President Trump’s sky-high tariffs on China, along with the end of the de minimis tax loophole, have left American fashion businesses scrambling. BoF unpacks the challenges ahead as companies try to navigate the situation.

Until last week, getting products from China to the US as quickly as possible was top priority for some clients of Shift Fashion Group, a studio that helps brands with product development and manufacturing. That changed when tariffs as high as 145 percent kicked in last week.

“They’re starting to put it on a boat and gamble if the tariffs are going to lower in the next little while,” said Joe Ng, Shift Fashion Group’s founder and chief executive.

The US and China have exchanged opening salvoes of a trade war, and fashion is caught in the crossfire. In a single stroke last week, the US more than doubled the cost of importing Chinese-made goods, from $8 Temu tops to $1,000 Balenciaga sneakers. China retaliated with steep tariffs of its own. Both sides have indicated they are still looking for new ways to inflict economic pain.

For some, the trade war is an existential threat: Shein and Temu, along with higher-end “dupe” sellers like Quince, built their businesses around giving American shoppers access to cheap Chinese goods, straight from the factory. Retailers such as discount chain Five Below are suspending or cancelling shipments from China. Small sellers on Amazon in both the US and China are uncertain whether their businesses can survive.

Those are extreme cases, but countless other brands and retailers rely on China to make a large portion of their products, and in many cases, for Chinese consumers to buy them. They face the difficult task of reconfiguring their supply chains and planning marketing and pricing strategies, without knowing how long the tariffs will stay in place, or which other countries could be drawn into the fray.

“Everyone’s scrambling, basically like a trade nuclear bomb just went off,” Ng said.

Higher Costs for Brands Small and Large

Smaller brands in particular depend heavily on China because the barriers to producing there are so low. Ng pointed out that a fledgling US business can easily find a factory on Alibaba, and the other components they might need like buttons or zippers will generally be available close by.

Though China can be more expensive than some of its competitors, rising wages and inflation in other countries mean the price gap between China and the alternatives has narrowed, while they struggle to match its infrastructure and skilled workforce, Bernstein analyst William Woods pointed out in an Apr. 14 research note. Chinese manufacturers tend to offer more flexibility on order minimums, too, which matters a great deal to businesses that are only looking to produce, say, 300 pieces of an item rather than 10,000 — a quantity Ng said even clients doing tens of millions of dollars in sales might not produce. Facilities in other production hubs such as Vietnam often aren’t as accommodating.

“Because they’ve been set up to service very large brands, they won’t even entertain smaller orders, so you really are stuck in a place where all these small brands that are making stuff in China, they have nowhere to go right now,” Ng said. “They will just have to eat these tariffs.”

Large brands have been diversifying away from China for years, but even some of them thought they would have more time and are now accelerating their plans. Steve Madden has cut the share of products sold in the US that were made in China from 95 percent a few years ago to a bit more than 70 percent by the end of last year, with plans to keep slashing the figure. Due to the new tariffs on China and the 10 percent tariff on all other countries, UBS analyst Jay Sole estimated that the brand’s product costs “could increase 78 percent, all else equal,” in an Apr. 10 research note.

Brands are working out ways to mitigate the impact on their businesses, but the consequence of the higher costs will be higher prices for US consumers in many cases — and potentially fewer sales as a result.

Navigating a World Without De Minimis

Brands that ship directly from China to US consumers are getting hit twice over. In addition to the staggering increase in tariffs, on May 2 the Trump administration will follow through on its promised plan to eliminate a tax loophole called de minimis, which lets those companies import packages with a value of less than $800 into the US duty-free.

Without immediate workarounds, dupe brands that sell imitations of luxury products, including Shein, Temu and Quince, will likely be forced to raise prices as they incur higher costs and face pressure to move parts of their supply chain out of China — effectively threatening their original proposition.

With only a 10 percent tariff increase for all countries except China, moving supply chains to other countries is once again a viable strategy. Quince already works with factories in regions like Vietnam, Turkey and Italy, and less than 10 percent of the goods it sells benefit from de minimis, according to a person familiar with the matter.

