 2021. Despite not expanding the number of countries it sources from, PVH increased its total number of vendors from 503 in 2021 to 553 in 2022, highlighting the company’s ongoing commitment to diversifying its sourcing base.

Trend 2: Asia is PVH’s dominant sourcing base for finished garments and textile raw materials.

Specifically, about 56.2% of PVH’s apparel suppliers were Asia-based in 2022, followed by the EU (20.3%). Compared with a year ago, PVH even added twenty new Asia-based factories to its supplier list in 2022, suggesting no intention of reducing sourcing from the region. Moreover, From 2021 to 2022, as many as 83% of PVH’s raw material suppliers were Asia-based, far exceeding any other regions.

Trend 3: PVH’s China sourcing strategies are evolving and more complicated than simply “reducing China exposure.”

First, PVH continued to work with MORE Chinese factories. Specifically, between 2021 and 2022, PVH added 17 Chinese factories to its apparel supplier list, more than other countries. However, the expansion could be because of PVH’s growing sales in China.
Second, PVH’s garment factories in China are smaller than their peers in other Asian countries. For example, in 2022, most PVH’s contracted garment factories in top Asian supplying countries, such as Bangladesh (87.5%), Vietnam (63.3%), and Sri Lanka (65.3%), had more than 1,000 workers. In comparison, only 11.3% of PVH’s Chinese vendors had 1,000 workers, and more than 62.5% had fewer than 500 workers. The result suggests that PVH treats China as an apparel sourcing base for flexibility and agility, particularly those orders that may include a greater variety of products in relatively smaller quantities.
Further, PVH often priced apparel “Made in China” higher than those sourced from the rest of Asia.

Trend 4: PVH actively used “emerging” sourcing destinations outside Asia. Other than those top Asian suppliers, PVH’s apparel sourcing base includes several countries in America, the EU, and Africa that deserve more attention, including Portugal, Brazil, Tunisia, and Turkey. Overall, PVH sourced from these countries for various reasons, from serving local consumers, seeking sourcing flexibility, accessing raw materials, and lowering sourcing costs.

by Sheng Lu and Ally Botwinick

Further reading: Lu, Sheng & Botwinick, Ally (2023). US fashion companies’ evolving sourcing strategies – a PVH case study. Just-Style. Retrieved from https://www.just-style.com/features/us-fashion-companies-evolving-sourcing-strategies-a-pvh-case-study/

PVH’s market shares in the China apparel retail market

(discussion for this post is closed)

China’s Textile and Clothing Export: Latest Patterns and Trends (updated August 2024)

The newly released World Trade Organization statistics and data from the United Nations (UNComtrade) suggest several patterns of China’s textile and clothing exports.

Firstly, while China remained the world’s largest clothing exporter in 2023, rising geopolitical tensions and Western fashion companies’ ongoing de-risking efforts pose increasing challenges to its export outlook.

To some extent, 2023 wasn’t too bad for clothing “Made in China.” In value, China’s clothing exports totaled $164 billion, accounting for 31.6% of the world—unchanged from 2022. While China’s clothing exports decreased by 9.7 percent in 2023 compared to the previous year due to weaker market demand, this performance was better than most other top ten suppliers, including Bangladesh (down 16 percent), Vietnam (down 12 percent), India (down 13 percent), and Indonesia (down 17 percent).

However, China’s clothing exporters face significant challenges ahead. Despite maintaining its overall market share, China is losing momentum in nearly all key Western clothing markets, including the United States, the European Union, the UK, and Canada. This trend is primarily driven by perceived heightened sourcing risks associated with China, ranging from concerns over forced labor in the Xinjiang region to escalating geopolitical tensions involving the country.

For example, according to the 2024 Fashion Industry Benchmarking Study released by the US Fashion Industry Association (USFIA) in July, a record 43 percent of surveyed leading US fashion companies reported sourcing less than 10 percent of their apparel products from China in 2024, compared to only 18 percent in 2018. Likewise, nearly 60 percent of respondents no longer use China as their top apparel supplier in 2024, much higher than the 25-30 percent range before the pandemic. Additionally, nearly 80 percent of respondents plan to further reduce their apparel sourcing from China over the next two years through 2026, citing perceived high sourcing risks as the primary concern.

