In 20 months, the legal basis for American tariffs changed three times. Fashion relies on long supply chains, low margins in manufacturing countries and pricing set seasons ahead. That made it one of the industries most exposed to each change. This report follows the policy from April 2025 to November 2026. It covers what each change cost luxury houses, sportswear giants and fast-fashion platforms, and how they responded.
The report is built to be skimmed. It starts with the key numbers and a timeline. The sections after that explain the law, the money, each segment of the market, the sourcing countries and what to watch next.
The key numbers
- 2.3% → 7.1%: the US average effective tariff rate rose from 2.3% in January 2025 to 7.1% in August 2026, according to the Penn Wharton Budget Model.
- 12.4%: where Allianz Research expects the effective rate to settle by the fourth quarter of 2026. That would put it back above its 2025 level (Allianz, July 2026).
- $298.5 billion: gross customs revenue from the new tariffs between January 2025 and July 2026, before refunds (Penn Wharton).
- $166 billion: collected under emergency-powers (IEEPA) tariffs before the Supreme Court struck them down. All of it is subject to refund.
- $107 billion: refunds certified by US Customs and Border Protection through August 21, 2026, about 64% of the IEEPA total.
- 1.36 billion: duty-free “de minimis” shipments that entered the US in fiscal 2024, before the exemption was ended (Digital Commerce 360, citing CBP).
- 21% → 9%: China’s share of US imports fell from 21% in 2016 to 13% in 2024 and 9% in 2025 (Allianz).
- $1.5 billion: the annualised gross tariff cost Nike flagged in 2025 (Modern Retail/Digiday).
How did we get here?
| Date | What happened | Why it mattered for fashion |
|---|---|---|
| April 2025 | “Reciprocal” tariffs announced under IEEPA, with a 10% baseline and higher country rates. Duties on Chinese goods escalate, reported as high as 145%. | Announced rates for apparel hubs ranged up to 46% for Vietnam and 49% for Cambodia. |
| April 17, 2025 | Hermès says it will raise US prices from May 1 to fully offset the tariff. | First major luxury house to pass the cost directly to customers. |
| May 2, 2025 | De minimis exemption ends for China and Hong Kong. | Temu switches its US business to locally based sellers. |
| July 27, 2025 | US–EU framework sets a 15% tariff on most EU goods. | European luxury groups call it manageable. |
| August 2025 | Revised country rates take effect. Switzerland is hit with 39%. | Swiss watchmakers face one of the highest rates in the world. |
| August 27, 2025 | India’s rate doubles to 50% with a penalty tied to Russian oil. | Knitwear hub Tiruppur reports paused and cancelled orders. |
| August 29, 2025 | De minimis ends for all countries. | Ends duty-free entry for low-value parcels from any country. |
| November 14, 2025 | US–Switzerland deal cuts the Swiss rate to 15%. | Swiss watches reach parity with EU goods. |
| February 20, 2026 | The Supreme Court rules that IEEPA does not authorise tariffs. | Reciprocal and fentanyl tariffs are void, and refunds open up. |
| February 24, 2026 | A 10% global surcharge takes effect under Section 122 for 150 days. | A stopgap that holds a baseline tariff in place. |
| April 20, 2026 | CBP launches CAPE, its refund system for IEEPA duties. | Importers, including retailers, begin claiming money back. |
| July 24, 2026 | Section 122 expires and Section 301 “forced labor” tariffs of 10% or 12.5% on 60 economies replace it. | Becomes the new long-term tariff structure for sourcing. |
| August 3, 2026 | 25 states sue to block the Section 301 tariffs. | A third legal fight over the tariff regime begins. |
Wait, the rules changed how many times?
It all started with “Liberation Day”
Fashion has always paid tariffs. Even before 2025, ordinary “most favoured nation” (MFN) duties on clothing were among the highest in the US tariff schedule. Some synthetic knitwear lines carried rates of up to 32%. What changed in April 2025 was the new layer added on top. The administration used the International Emergency Economic Powers Act (IEEPA) to impose a 10% baseline on almost every trading partner. Many of them faced higher country-specific “reciprocal” rates. Separate fentanyl-related IEEPA duties hit Canada, Mexico and China.
