The word on everyone’s lips since the U.S. presidential election night of 2024 is tariffs. Right after Donald Trump was declared the winner of the 2024 presidential election, searches for “what is a tariff?” skyrocketed on Google. A tariff is easily defined as a tax imposed by a government on imported goods, often used to protect domestic industries or as a source of revenue.
At this point, it shouldn’t be a secret that we live in a global economy. The phrase “no man is an island” rings no truer than when it comes to global economic policy. Countries borrow money from other countries, and trade has been global for centuries.
Earlier this month, President Trump imposed 25 percent tariffs on imports from Mexico and Canada and duties on Chinese goods, igniting trade wars that could affect America’s economic growth and lead to inflation. Trump’s tariff moves could upend around $2.2 trillion in annual trade. Trump is expected to go forth with more tariffs on April 2.
The Trump Administration recently announced a one-month pause on the original 25 percent tariffs on goods and services covered by the United States Mexico/Canada Agreement (USMCA). The uncertainty of what will happen with the tariffs is delaying critical supply chain decisions until greater clarity on how these tariffs will affect the global fashion industry. China’s foreign affairs ministry took aim at the Trump administration, saying, “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Image courtesy of cfda.org
Amid these tariff wars, the fashion industry is looking at how Trump’s tariff moves will affect the industry. As the issue often is with tariffs, the costs that the company has to absorb are passed onto the consumer.
Many designers who buy supplies from China, ranging from fabrics to zippers, could exponentially increase their costs. Fifty yards of certain fabrics, like felt, can cost as little as $18 in China, but in New York, the same amount can go for $80. Trump also said he plans to roll out tariffs on aluminum and steel imports, which could mean the cost of sewing machines could increase.
Over 30 percent of all fashion brands are currently produced in China. Although Trump believes his tariffs will entice companies to begin producing in the U.S., realistically, this is not feasible. The majority of garment workers in the New York and U.S. are migrants. Students come out of top fashion design schools and go on to design positions at brands, so the U.S. doesn’t even have the workforce for these manufacturing jobs.
Only three percent of clothes made today are made in America, meanwhile, America is the largest single country apparel importer in the world, according to the United States International Trade Commission. One in five pieces of clothing is exported to the U.S., and most materials come from either China or Vietnam.
Image courtesy of imageandcommerce.com
China decided to respond to the U.S. tariffs by imposing its own taxes on goods, and it has already had a direct hit on two companies: Calvin Klein and Tommy Hilfiger. PVH, the parent company of the two brands, has been put on China’s unreliable entities list. This could potentially force the brands to close down shops and manufacturing, which could be detrimental to their business given that China is one of the largest fashion consumer markets in the world.
While it is still too early to see the effects of Trump’s tariffs, it is estimated that this tariff war between countries could increase the cost of goods by nearly $1000 per household. While most items affected by Trump’s tariffs include food and materials for electronics, an increase in household spending on essentials could spell trouble for fashion.
Fashion and clothing purchases fall under the category of discretionary spending. With consumers now forced to spend an extra $1000 a month on essentials like food, that leaves less money for shopping.
Trump’s tariffs don’t just stop at Mexico, China, and Canada, he’s been threatening the European Union with tariffs. This could be detrimental to the luxury goods industry, which has already been grappling with a slowdown. Some brands might try to find ways around these tariffs by shifting production. Trade rules currently dictate that a garment’s country of origin is based on where it is sewn (with knitwear it depends on where the panels are knitted.) If a brand’s fabric was cut in China but it was sewn elsewhere, this could help avoid certain tariffs.
Image courtesy of CNN
Bangladesh is one of the biggest apparel manufacturing hubs in the world and has yet to come into the direct fire of President Trump’s tariff tirade. The apparel industry accounts for 85 percent of Bangladesh’s export revenue and 15 percent of its GDP. Companies, from Gap to H&M, all have factories in Bangladesh. Although no brands have made concrete plans yet to move their production in the wake of the tariff, it is a move some brands might consider if these tariffs pose a threat to profits.
A major sore spot for luxury brands is how imposing tariffs could benefit the counterfeit industry. Counterfeiters set arbitrary pricing and can now further undercut authentic brands that might be forced to drive up their prices. Luxury brands, including Louis Vuitton and Chanel, were already under criticism for raising their prices after COVID-19 amid supply chain issues. A further price increase exacerbated by tariffs could make counterfeits even more appealing to consumers who may want a brand’s style but don’t have the capital for four and five-figure bags that could become more costly. If consumers are forced to spend an extra $1000 a month on essentials, counterfeits are about to look even more appealing.
Image courtesy of Cato Institute
The one silver lining some sustainable fashion advocates see with the tariff war is that if fast-fashion prices go up, people might start investing in higher quality, longer lasting garments when it comes to what they buy. They might also turn to thrift stores and shopping secondhand, which are the grandmothers behind a large chunk of the sustainable fashion movement.
One thing that all retailers will be watching is how price hikes will affect consumer demand. If this happens, discounting is about to get extravagantly popular as brands try to find ways to maintain their revenues. Profit margins are in their era of tariff turmoil.
— Kristopher Fraser
