US fashion industry faces historic price surge following reciprocal tariffs

Fashion United

3 days ago

The retail landscape in the United States underwent a dramatic shift on August 7 as the most comprehensive tariff increases since the 1930s took effect. Thursday saw the reciprocal tariffs come into effect under the Trump administration after months of delays, with most imports into the country being hit with a baseline 10 percent duty.
But with higher tariffs on key US trading partners critical to fashion brands' and retailers' supply chains, including including India (50 percent), Brazil (50 percent), Bangladesh (20 percent), China (30 percent), Sri Lanka (20 percent), Cambodia (19 percent), Malaysia (19 percent), and Thailand (19 percent), the average effective tariff rate jumped to 17.3 percent, a level not seen since the Great Depression era of 1935, according to recent data from nonpartisan Yale Budget Lab think tank.
Tariffs consumer impact: $2,400 average household loss
Consumers across the nation will feel the brunt of this shift, as the price level from all 2025 tariffs increased by 1.8 percent in the short run, equal to an average loss of 2,4000 USD per household for 2025, according to the Yale Budget Lab.
Last month, the US Commerce Department reported that apparel and footwear prices were experiencing particular upward pressure due to tariffs and other external factors. Retail prices jumped 2.6 percent in June, up from 2.4 percent in May, with the cost of furniture, toys, and other imported goods increasing.
With the reciprocal tariffs 'disproportionately' affecting the apparel, footwear, and textiles sectors, consumers are expected to face a 40 percent price increase in footwear and a 38 percent jump in clothing prices in the short run. The Yale Budget Lab estimates that these price increases will moderate to 19 percent and 17 percent increases for both categories in the long run, respectively.
Apparel & footwear prices could increase as much as 40 percent
Which makes sense, as tariffs were cited as the most significant factor driving sourcing costs increase for US fashion companies in 2025, according to the 2025 Fashion Industry Benchmarking Study from the United States Fashion Industry Association. Although many fashion businesses chose to swallow the additional taxes during the early days of the Trump administration's trade war, data indicates that brands and retailers are hitting a wall as profit margins tighten and their capacity to maintain price stability diminishes.
'We have no interest in running a lower-margin business, particularly due to tariffs,' said Richard Westenberger, the chief financial officer of children's apparel producer Carter's, during a call with analysts on July 25. 'And if this is something that's going to be a permanent increase to our cost structure, we have to find a way to cover it.'
Carter's is not alone, as brands from Adidas to Levi Strauss have announced strategies to counter the impact of tariffs. On July 30, Adidas warned that it would most likely have to increase its prices in the United States, noting that US tariffs would add around 231 million USD in costs to the year's second half. 'We will try to keep the prices on known models (stable) as long as we can, and then do new pricing on products that haven't existed before,' said Bjorn Gulden, CEO of Adidas, during a call with analysts.
During the call, Gulden also voiced concerns regarding consumer demand and inflation. 'What I'm mostly worried about, to be honest, is not only the cost, but it's what is going to be the consumer reaction in the market with all these price increases that I think will come not only in our sector, but in general in the US. Should we get mega inflation in the US, things will happen on the demand side, then of course volumes will go down.'
Supply chain scramble as geographic diversification accelerates
To help drive its costs down and mitigate the impact of tariffs, Adidas, Ralph Lauren, and other fashion companies have been exploring various options, including supply chain diversification. Two of Adidas's largest sourcing hubs in 2024 were Vietnam and Indonesia, with Vietnam producing 27 percent and Indonesia 19 percent of the sportswear brand's total product for 2024. However, with the US introducing a 20 percent tariff on Vietnamese exports and a 19 percent tariff on Indonesian imports, Adidas will likely shift the bulk of its production elsewhere.
The sportswear brand is not alone in this strategy. Over 80 percent of respondents from the 2025 Fashion Industry Benchmarking Study stated they are diversifying their sourcing geographically by sourcing from more countries and regions to mitigate the impact of increasing tariffs and policy uncertainty. A further 72 percent said they plan to ramp up duty-free sourcing from countries covered by US free trade agreements and trade preference schemes.
Overall, the reciprocal tariffs have disrupted fashion supply chains substantially, with close to 70 percent of respondents noting they have canceled or delayed select sourcing orders due to the tariff increases. Most Spring 2026 orders placed in late 2025 will likely operate under fundamentally different cost structures than those placed just months earlier, requiring retailers to make rapid adjustments to price points, margin expectations, and market positioning strategies.
However, this transition may not be as straightforward as it seems, as around 40 percent of respondents added they had reduced investments in crucial areas, such as sustainability and product innovation, due to financial strain from the tariff hikes. The reallocation of resources highlights a troubling secondary effect: while brands scramble to maintain profitability in the face of higher input costs, they're simultaneously sacrificing the very initiatives that could differentiate them in an increasingly competitive market and meet growing consumer demands for responsible business practices.
With fashion companies set to grapple with the highest trade barriers since the Great Depression, the ultimate test will be whether they can maintain consumer loyalty while passing along unavoidable cost increases.