The ongoing spat between US president Donald Trump and China president Xi Jinping is nowhere near the worst case scenario for local and global fashion brands.
Sure, the rising blanket tariff of what now seems to be 145 per cent (as of writing) on finished trade goods from China into the United States is a headache in and of itself. But RMIT University professor Vinh Thai – who’s remit covers logistics and supply chain management at the School of Accounting, Information Systems and Supply Chain – says the worst case scenario is if Trump extends his tariff war on China from finished goods to material components.
“As we know, Trump is very much unpredictable,” Thai says. “So who knows if the next step in tariff imposition is not only a 20 per cent tariff on goods exported from Vietnam, but also — if he goes one step further — an additional 10 per cent tariff on products with components sourced from another country, like China.
“That would be a case of tariff over tariff, and that would be devastating.”
This is because a lot of textile and garment manufacturers in places like Vietnam or Bangladesh source their materials from China. “The local farm supply isn’t enough for the production, so in terms of the materials, they buy quite a number from countries like China.
“If the tariff is not a direct one on the finished product, but also on the materials from the country of origin, then that will be the worst case scenario when it comes to tariff imposition."
Indeed, recent developments from the Trump Administration have allowed us to lower our shoulders a smidge and wipe some sweat off our brows. Amid planned negotiations with several countries, Trump confirmed he will lower tariffs across all countries except China to the low blanket of 10 per cent for the next 90 days.
This means the recently announced higher tariffs on countries like Vietnam, Bangladesh and India – at 46 per cent, 37 per cent and 27 per cent respectively – have now lowered to just 10 per cent.
But Australian fashion is nowhere near out of the woods yet. And Trump’s unpredictability, alongside the ongoing tariff war with China, are proving so.
This is according to Australian Fashion Council CEO Jaana Quaintance-James, who says that the new 145 per cent tariff on China effectively renders all fashion imports from the country into Australia completely unviable in the US market.
“The most troubling aspect isn't any single tariff, but the complexity surrounding 'substantial transformation' determinations and the unpredictable policy environment,” Quaintance-James says.
“Australian-made garments using imported materials could potentially be classified according to material origin rather than where the garment was constructed.”
Nearly 60 per cent of clothing sold in Australia is made in China, according to Fibre2Fashion's market insight tool TexPro, which also confirmed that Australia imported apparel worth $2.11 billion during January-March 2024.
Of this, the country’s imports from China were valued at $1.25 billion, constituting 59.12 per cent of the total apparel imports.
Vietnam is another prominent country where local brands and retailers produce clothes in, with some estimates claiming it could be around 4 per cent of Australia's global apparel imports.
Other notable countries that Australia imports clothing from include Bangladesh and India, with Bangladeshi apparel imports believed to amount to around 12 per cent of all global apparel imports into Australia, with India believed to be about 5 per cent, all according to various sources.
“In the current dynamic international trade landscape, our fashion businesses are navigating complex geopolitical crosscurrents that create significant compliance risks and costs, especially for businesses without dedicated trade compliance teams,” Quaintance-James says.
“With so much uncertainty, businesses cannot plan effectively when tariff policies might fundamentally change every few months, forcing them into reactive rather than strategic positions.”
Speculating on the unpredictable
Australia’s fashion industry contributes roughly $28 billion to the economy, with $7.2 billion in export, according to professor Thai.
“And that is, surprisingly, more than double the Australian wine industry,” Thai says. “To be honest with you, this surprised me a lot, because it looks to me like the fashion industry is somehow overlooked.”
Thai says it helps to know this when speculating on the impacts from Trump’s global tariff war.
First of all, he says a lot of fashion imports from countries like China, Vietnam, Cambodia and Pakistan into Australia that are sold locally or in countries outside the US may not feel the direct impact of the tariffs.
However, he does anticipate that in the short term, the freight rate may increase a little bit due to the reshuffling of the maritime supply chain. This is because, as expected, products going into the US from tariffed countries will face higher prices.
“Therefore, the demand for shipping those products into the US may go down,” Thai explains. “And that’s the reason why shipping lines may need to reshuffle their sailing network – meaning they may need to replace ships, or redeploy them to other routes.
“In the short term, that reshuffling may lead to a slight increase in the freight rate, and therefore, the landed cost of imports into Australia may suffer a little bit of a price increase as a consequence.
“However, in the medium and long term, once the trade diversion has been established, then the freight rate will also sort of stabilise as well.”
And that’s just one possible shift, according to Thai. Alongside shipping costs, there is also the impact to the cost of everything else.
“If a component needs to be imported from some other fashion region into the US first, and then re-exported for the final manufacturing elsewhere before being sold somewhere else, then the cost and the eventual price will increase as a consequence,” Thai says.
“Because the moment that component is imported into the US from the countries or regions to which Trump’s tariff applies, then the cost of importation will increase – and therefore leading to the eventual increase in the price of everything.”
Another scenario is if some Australian fashion brands have their products manufactured in tariffed fashion regions, and then those finished products are exported directly into the US, then of course, the export to the US will be negatively affected as well. And this will negatively affect Australia’s price competitiveness across products.