Secondly, China has been diversifying its clothing exports beyond traditional Western markets in response to the “de-risking” movement. For example, the US, EU, UK, and Canada combined accounted for 43-45 percent of China’s clothing exports in 2023, lower than over 50 percent in the past. In comparison, these four Western markets typically accounted for 70 to 90 percent of an Asian country’s clothing exports. Meanwhile, since 2021, Asian economies, especially members of the Regional Comprehensive Economic Partnership (RCEP) and Africa, have become more important export markets for China. Nevertheless, since RCEP members and those in Africa primarily consist of developing economies with ambitions to expand their own clothing production and exports, the long-term growth prospects for their demand for “Made in China” clothing remain uncertain.

Thirdly, China’s weakened economy could lead to an increased supply of low-cost Chinese clothing in the global market.

Despite being known as the world’s largest clothing exporter, between 2013 and 2022 (the latest available data), over 70%–80% of clothing produced in China was consumed domestically, with only about 20%–30% being exported. However, as China’s economic growth has slowed and consumer spending on clothing has stalled, more clothing made in China could enter the international market and intensify the price competition. Notably, between June 2023 and June 2024, the average unit price of US apparel imports from China decreased unusually by 7.6 percent, signaling that an increased supply of Chinese clothing began to suppress market prices. Likewise, it doesn’t seem reasonable that the unit price of U.S. apparel imports from China was 40% lower than that of imports from Bangladesh in the first half of 2024. Thus, the growing influx of cheap Chinese products raises the risk of market disruptions, potentially leading to additional trade tensions and restrictive measures against Chinese products.

Fourthly, there is an early sign that Asian countries have become more cautious about using Chinese yarns and fabrics. China remained a key supplier of textile raw materials to leading apparel-exporting countries in Asia. However, Asian countries appeared to be sourcing fewer yarns and fabrics from China in 2023, possibly due to the enforcement of anti-forced labor laws, such as the Uyghur Forced Labor Prevention Act (UFLPA), and the perceived risks associated with sourcing Chinese cotton. Instead, more Asian countries’ yarns and fabrics now came from regional suppliers other than China.

by Sheng Lu

Additional reading: China has turned inward to sell Xinjiang cotton after a trade ban. Will it be enough? (South China Morning Post, August 11, 2024).

Mega Trade Agreements in the Asia-Pacific Region and Textiles and Apparel Trade (Updated August 2024)

Speaker: Dr. Deborah Elms, Founder and Executive Director of the Asian Trade Centre and the President of the Asia Business Trade Association. The clip was part of the webinar “Asia’s Noodle Bowl Of Trade” (March 2023).

Background

The Asia-Pacific region includes several mega free trade agreements:

ASEAN (Association of Southeast Asian Nations) is a regional intergovernmental organization comprising ten countries in Southeast Asia (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam). In 2022, ASEAN members have a combined nominal GDP of $3.6 trillion and a population of 671.6 million.

CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is a free trade agreement signed by 11 countries in the Asia-Pacific region, including Japan, Malaysia, Vietnam, Australia, Singapore, Brunei, New Zealand, Canada, Mexico, Peru, and Chile. The CPTPP covers a market of 495 million people with a combined GDP of $13.5 trillion in 2021. The United States was originally a participant in the Trans-Pacific Partnership (TPP) negotiations, but in January 2017, former US President Trump withdrew the US from the agreement. The Biden administration has indicated no interest in rejoining CPTPP. Additionally, China is actively seeking to join CPTPP (as of March 2024).

RCEP (Regional Comprehensive Economic Partnership) is a free trade agreement signed by 15 countries in the Asia-Pacific region, including China, Japan, South Korea, Australia, New Zealand, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam. In 2021, RCEP members collectively represented a market of 2.3 billion people with a combined GDP of $26.3 trillion. India was an RCEP member but withdrew from the agreement due to concerns about import competition with China.

IPEF (Indo-Pacific Economic Framework for Prosperity) is a US-led economic cooperation framework that aims to “link major economies and emerging ones to tackle 21st-century challenges and promote fair and resilient trade for years to come.” IPEF is NOT a traditional free trade agreement, and it does not address market access issues like tariff cuts. Instead, IPEF includes four pillars: trade, supply chains, clean economy, and fair economy. IPEF members in the Asia-Pacific region include the United States, Japan, Australia, New Zealand, South Korea, India, Fiji, Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The IPEF is designed to be flexible, meaning that IPEF partners are not required to join all four pillars. For example, India chooses not to join the trade pillar of the framework. In 2021, IPEF countries collectively represented a market of 2.1 billion people with a combined GDP of $23.3 trillion. The potential economic impact of IPEF remains too early to tell.