The announced rates fell hardest on the countries that make most of the world’s clothing. Vietnam was assigned 46% and Cambodia 49% before deals cut those rates to roughly 20%. In August 2025, FashionUnited reported Vietnam and Bangladesh at about 20% each. Rates for Bangladesh, Pakistan, Vietnam and Cambodia sat between 19% and 36%.
Then the Supreme Court stepped in
On February 20, 2026, the Supreme Court ruled in Learning Resources v. Trump that IEEPA does not give the president power to impose tariffs. The ruling voided the reciprocal and fentanyl tariffs, according to analyses by Covington and Thomson Reuters. Tariffs under other laws were unaffected. These included Section 232 (national security), Section 301 (unfair trade practices, including the long-standing China duties) and antidumping and countervailing duties.
The administration responded the same day. It invoked Section 122 of the Trade Act of 1974, which lets a president impose a surcharge of up to 15% for 150 days to address balance-of-payments problems. A 10% global surcharge took effect on February 24, 2026.
And now: the “forced labor” tariffs
Section 122 is time-limited, so a longer-term tool was needed. When the surcharge expired, new Section 301 tariffs took effect at 12:01 a.m. EDT on July 24, 2026. The US Trade Representative based them on investigations into forced labor and applied them to imports from 60 economies, according to Greenberg Traurig. The new tariffs come in four structures:
| Structure | Selected economies relevant to fashion | What it means |
|---|---|---|
| 10% plus MFN | Bangladesh, Cambodia, India, Indonesia, Pakistan, Sri Lanka, Honduras, Guatemala, El Salvador, Mexico, Canada, UK | Adds 10 points on top of normal duties |
| 12.5% plus MFN | China, Vietnam, Thailand, Türkiye, Philippines, Brazil | Adds 12.5 points on top of normal duties, and for China on top of existing Section 301 duties |
| Higher of 10% or MFN | European Union, Taiwan | If the normal duty is already 10% or more, nothing extra is added |
| Higher of 12.5% or MFN | Japan, South Korea, Switzerland | Works the same way, with a 12.5% floor |
Some carve-outs matter a great deal for apparel. USMCA-qualifying goods from Canada and Mexico are excluded. So are DR-CAFTA-qualifying textiles and apparel from Central America, and textiles, apparel and travel goods from Jordan. Greenberg Traurig also notes tariff-rate quotas for Bangladesh, Cambodia, Indonesia and Malaysia, set for an initial three years.
Why the “higher of” rule matters for European luxury: many clothing and leather goods already carry MFN duties above 10%. For those products, the EU structure adds little or nothing. Low-duty categories feel the full 10% floor. That makes the actual cost to a European house depend heavily on its product mix.
So who’s paying what?
| Country | Role in fashion | 2025 IEEPA-era rate | Since July 24, 2026 (Section 301) |
|---|---|---|---|
| China | Largest single source, declining | Escalated as high as 145% in April 2025 before a truce | 12.5% plus MFN plus existing Section 301 duties |
| Vietnam | Footwear and sportswear hub | 46% announced, then about 20% | 12.5% plus MFN |
| Bangladesh | Basics, denim, knitwear | 37% announced, then about 20% | 10% plus MFN, with tariff-rate quotas |
| India | Cotton knitwear, home textiles | 25%, then 50% from August 27, 2025 | 10% plus MFN |
| Cambodia | Garments, footwear, bags | 49% announced, then 19% | 10% plus MFN, with tariff-rate quotas |
| Indonesia | Footwear, sportswear | 32% announced, then 19% | 10% plus MFN, with tariff-rate quotas |
| EU (Italy, France) | Luxury leather goods, ready-to-wear | 15% all-in under the July 2025 deal | Higher of 10% or MFN |
| Switzerland | Watches | 39% from August 2025, cut to 15% in November 2025 | Higher of 12.5% or MFN |
| Central America (DR-CAFTA) | Nearshore basics | Qualifying apparel largely protected | Qualifying textiles and apparel excluded |
2025 rates are as announced and then revised, according to contemporaneous reporting. They varied by product and date. July 2026 structures are from Greenberg Traurig’s summary of the USTR action. MFN means the ordinary duty rate for each product.