It may be harder for Shein and Temu to diversify since most of their suppliers and factory partners are located in China. There’s also pressure from the local government for some brands to stay in the region. China’s Ministry of Commerce has advised Shein and other firms against moving their supply chains elsewhere to avoid a tariff-induced manufacturing exodus, according to a report in Bloomberg. (A Shein representative said the company is not shifting its supply chain out of China and denied receiving any communication from Chinese officials.) Temu, for its part, has been looking to reduce its volume of sales done in the US from 60 percent to 30 percent, according to reporting from The Information — a practical solution if the company is unable to decouple its supply chain from China. Temu didn’t respond to a request for comment.

A cohort of small brands that used the de minimis loophole to buttress sales in the US will also be affected. Some of these players, which have smaller profit margins to begin with, are quickly adopting tools to prepare for higher operational costs. E-commerce start-up Swap, which offers global logistics software service to around 250 brands that typically generate between $20 million and $100 million in annual sales, recently introduced a feature called Clear that provides tools to ensure brands are in compliance with customs clearance and other regulatory requirements that may become more onerous as de minimis goes away and tariffs increase. Juan Pellerano-Rendón, Swap’s chief marketing officer, said around 10 percent of Swap’s clients have already begun using the tool since it launched on Apr. 9.

“Brands need to think about … How do I shift my business in a world where de minimis may not exist or will certainly not exist in the way that it did before this administration,” Pellerano-Rendón said.

Difficulties Within China

Also at stake for US fashion companies are sales within China, which remains a key growth market for many brands. Since most American brands outsource their manufacturing to other countries, China’s retaliatory tariffs aren’t as big an issue (though they will hit US cotton farmers, whose crops supply Chinese yarn producers). But there are other risks.

Chinese consumers could boycott American brands, a tactic used against brands ranging from Nike to H&M when the US and Europe accused China of using forced labour to harvest Xinjiang cotton. So far, the most prominent consumer action related to the tariffs has come not from China but from Canada, where Kentucky bourbon is rapidly losing market share to domestic whiskey.

So far, there’s no indication of a brewing revolt by Chinese consumers. Qumin, a China-focussed digital agency, has been monitoring social media in the country for signs that US clients such as Vuori should be concerned. Aside from anger over US vice president JD Vance referring to the Chinese people as “peasants” in an interview, most of the reaction to the trade war has been jokes and memes about the US government, according to Qumin co-founder Tom Nixon.

“It’s almost making fun of them scrambling around to do things as opposed to any kind of malice towards [US] companies,” he said.

Nixon believes, however, that the trade war will accelerate a move in China towards buying domestic brands that was already well underway, and consumer sentiment isn’t the only factor at play.

Chinese officials have at times leaned on foreign companies to put pressure on their governments. Typically they’ve focussed on agricultural and industrial products like soy beans and steel, but in February, China took the unusual step of adding PVH — owner of Calvin Klein and Tommy Hilfiger — to its “unreliable entities” list after accusing PVH of “improper” conduct over its statements on Xinjiang cotton. The move allows China to restrict PVH’s activity in the country and came in apparent retaliation to Trump’s first round of China tariffs.

PVH reported in a regulatory filing earlier this month that no measures had been taken against it thus far but noted it couldn’t predict “the duration or impact of any measures that may ultimately be imposed.” (On the company’s Apr. 1 earnings call, chief financial officer Zachary Coughlin said there had been “a noticeable decline in revenue in China” beginning in February, though he didn’t attribute the fall to any action of the Chinese government.)

“I think it’s likely,” said William Reinsch, a senior adviser in the economics programme at the Center for Strategic and International Studies, a Washington DC-based think tank, of the probability that Chinese officials might make life difficult for US companies. “The Chinese are masters of economic coercion.”

Reinsch pointed out that the government may not want to go after US companies in a way that could affect all the workers in Chinese factories who make their products, but it could use other measures, such as restricting the travel of company executives, or even detaining them in cases in which a person is caught up in some specific grievance.

Ultimately nobody knows how either side in the US-China trade war will strike next. Fashion businesses are just hoping to dodge the worst of it.

To read this article as it was published on the Business of Fashion website, please click here.