Notably, ASEAN, CPTPP, RCEP, and IPEF members play significant roles in the world textile and apparel trade. Specifically:

ASEAN and RCEP members have established a highly integrated regional textile and apparel supply chain. For example, a substantial portion of ASEAN and RECP members’ textile imports came from within the region.

ASEAN and RCEP members’ supply chain connection with China has substantially strengthened over the past decade. In contrast, the US barely participated in Asia-based textile and apparel supply chains. For example, other than CPTPP, the US accounted for less than 2% of ASEAN, RCEP, and IPEF members’ textile imports in 2022.

ASEAN and RCEP members also hold significant market shares in the world textile and apparel exports (over 50%). Meanwhile, the US and EU are indispensable export markets for ASEAN and RCEP members.

Because of the inclusion of the United States, IPEF represented one of the world’s largest apparel import markets (i.e., 33.7% in 2021, measured in value). Similarly, in 2022, about 26% of US apparel imports came from current IPEF members. Should IPEF address market access issues, it could offer significant duty-saving opportunities for textile and apparel products.

Additionally, the UK’s membership in CPTPP may have a limited direct impact on the textile and apparel sector, at least in the short to medium terms. For example, current CPTPP members only accounted for about 6% of the UK’s apparel imports in 2022.

2024 USFIA Fashion Industry Benchmarking Study Released

The full report is HERE

Key findings of this year’s report:

#1 Respondents reported growing sourcing risks of various kinds in 2024, from navigating an uncertain U.S. economy, managing forced labor risks, and responding to shipping and supply chain disruptions to facing rising geopolitical tensions and trade protectionism.

Over half of the respondents ranked “Inflation and economic outlook in the U.S.” and “Managing the forced labor risks in the supply chain” as their top business challenges in 2024.
The issues of “Shipping delays and supply chain disruptions” and “Managing geopolitics and other political instability related to sourcing” have newly emerged among respondents’ top five concerns in 2024.
About 45 percent of respondents rated “Protectionist trade policy agenda in the United States” as a top five business challenge this year, a jump from only 15 percent in 2023.

#2 U.S. fashion companies leverage sourcing diversification to respond to the growing sourcing risks and market uncertainty in 2024.

Nearly 70 percent of large-sized companies with 1,000+ employees reported sourcing from ten or more countries, significantly higher than the 45-55 percent range in the past few years. It also has become more common for medium to small-sized companies with fewer than 1,000 employees to source apparel from six or more countries in 2024 than in the past.
Nearly 80 percent of respondents plan to source from the same number of countries or even more countries through 2026, aiming to mitigate sourcing risks more effectively. However, their approaches differ at the firm level—some U.S. fashion companies plan to work with fewer vendors, while others intend to source from more.

#3 Managing the risk of forced labor in the supply chain continues to be a top priority for U.S. fashion companies in 2024.

U.S. fashion companies have adopted a comprehensive approach to comply with UFLPA and mitigate forced labor risks. On average, each surveyed company has implemented approximately six distinct practices across various aspects of their business operations this year, up from an average of five in 2023.
More than 90 percent of respondents say they are “Making more efforts to map and understand our supply chain, including the sources of fibers and yarns contained in finished products.” Notably, nearly 90 percent of respondents report mapping their entire apparel supply chains from Tier 1 to Tier 3 in 2024, a significant increase from about 40 percent in the past few years.
More than 80 percent of respondents say they “intentionally reduce sourcing from high-risk countries” in response to the UFLPA’s implementation. Another 75 percent of respondents explicitly state that their company has “banned the use of Chinese cotton in the apparel products” they carry.
About 45 percent of respondents have been actively “exploring sourcing destinations beyond Asia to mitigate forced labor risks.” However, this year, fewer respondents (i.e., under 10 percent) plan to cut apparel sourcing from Asian countries other than China directly, implying a more targeted and balanced approach to mitigating risks and meeting sourcing needs.
Based on field experience, respondents call for greater transparency in U.S. Customs and Border Protection (CBP)’s UFLPA enforcement, specifically in shipment detention and release decisions and in targeted entities and commodities information. Respondents also suggested that CBP reduce repeated detentions, focus on “bad actors” only, clarify enforcement on recycled cotton, and continue to partner with U.S. fashion companies on UFLPA enforcement.

#4 U.S. fashion companies remain deeply concerned about the deteriorating U.S.-China bilateral relationship and plan to further “reduce China exposure” to mitigate risks.