Alongside that, the very few brands that manufacture in Australia at a higher-end price – like R.M. Williams for example – and then export them into the US will also face a deterioration in price competitiveness.
With all these impositions, Quaintance-James anticipates that many brands will need to diversify export markets, potentially prioritising the European Union over the US and China.
“Australia's pursuit of free trade talks with the EU aligns with this need and could provide vital new opportunities for our fashion exporters,” she says.
“Domestically, we may see price increases as brands attempt to recoup margins lost in export markets. Product ranges could be reduced, with fewer collections and styles as businesses streamline operations to manage thinning margins.
“The current instability may also accelerate the dumping of lower-quality products in Australia by international e-commerce giants whose US strategies have been disrupted by the 145 per cent China tariffs. This could further pressure Australian brands already navigating cost-of-living pressures among domestic consumers.
Perhaps most significantly, Quaintance-James says this disruption creates both urgency and opportunity to rebuild Australia's domestic manufacturing capability, which she confirmed has declined to just 3 per cent of our industry's output.
“In an increasingly complex global trade environment, developing sovereign manufacturing capability becomes both an economic and strategic advantage that could not only help insulate Australian businesses from future trade volatility, but revitalise a multifaceted sector that contributes significantly to our national prosperity, employment opportunities, and creative identity,” she says.
“This strengthened domestic capability would allow Australian fashion to better leverage its reputation for quality, innovation, and sustainability on the global stage, while creating thousands of skilled jobs across regional and metropolitan areas and fostering a more resilient and self-sufficient industry for future generations.”
Speaking to the brands
Another lingering possibility is Australian fashion brands deciding to pull out of the US market, selling their goods elsewhere. But, there’s at least one fashion brand that has ruled out an American market exit. Steve Philpott, the founder of swimwear business Bond-Eye Group, says the US market remains very relevant.
“I can tell you right now we’re still doing Miami Swim Week this year in late May,” Philpott tells Ragtrader, just hours before Trump dialed up its tariff on China to 125 per cent, and more recently confirming it is actually 145 per cent... who can keep up?
Philpott thinks the current tariff war is temporary. “I believe we need to be strong right now. Maybe we have to absorb more than we would like to, temporarily,” he says.
“We're leaning into our factory relationships too. We're sharing the pain, and that's really important too, because we have such long term partnerships in China, and we're not going to walk away from that. They need us as much as we need them.
“So we're having a lot of conversations about how we mitigate the tariffs together.”
With Bond-Eye Group’s core brand Bond-Eye Swim, Philpott confirms that 98 per cent of that brand’s products are produced locally in Australia. Around 44 per cent of the brand’s revenue is made through US sales.
With its other brand Sea Level, 24 per cent of its revenue comes from the US, but that brand’s products are predominately made in countries such as China and India.
Philpott says he and his team are expanding ready-to-wear with Sea Level, which is made in China, so he’s now keeping an eye on margins, which he says aren’t anywhere near as what they were before. This has been seen across the board by Ragtrader, with only a few fashion businesses listed on the ASX even managing to nudge up their margins over the last year. The best case scenario is holding margins steady.
“It's happening so fast right now,” Philpott says of the current trade war. “I think stability is really important right now. I'm not chasing new markets or new factories and trying to rush because I feel like we need to take our time.
“If we're going to move any production to another factory in another country, then there's a lot of testing. I just think there's so much risk if you move your eggs out of this basket and into that one in a hurry.
“I'm just not making any knee jerk reactions, because I just think it's a time for cool heads right now.”
Bernie Brookes – chairman of Kariba Retail Group (Colette by Colette Hayman and The Daily Edited) and seasoned retail leader – also weighed in on tariffs.
He says for orders into the United States, his brands need to adjust pricing to include a 10 per cent tariff for online.
“For supply of product from most Asian companies who are suffering from USA tariffs (and have excess capacity), they will be more price aggressive to substitute lost volume from the USA customers to alternative countries such as Australia,” Brookes says.
“Reciprocal tariffs from countries such as China, South Africa, Europe and the UK, will prevent the USA product from entering their country and provide greater opportunities for Australian companies to export to those nations.”
He also adds that the cartel of anti-USA countries will provide an anti-USA block who support each other with international trading and online sales.
And then there are the Australian retailers who have bricks and mortar stores in the USA, such as Lovisa, which will see Chinese imported product subject to higher tariffs and must move prices for USA consumers.
“Australian retail’s main trading partner is Asia and have limited sales into USA, hence the impact is limited but the potential benefits for lower priced product and new trading partners is greater,” he adds.
“The decline in equity markets and the decline in consumer confidence even if an interest rate decrease occurs will thwart spending in retail again.”
Meanwhile, a handful of ASX-listed fashion entities have shared their thoughts and plans regarding the tariff war.
KMD Brands - the parent company of Kathmandu, Rip Curl and Oboz Footwear – confirmed it is redirecting some of its US-targeted inventory to other global markets or holding inventory with existing international third-party logistic (3PL) partners.
