Fashion industry faces turmoil as U.S. tariffs bite
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The “Liberation Day” tariffs announced by the U.S. administration on Wednesday has sent shockwaves through global industries and financial markets. It precipitated steep stock market declines and raising fears of an escalating international trade war. The U.S. dollar has similarly taken a hit, falling 1.6 percent amid heightened uncertainty. With new import tariffs ranging from a minimum of 10 percent (UK) to a staggering 49 percent (Cambodia), businesses across various countries and industries, including fashion and retail, are being forced to reassess their cost structures, pricing strategies, and supply chain operations in order to weather the storm.
The fashion and footwear sector is expected to bear the brunt of these new trade barriers, particularly in relation to imports from Southeast Asian manufacturing hubs. For years, retailers have sought to diversify their sourcing strategies, shifting production away from China to alternative markets such as Vietnam, Cambodia, and Indonesia. However, the newly introduced reciprocal tariffs—ranging between 42 and 49 percent for these countries—threaten to erode cost advantages that once made these locations attractive for production.
Among the companies facing significant exposure is Nike, which relies heavily on Vietnam as a manufacturing base for its footwear. According to analysts at Investec, Vietnamese factories accounted for approximately 50 percent of Nike’s shoe production in the past year, with Indonesia and China contributing 27 percent and 18 percent, respectively, reported the Financial Times. Adidas, another major industry player, sourced 27 percent of its footwear from Vietnam, 19 percent from Indonesia, and 16 percent from China—where tariffs remain steep, the FT said.
Global apparel sector impact
These mounting levies are poised to have a serious impact, forcing apparel and footwear brands to make difficult strategic choices. Absorbing the costs would squeeze already-tight profit margins, while passing the price increases on to consumers risks dampening demand. Additionally, some companies may explore alternative production locales, though the feasibility of such shifts remains constrained by logistical, regulatory, and cost considerations.
Helen Brocklebank, Chief Executive Officer at Walpole, commented: "American consumers deeply value the creativity, craftsmanship, and heritage of British luxury goods, and these tariffs not only create barriers for UK businesses but will ultimately penalise US consumers, who see the ‘Made in the UK’ nature of these products as essential and will likely bear the brunt of rising costs."
Given that most major apparel and footwear retailers source their products from overlapping manufacturing regions, the broader industry is bracing for widespread repercussions. According to Investec, the cascading effects of these tariffs could reshape global supply chains, spur inflationary pressures in retail pricing, and alter competitive dynamics in ways that may take years to fully materialise, the FT reported.
European luxury companies will face a 20 percent tariff on exports to the U.S. Most luxury brands from Europe produce their bags and collections in Italy and France, an essential aspect of their heritage. Luxury goods account for about 10 percent of all European exports, with Yahoo reporting their total export value exceeds 260 billion euros.
“The impact from the announced tariffs might not just be on margins, but possibly also on the underlying demand, in both the short term (due to higher level of uncertainty and stock market volatility, usually both impacting consumer confidence) and medium term (due to likely rising inflation),” Chiara Battistini, JPMorgan Chase’s head of European luxury research, wrote in a note Thursday.
American shoppers are crucial to luxury brand revenue and, after China, rank among the top consumer groups with a strong appetite for high-end goods. If luxury prices become too steep at home, there’s hope that Americans will opt to travel to Europe for their purchases instead.