A record 43 percent of respondents sourced less than 10 percent of their apparel products from China this year, compared to only 18 percent in 2018. Likewise, nearly 60 percent of respondents no longer use China as their top apparel supplier in 2024, much higher than the 25-30 percent range before the pandemic.
Respondents rated China as economically competitive as an apparel sourcing base compared to many of its Asian competitors regarding vertical manufacturing capability, relatively low minimum order quantity (MOQ) requirements, flexibility and agility, sourcing costs, and speed to market. However, non-economic factors, particularly the perceived high risks of forced labor and geopolitical tensions, are driving U.S. fashion companies to move sourcing out of China. This trend applies to surveyed U.S. fashion companies selling products in China.
Nearly 80 percent of respondents plan to reduce their apparel sourcing from China further over the next two years through 2026. Consistent with last year’s results, large-size U.S. fashion companies with 1,000+ employees currently sourcing more than 10 percent of their apparel products from China are among the most eager to “de-risk.”

#5 U.S. fashion companies are actively exploring new sourcing opportunities, with a particular focus on emerging destinations in Asia and the Western Hemisphere.

This year, more respondents reported sourcing from India (89 percent utilization rate) than from Bangladesh (86 percent utilization rate) for the first time since we began the survey. Also, nearly 60 percent of respondents plan to expand apparel sourcing from India over the next two years, exceeding the planned expansion from any other Asian country.
For the second year in a row, three non-Asian countries made it to the top ten most utilized apparel sourcing destination list in 2024, including Guatemala (ranked 7th), Mexico (ranked 7th), and Egypt (ranked 10th). All three countries also witnessed an improved utilization rate in 2024 compared to last year’s survey results.
This year, a new record 52 percent of respondents plan to expand apparel sourcing from members of the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), over the next two years, up from 40 percent in 2023. However, most U.S. fashion companies consider expanding near-shoring from the Western Hemisphere as part of their overall sourcing diversification strategy. For example, nearly ALL companies that plan to increase sourcing from CAFTA-DR over the next two years also plan to increase sourcing from Asia.
75 percent of respondents identified the “lack of sufficient access to textile raw materials” as the main bottleneck preventing them from sourcing more apparel from CAFTA-DR members. Respondents say the local manufacturing capability for yarns and fabrics using fiber types other than cotton and polyester, such as spandex, nylon, viscose, rayon, and wool, was modest or low in the CAFTA-DR region, even when including the United States.
The U.S.-Mexico-Canada Trade Agreement (USMCA) entered into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). Within the context of expanding nearing-shoring from the Western Hemisphere, in 2024, about 65 percent of respondents reported sourcing from Mexico and Canada (or USMCA members), a noticeable increase from about 40 percent in 2019-2020. About 36 percent of respondents say their companies “expanded apparel sourcing from USMCA members because of the agreement.”

#6 Respondents underscore the importance of immediate renewal of AGOA before its expiration in September 2025 and extending the agreement for at least another ten years.

This year, respondents reported sourcing from seven AGOA members or countries in Sub-Saharan Africa (SSA), including Lesotho, Ethiopia (note: lost AGOA eligibility in 2022), Kenya, Madagascar, Mauritius, Tanzania, and Ghana, an increase from four countries in 2023, and six countries in 2022. Most respondents sourcing from AGOA in 2024 are typically large-scale U.S. fashion brands or retailers with 1,000+ employees. Generally, these companies treat AGOA as part of their extensive global sourcing network.
Over 86 percent of respondents support renewing AGOA for at least another ten years, and none object to the proposal. This reveals U.S. fashion companies’ strong support for the trade preference program and the non-controversial nature of continuing this agreement.
Over 70 percent of respondents say another 10-year renewal of AGOA is essential for their company to expand sourcing from the region.
About 30 percent of respondents reported that they had already held back sourcing from AGOA members due to the pending renewal of the agreement and associated policy uncertainty. This figure could increase to half of the respondents if AGOA is not renewed by the end of 2024.
Another 30 percent of respondents indicate that keeping the flexible rules of origin in AGOA, such as the “third country fabric provision” for least-developed members, is essential for their company to source from the region.

