The tariff illusion: Why new duties won’t reset fashion’s future

Update: On April 9th 2025, President Trump announced a temporary 90-day halt on tariffs above 10% across the board for most countries, with the exception of China. If further news emerges, we will update this article in due course. The rest of the piece has been left untouched:

There has been talk from experts recently suggesting that President Trump’s tariff increases will force a much-needed reset for fashion.

This couldn’t be further from the truth.

These experts have identified fashion’s structural flaws: unsold inventory, collapsing margins and broken linear supply chains. But claiming tariffs provide a catalyst for transformation fundamentally misunderstands the economic and operational realities facing the industry.

Margins are indeed compressing and inventory costs are considerable (with an estimated £70-£140 billion worth of unsold fashion goods globally last year). While tariffs are impacting bottom lines more severely than previous industry shake-ups like ESG initiatives, they create new barriers that ultimately limit the capacity for transformation rather than enabling it.

Dreams versus reality

There is a belief that AI can spawn a web of decentralised production networks and increase manufacturing efficiency with make-on-demand models. This isn’t new. Tech punters have speculated this for years and it is an ideal endpoint for fashion, but suggesting that this could be a reality born from the devastation caused by the tariffs is somewhat idealistic.

It would require massive investment at the precise moment when companies have fewer resources than ever to invest. Between rising energy costs, inflation, geopolitical tensions and now trade wars, it’s not a time when investors feel comfortable. It simply isn’t wise to launch large-scale transformative initiatives when there is so much uncertainty in global markets.

It’s also worth remembering that the US imports roughly 97-98% of its apparel and footwear. “Made in America” may be a catchy slogan, but it fails to acknowledge how lacklustre manufacturing infrastructure is in the US. It isn’t remotely possible for domestic production to scale right now, nor is it likely to reach that point anytime soon.

This rings true globally too. The UK, for instance, is most certainly not in a position where it can afford an industry-wide transformation that entails completely ripping the traditional supply chain out and replacing it with AI-powered production networks.

Even if it were possible, most countries simply do not have domestic resources for key raw materials that are required in many apparel and footwear products, meaning the tariffs still have a severe impact on costs since materials will need to be imported all the same.

The Footwear Distributors & Retailers of America, for example, said in written comments to Trump’s trade representative that the US does not have domestic sources for the more than 70 materials that go into making a typical shoe.

“These materials simply do not exist here and many of these materials have never existed in the US,” said the organisation.

Then you have to consider the sheer number of suppliers, skilled labour and specialised facilities required to produce these goods. There’s a reason most fashion brands outsource their production – it’s neither easy nor cheap to do it domestically.

For reference, the number of people working in apparel manufacturing in the US was 139,000 in January 2015 but had declined to just 85,000 by January 2025, according to the Bureau of Labor Statistics.

As noted by AP News, Sri Lanka employs four times as many workers despite having a population less than one-seventh the size of the US.

Clearly, the US lacks both the workforce and domestic raw materials sources needed to revive its garment industry. Establishing more tech-savvy AI factories doesn’t solve this.

The numbers tell a very different story

Last year, many organisations and business analysts weighed in with their thoughts on the then-proposed tariffs and how they would impact the broader fashion industry.

Back then:

• The National Retail Federation estimated tariffs would reduce American consumer spending power by $50 billion
• The Footwear Retailers and Distributors of America projected that a 10% tariff increase could translate to 25% higher retail prices
• Mexico’s emerging nearshoring capabilities couldn’t scale fast enough to replace Asian sourcing before significant economic damage occurred

Flash forward to today and it’s even worse. The Footwear Retailers and Distributors of America provided estimates of price increases consumers could expect to see in stores. Work boots from China that currently retail at $77 could grow to $115, while customers would pay $220 for running shoes made in Vietnam, currently priced at $155.

It’s abundantly evident that tariffs only serve to negatively impact consumers.

Naturally, this will mean people purchase fashion items less frequently, which in turn leads to less profitability for brands, eventually less money circulating in the economy, and potential job cuts when companies’ P&L sheets continue to deteriorate.

