Tariffs Trending: How Shifting Trade Policies Could Reshape the Fashion Industry
- Alexa Lia
- Mar 14
- 5 min read
Updated: May 8
In a matter of weeks, the new administration has introduced significant trade policy changes, including increased import tariffs—specifically on China, Canada, and Mexico—and an effort to eliminate the de minimis exemption for imports.[1] These changes could reshape the fashion industry, forcing companies to reassess supply chains and sourcing strategies.[2]
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Increased Tariffs
On February 1, 2025, President Trump signed executive orders raising import tariffs on China by 10% and Canada and Mexico by 25%.[3] As of March 4, the tariffs on all three countries have gone into effect, along with an additional 10% increase for China.[4] President Trump cited the International Emergency Economic Powers Act (IEEPA) as his authority, justifying these increases as measures to combat drug trafficking and illegal immigration.[5] However, the tariff increases may have unintended consequences for the fashion industry.[6]
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The fashion industry relies heavily on imports, as only 3% of clothing is produced domestically.[7] China, responsible for over 20% of U.S. clothing imports, also supplies essential materials like textile dyes, which are not typically produced domestically due to environmental concerns.[8] Although posing challenges for companies dependent on these foreign imports, the tariffs could boost domestic manufacturer revenue by an estimated $700 million.[9] Additionally, reshoring could help manufacturers better manage lead times and product quality, avoiding the unpredictability of foreign manufacturers and international trade more broadly.[10]
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Despite these potential benefits, domestic manufacturing may not increase as significantly as expected, as manufacturing abroad may still be cheaper even considering the tariff increases, and domestic labor shortages further complicate efforts to increase production.[11] Advancing technology could, however, help to abate these concerns as manufacturing processes become more automated.[12] Ultimately, the costs of supply chain disruptions and labor shortages will likely be passed along to consumers in the form of increased prices.[13]
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De Minimis Exemption
Coinciding with the tariff orders, President Trump signed another order on February 1 to eliminate the de minimis exemption, which allows imports under $800 to enter the U.S. tariff-free.[14] Over 90% of all packages imported to the U.S. qualify for this exemption, with 60% originating from China.[15] The policy change primarily aims to curb opioid trafficking but has significant implications for fast fashion companies like Shein and Temu, which rely on the exemption to import large quantities of cheap clothing while keeping costs low for consumers.[16]
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Without this exemption, fast fashion consumers may face higher prices and shipping delays, which could push consumers to shift to more sustainable brands.[17] This could be a welcomed shift due to growing concerns over forced labor and other ethical issues tied to fast fashion.[18] However, after significant disruptions in the shipping industry following the initial enforcement of the order, the administration temporarily reinstated the exemption, though the Commerce Department is working on procedures to implement the order effectively.[19]
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Next Steps for the Fashion Industry
In response to these trade policy changes, fashion companies are exploring several strategies to mitigate costs and disruptions, including the following measures:[20]
Supply Chain Diversification: Shifting production out of affected countries, using manufacturers in Cambodia, Vietnam, or Free Trade Agreement (FTA) countries to minimize tariff exposure.[21]
First Sale Doctrine: Using the—often lesser—value of a good’s first sale (e.g., manufacturer to vendor) rather than the final sale (vendor to importer) for import valuation.[22]
Tariff Engineering: Modifying products by incorporating components from lower-tariff countries or completing assembly in the U.S. (or elsewhere) to qualify for reduced tariff rates.[23]
Domestic Manufacturing: Reshoring production to reduce reliance on foreign suppliers.[24]
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Ultimately, while these strategies may help ease the impact of new trade policies, the fashion industry will likely still face significant costs, supply chain adjustments, and market shifts as companies and consumers adapt to the changing landscape.[25]
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