Other topics the report covered include:

5-year outlook for the U.S. fashion industry, including companies’ hiring plan by key positions
The competitiveness of major apparel sourcing destinations in 2024 regarding sourcing cost, speed to market, flexibility & agility, minimum order quantity (MOQ), vertical integration and local textile manufacturing capability, social and environmental compliance risks and geopolitical risks (assessed by respondents)
Respondents’ detailed sourcing portfolio in 2024 for garments and textile materials (i.e., yarns, fabrics and accessories)
Respondents’ latest strategies to mitigate forced labor risks in the supply chain and fashion companies’ suggestions for CBP’s UFLPA enforcement based on field experience
U.S. fashion companies’ latest social responsibility and sustainability practices related to sourcing
U.S. fashion companies’ trade policy priorities in 2024

About the study

This year’s benchmarking study was based on a survey of executives from 30 leading U.S. fashion companies from April to June 2024. The study incorporated a balanced mix of respondents representing various businesses in the U.S. fashion industry. Approximately 80 percent of respondents were self-identified retailers, 60 percent were self-identified brands, 41 percent were importers/wholesalers, and 3 percent were manufacturers.

The survey respondents included large U.S. fashion corporations and medium-sized companies. Around 80 percent of respondents reported having over 1,000 employees; the rest (20 percent) represented medium-sized companies with 100-999 employees.

Event Recap: Biden 2.0 or Trump 2.0? What We Might Expect on Trade Policy in a Second Term (April 2024)

The event was hosted by the Washington International Trade Association (WITA)

Key takeaways from the panel discussion:

The new punitive tariffs on Chinese steel and aluminum: The overcapacity problem in the steel industry globally could raise national security concerns. While the Biden Administration is more focused on outreach to allies and partners to address the issue collectively, the Trump Administration took a different approach with the Section 232 tariffs specifically targeting China. However, the impact of China-targeted measures could be muted due to the limited amount of US steel imported from China today. The next administration is expected to face the challenge of addressing global overcapacity in various industries. Like it or not, tariffs seem to be one of the few tools available to the US government to tackle these issues directly.

Currency debate: “Currency manipulation” refers to the deliberate actions taken by a country’s government or central bank to artificially influence the value of its currency in the foreign exchange market. When a foreign government deliberately lowers the value of its currency, it could result in more US imports from that country and hurt the price competitiveness of US exports. While currency manipulation has not been a significant concern in recent years, the recent strength of the US dollar against other currencies, such as the Japanese yen, Chinese yuan, and Vietnamese dong, may reignite debate over the issue. The Biden Administration struggles to fight high inflation using high-interest rates, making it extremely challenging to “devalue the US dollar” in a macro sense. In comparison, the second Trump administration could designate countries of concern as currency manipulators, followed by new retaliatory measures, including tariffs or other trade barriers.

Industrial policy and subsidy: The Biden administration has packaged industrial policy as a core pillar of “Bidenomics,” which has pledged more than $805 billion in new subsidies for semiconductor manufacturing and research, climate and energy investments, and infrastructure spending. In comparison, the Republicans would be more inclined to let market forces determine the outcome of these policies rather than funding them through the government. It is also likely that the second Trump administration will tighten certain rules related to foreign entities taking advantage of US tax credits. However, there could be coordinated investments and supply chain resilience efforts in Biden and Trump’s second term, such as tactical coordination to prevent global subsidy races and disruptions in supply chains.

Trade policy as a tool for other issues: Reviving the Trans-Pacific Partnership (TPP) or similar mid-2010s era trade agreements was slim during the Biden administration. Instead, the Biden administration prioritizes a climate and trade agenda, as evidenced by the launch of a new White House Climate and Trade Task Force. Biden administration will continue to prioritize investments in domestic production capacity while looking outward to use trade to support other non-trade objectives.

In comparison, the Trump administration was more aggressive in pushing back against protectionist trade measures against US products but also less optimistic about the willingness of other countries to engage in good-faith negotiations with the US. Further, Trump 2.0 will likely return to trade policies similar to his first term, including potential tariffs of up to 60% on Chinese imports and an across-the-board tariff of 10% on all imports. Further, there is bipartisan support for increasing tariffs on Chinese goods, considering the deteriorating bilateral relationship. However, a 10% global tariff on imports from countries like Switzerland and Ireland could be more controversial due to potential consumer price impacts and damage to US alliances.

Discussion questions:

Any of the aforementioned issues could potentially impact fashion apparel companies? Why?
In your view, is it preferable for the textile and apparel industry not to be a focus of US trade policy? Why?
What are your top 1-2 takeaways from the panel discussion?

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Overview of Shein’s market and financials

What is Shein’s LATR Model?

Where are Shein’s apparel products mostly made?

What are Shein’s key supplier selection criteria?

How have de minimis removal and tariffs affected Shein?

How does Shein see the impacts of environmental regulations? How does sustainability fit its business model?

Supplier auditing

What important business issues does Shein see over the next few years?

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