It’s almost as if people are forgetting that consumers ultimately pay the cost when companies inevitably pass it on to them. Remember that approximately 98% of all apparel and footwear is imported into America, predominantly from Asian countries.

For context, these are the tariffs imposed on major manufacturing hubs:

• China: 54%
• Vietnam: 46%
• Cambodia: 49%
• Bangladesh: 37%
• Indonesia: 32%

But it doesn’t end there. We’ve already noted that a single fashion product could contain materials from various countries, meaning duties must be paid on each component according to the tariffs imposed on its country of origin.

The way around this is to tariff-engineer a product until its primary constitution can be reclassified and exempted from certain tariffs. But like the suggested AI-powered networks, how costly is this? How many businesses can realistically afford to do this? Most can’t.

According to Barclays, the winners of the tariff wars will be those that have at least one of these attributes:

• Big negotiating power with suppliers
• Strong brand names
• Limited sourcing in Asia

The brutal reality is that very few brands possess these advantages. Most don’t have the brand equity to justify price increases or the negotiating power with their suppliers.

Some of the winners, noted in the report by Barclays, include off-price retailers like T.J. Maxx and Ross Stores Inc. as well as brands like Ralph Lauren and Dick’s Sporting Goods.

These are well-known as industry titans, so their resilience is to be expected. But for the rest? These tariffs are catastrophic and it isn’t as if the US is capable of reviving its own garment industry anytime soon. It’s clear that fashion is in an extremely challenging position.

Consider these numbers and ask yourself: how many brands are even remotely close to being in a position where they could justify a complete overhaul and implement AI-powered production networks? There’s too much financial pressure to allow it.

Brand value beyond production

Perhaps most fundamentally, the notion that AI-powered production networks will define fashion’s future value misses the point. Fashion is about the connection between brands and consumers – something much deeper than operations.

The most successful brands during economic disruption aren’t those with the most efficient supply chains; they’re those with the strongest brand equity. Prior to the tariffs, AllSaints had maintained profitability by reducing markdowns and focusing on full-priced sales because it had considerable brand equity and could maintain its premium positioning.

It’s the same reason why Ralph Lauren is winning right now. It was the fastest riser in the Vogue Business Index H1 2025 after it soared to fourth place while cash-strapped consumers purchased and engaged with brands that offered more value for money.

High-end luxury brands were considered too expensive and not worth it compared to alternatives like Ralph Lauren, which have always remained strong during difficult times and offer better bang for buck. This is largely due to brand equity.

Consumers will still purchase apparel and footwear when money is tight, but their purchases will be with brands that offer genuine value. While incumbents like Nike continue to falter, newer brands that focus on innovation within running shoes, like Hoka and On, will attract people invested in running, just as people who love the community aspect of Represent will still shop with Represent.

To suggest that the winners of the tariffs will be those who are able to “transform” with AI-powered production networks is to forget what makes fashion appealing in the first place.

People don’t care about operational excellence.

They care about good products and meaningful brand connections.

The evolution of fashion’s fragile supply chains

To be clear: nobody’s denying the current supply chain model is broken and needs reform. But to suggest that tariffs will bring about this transformation is simply incorrect.

To understand why, we first need to understand how the fashion supply chain became so fragile.

The fashion industry’s supply chain has undergone dramatic transformation throughout its decades. In the 1950s and 60s, as items like jeans and t-shirts gained popularity, production remained relatively local. But technological innovations, from fax machines to improved air transport, triggered a seismic shift in how the industry operated.

By the 1970s and 80s, Western manufacturers began transitioning into brands or service companies, moving their production facilities abroad to leverage cheaper labour. This pattern repeated in the Far East during the 1990s, with factories established deeper into countries like China and Indonesia, then expanding to Laos, Vietnam, Myanmar and Bangladesh.

What emerged was a completely restructured industry. Original producers evolved into sourcing agents controlling multiple factories across various geographies. Fashion became faster and cheaper, while control over materials and production processes grew increasingly distant from the brands themselves.