“These tariff increases have created significant uncertainty for most apparel and footwear businesses which sell into the US and will likely result in price increases that may impact consumer demand,” KMD Brands reported last week, adding it is monitoring market dynamics, assessing optimal timing of price increases in response to higher input costs, and reviewing cost mitigation options to protect profitability.
“Both Rip Curl and Oboz have significant seasonal inventory in the US which was landed prior to the recent tariff increases. Given significant consumer uncertainty and the fluid nature of possible tariff negotiations, it remains too early to provide a reliable estimate of the likely financial impact for the remainder of FY25.”
Group CEO and managing director Brent Scrimshaw said the new US tariffs are another headwind in an already challenging consumer environment in the US.
“We are evaluating all strategic options, including pricing, cost mitigation and inventory investment, to safeguard the long-term value of our brands and protect our stakeholders,” Scrimshaw says.
Meanwhile, luxury fashion platform Cettire told investors that the tariffs will likely impact the majority of online and bricks and mortar luxury retailers, citing that a significant proportion of luxury items are manufactured in the European Union.
“Cettire is currently assessing the full implications of these tariff changes on the company and its global operations, noting that several major luxury brands have indicated they would seek to increase pricing of luxury goods in the US market to mitigate possible tariff changes,” the luxury platform stated last week.
This statement came as Trump added a 10 per cent tariff on all imports from the United Kingdom, and a 20 per cent tariff on all imports from the European Union last week.
Cettire’s statement also confirmed that approximately 41 per cent of the platform’s total gross sales in the first half of FY25 related to goods manufactured in the EU and sold to customers located in the US.
“No immediate changes to the US de minimis exemption have been made in relation to EU manufactured goods,” Cettire noted.
“As such, shipments below $US800 will continue to be exempt from duties and are unaffected by today’s tariff changes.”
According to Cettire, its average order value in the recent first half was $821, which is around US$514.
“Cettire began identifying strategies to prepare for and mitigate potential changes to the US tariff regime throughout calendar 2024 and the first quarter of 2025,” the company added.
How to navigate the tariff war
Having a level head is a sensible move, but professor Vinh Thai says the most important step every fashion brand should take right now is knowing their supply chains very well.
“Who is connected to who, and how a particular glitch somewhere in the chain may affect the others and the overall system,” Thai says. “I think that is most important, living in this world of interconnectedness.”
Thai adds there will also likely be lots of changes in terms of regionalizations and shifts in trade patterns.
“I don’t think we’ll be going back to a time when a country trades limitedly with only some other countries, or moves to autarky – meaning producing and consuming everything by themselves without trading with others.
“I don’t think we are willing to go back to that time.
“However, the impact of what Trump has done to the world means people will have to think seriously about how particular things from a particular country may affect them. That means they need to know their supply chains very well.
“And sometimes reconfiguration of the supply chain will be necessary. Diversification is required. At the end of the day, in terms of supply chain planning, mapping and building resilience is very important.”
Quaintance-James concurs with Vinh’s key approach, telling brands that they should use this 90-day pause to assess their supply chain vulnerabilities and develop contingency plans for different tariff scenarios – “including the possibility that the 125 per cent tariff could be increased further.”
“For those with significant US exposure, begin exploring diversification opportunities in markets with more favourable trade terms,” she says. “With Australia now pursuing free trade talks with the EU, European markets may offer promising alternatives with more stability and potential future trade benefits.
“Carefully review your product sourcing and manufacturing processes through the lens of ‘substantial transformation’ requirements, particularly for goods with components from China that could be subject to the 125 per cent tariffs.
“Consider consulting with licensed trade compliance experts to understand how your products might be classified and what documentation you'll need to support your claims. Monitor Australia's evolving trade positions closely.
“The government's current approach, including rolling discussions with the EU, U.S. and China, will have significant implications for market access and supply chain strategies in the coming years.”
Quaintance-James also took aim at the Federal Government, saying they have a crucial role in both immediate support and long-term strategic planning to strengthen the resilience of Australia's $28 billion fashion and textile industry.
“Australia's current diplomatic positioning – including the live pursuit of EU free trade talks – creates both challenges and opportunities for our sector,” she says. “The government must ensure that fashion and textiles, which contribute significantly to our export economy, are properly represented in these trade negotiations.
“In the short term, government funding to reduce barriers for Australian brands entering alternative global markets are essential. The EU free trade talks present a timely opportunity that aligns with our 2025 Federal Election Platform priorities, which includes targeted support to expand the AFC’s Export Readiness Programs for our members.”
“Australia urgently needs a national manufacturing strategy for textiles, clothing, and footwear. This would require targeted government investment in skills development, technology, and infrastructure to rebuild our sovereign manufacturing capability.
“Without subsidies, skills investment, or procurement incentives, Australian brands may simply shift to other offshore manufacturing locations rather than bringing production home.
“The government must recognise that fashion and textiles contribute $28 billion to our economy annually, generate $7.2 billion in export value, and employ 500,000 people – more than mining and utilities combined. This sector deserves strategic support commensurate with its economic significance.”