India took the hardest hit
India’s experience shows how quickly a tariff can redraw a supply map. In August 2025, Washington added a 25% penalty tied to India’s purchases of Russian oil, bringing total duties on some goods above 50% from August 27. The US took 28% of India’s textile and apparel exports in fiscal 2025, FashionUnited reported. India held 5.8% of the US garment market, behind China, Vietnam and Bangladesh.
The impact landed on three Tamil Nadu clusters: Tiruppur, Coimbatore and Karur. Together they employ more than 1.25 million workers. Duties on knitted apparel reached up to 64%, which made Indian goods up to 35% more expensive than rival suppliers’ goods. The Tiruppur Exporters’ Association said exporter margins of 5–7% could not absorb that. Analysts expected US-bound orders to fall by 40–50%. Under the July 2026 Section 301 schedule, India sits in the 10% plus MFN group, a significant reversal.
Is “China plus one” still worth it?
For years brands moved production out of China to Vietnam, Bangladesh, Cambodia and Indonesia, a strategy known as “China plus one.” Tariffs made that strategy more expensive without making it wrong. Allianz estimates that ASEAN’s share of US imports rose from 7% to 14% through rerouting and replacement of Chinese supply. Under the new structure, Vietnam pays 12.5% while Bangladesh, Cambodia and Indonesia pay 10%. That gap could tilt price-sensitive orders. For Bangladesh’s separate win on European trade access, see our report on its extension of trade benefits until 2029.
Follow the money
| Measure | Figure | Source |
|---|---|---|
| Effective tariff rate, January 2025 | 2.3% | Penn Wharton |
| Effective tariff rate, July 2026 | 6.7% | Penn Wharton |
| Effective tariff rate, August 2026 | 7.1% | Penn Wharton |
| China effective rate, July 2026 | 22.8% | Penn Wharton |
| Expected average US tariff, Q4 2026 | 12.4% (up from a May 2026 low of 7.7%) | Allianz |
| Expected China rate | 35% (+13 points) | Allianz |
| Expected Vietnam rate | 15% (+8 points) | Allianz |
| Gross new-tariff revenue, January 2025 to July 2026 | about $298.5 billion | Penn Wharton |
| IEEPA duties collected | about $166 billion | Penn Wharton |
| Refunds certified by August 21, 2026 | about $107 billion (64%) | Penn Wharton, citing CBP |
Penn Wharton and Allianz use different methods, so their rates are not directly comparable.
Billions are coming back
Because the Supreme Court found that the IEEPA tariffs were never lawful, importers who paid them are owed money. The importer of record is the company that cleared goods through customs. For many fashion brands that is the brand itself, not the shopper who paid a higher shelf price. CBP launched its refund system, the Consolidated Administration and Processing of Entries (CAPE), on April 20, 2026, the National Retail Federation reported. CBP said a refund can take 60 to 90 days after a declaration is accepted, and that it may withhold amounts to offset problems found during review.
NRF said hundreds of thousands of businesses had paid more than $160 billion in IEEPA tariffs. It expected retailers to handle refunds much as they had handled the tariffs: using a range of options to offset costs and reinvest. Brands have not generally said they will refund customers. For a company like Nike, which disclosed a gross cost of more than a billion dollars, the refunds could become a significant one-off gain in coming quarters. Companies are expected to explain how they account for them in their results.
So are shoppers paying more?
Allianz estimates that tariffs add about 0.3 percentage points to US inflation in 2026 and 0.4 points in 2027. It expects the effect to peak at an annualised 0.5 points in the second quarter of 2027, as the new Section 301 and Section 338 measures work through. Allianz also found that margins on tariffed goods fell by up to 5.5% compared with a no-tariff scenario, with the low point in the third quarter of 2025. That suggests companies, not only consumers, absorbed a large part of the cost.
Can luxury just raise prices?