Today’s fashion supply chain reality is stark: most brands have limited insight into what goes into their products or how and where they’re produced. At best, they access inspection reports and audit results from their Tier 1 suppliers, but visibility rarely extends beyond this first layer.

This opacity creates fundamental challenges:

• Brands cannot disclose transparent information because they simply don’t have the data
• Supply chains remain vulnerable to disruptions when concentrated in specific regions
• External shocks can quickly destabilise the entire system

Recent years have exposed these vulnerabilities. The COVID-19 pandemic triggered material shortages, transportation bottlenecks and soaring shipping costs. While some issues have subsided, many continue to hamper the industry’s performance.

Fashion companies are now navigating multiple challenges simultaneously:

• Demand volatility: The pandemic-induced online shopping boom, followed by inflation and cost-of-living pressures, have made consumer behaviour highly unpredictable
• Rising costs: Transportation expenses, raw material prices, and energy costs have all surged dramatically
• Supply risks: Geopolitical tensions and port congestion continue to threaten supply reliability

Fashion already knew it needed to change the supply chain

The perfect storm described above has already forced companies to rethink their entire approach to sourcing.

Industry leaders increasingly recognise that diversification is essential for building resilience.

This means:

• Geographic diversification: Spreading production across multiple regions to avoid overreliance on any single area
• Nearshoring and onshoring: Moving some production closer to home markets to reduce lead times and increase visibility
• Balanced approach: Maintaining some production in traditional hubs while developing new sourcing locations

Southeast Asia remains significant for global sourcing, with South Asian countries like Bangladesh, India and Vietnam seeing rapid growth. Yet China still maintains a formidable position despite its waning dominance.

Simultaneously, regions like Central America and Mexico are becoming increasingly attractive for North American companies seeking to relocate parts of their production closer to home. While these areas face challenges, from workforce instability to complex regulatory environments, they offer compelling advantages in terms of reduced lead times and improved supply chain visibility.

But here lies the critical issue: fashion already knew it needed to recalibrate and move away from the traditional linear supply chain model. Now, alternatives like nearshoring have become less viable. The tariffs hinder transformation because it is less feasible to set up shop in nearshore locations due to the increased costs associated with the tariffs.

Not only does this make nearshoring less viable, but it also threatens the growth of economies in nearshore locations, further weakening the attractiveness of setting up alternative manufacturing hubs. Some may argue that the option is to open new manufacturing hubs in the US, but we’ve already discussed how that simply isn’t feasible.

It should be crystal clear that tariffs harm fashion’s ability to transform. They stifle innovation. They cripple brands. They damage the fabric of the industry.

It’s irresponsible to suggest they serve as a catalyst for innovation and transformation.

A realistic path forward

Fashion categorically does need to undergo transformation, but tariffs only create obstacles rather than opportunities.

A more realistic and balanced approach to transformation would:

• Diversify gradually: Brands should distribute production across multiple regions, not abandon existing networks
• Invest strategically in technology: Rather than wholesale transformation, brands should focus on targeted digital investments that provide immediate visibility and flexibility
• Strengthen brand value: Companies that maintain strong connections with consumers can better weather economic pressures through reduced discounting and higher full-price sell-through
• Focus on evolutionary change: Sustainable transformation comes through careful, strategic moves rather than revolutionary disruption

The true cost of tariffs

Contrary to the notion that tariffs have made transformation inevitable, they’ve achieved precisely the opposite. They represent an additional burden on an industry already struggling with fundamental challenges.

Tariffs have made fashion’s path forward more difficult, not less.

Fashion has long needed radical change, but the path forward isn’t through artificial trade barriers that constrict resources and limit options.

The tariff illusion – that these new duties will somehow reset and transform the industry – distracts from the real work needed.

The brands that will succeed aren’t those that embrace tariffs as an opportunity, but those that recognise them as one more challenge to navigate through smart strategy, strong brand connections, and selective innovation, without abandoning the global connections that make fashion a truly international industry.