Luxury groups entered the tariff era with two advantages: high gross margins and customers who are less sensitive to price. They also had a disadvantage. Their brand identity depends on European production, and they cannot easily move it. The US is a large market for them. According to FashionUnited, it accounts for about 25% of LVMH’s sales, 24% of Kering’s (North America) and 19% of Burberry’s revenue.
| Group | US exposure | Tariff response |
|---|---|---|
| Hermès | Americas up 13.3% in Q1 2025 and 6.3% in Q2 2025 | Raised US prices from May 1, 2025 to fully offset the 10% tariff. FashionUnited later reported the increase at about 5%. |
| LVMH | About 25% of sales | Called the EU deal imperfect but necessary. Plans another Louis Vuitton workshop in Dallas in late 2026 or early 2027, in addition to three existing US workshops. |
| Kering | 24% of sales (North America) | CFO Armelle Poulou called the tariffs manageable and said some brands could raise prices. The group has no workshops in North America. |
| Burberry | 19% of revenue | CFO Kate Ferry said 81% of the business was unaffected. |
| Tapestry (Coach) | US-led | Estimated a $160 million hit to 2025 profit, about 230 basis points of margin. |
Hermès simply passed it on
On April 17, 2025, Hermès said it would raise US retail prices across all categories from May 1. CFO Eric du Halgouët said the increase would “fully offset” the tariff, FashionUnited reported. The house had already raised prices worldwide by 6–7% at the start of the year. US sales kept growing after the increase. Later in 2025, CEO Axel Dumas said the weaker dollar had affected results at least as much as tariffs. For why the house can price this way, see our report on how Hermès stayed the strongest.
Why Gucci won’t be made in America
The EU–US framework of July 27, 2025, set a 15% tariff on most EU goods. Trump had threatened 30%. Bernard Arnault called it imperfect but necessary under the circumstances. LVMH is the one group with a meaningful US production base, through Louis Vuitton’s workshops. Kering chairman François-Henri Pinault argued that his brands sell French and Italian culture. Making Gucci bags in the US, he said, would not make sense. UBS warned that a US–Europe price gap of about 10%, combined with European VAT refunds for tourists, could push American shoppers to buy abroad.
The great Swiss watch scare
Switzerland’s watch industry had the worst moment in luxury. In August 2025, Washington imposed 39%, more than double the EU rate, citing a $40 billion goods deficit. On November 14, 2025, a preliminary deal cut the rate on watches and many other Swiss goods to 15%, matching the EU, Swissinfo reported. Swiss and Liechtenstein companies pledged $200 billion of US investment over five years. Under the July 2026 schedule, Switzerland faces the higher of 12.5% or the MFN rate.
Tariffs are only one reason luxury prices climbed. For the full picture, see Why Luxury Got So Expensive. For the other big source of pressure on demand, see China’s luxury slowdown.
Why sneakers got hit so hard
Sportswear may be the most exposed category. Its footwear is made almost entirely in Asia, the US is its largest profit pool and its price points leave less room than luxury does. Vietnam, Indonesia and China dominate athletic footwear manufacturing.
| Company | Disclosed tariff impact | Response |
|---|---|---|
| Nike | About $1 billion gross cost flagged in June 2025, later raised to about $1.5 billion annualised | Selective US price increases. Plan to cut China’s share of US footwear imports from about 16% to high single digits. |
| Adidas | Up to €200 million in 2025 | Price reviews limited to North America, mainly on new products and not before 2026 |
Nike’s billion-dollar bill
In June 2025, Nike said tariffs would add about $1 billion in gross costs. It planned to mitigate that through selective price increases, changes to its sourcing mix and cost-sharing with suppliers and retailers, according to Reuters, via The Star. It also said it would cut China’s share of US footwear imports from about 16% to the high single digits. Later that year it raised its estimate to about $1.5 billion annualised, as Modern Retail reported. This came as CEO Elliott Hill was also leading a turnaround of the brand.
Adidas refused to blink first
Adidas estimated in August 2025 that new US duties could cost it up to €200 million that year, nss magazine reported. CEO Bjørn Gulden said: “We won’t be the first to raise prices.” He said any increases would apply only in North America, mostly to new products, and not before 2026. He also noted that most Adidas products cannot be made in America, and that the same product could face different duties depending on when it arrived. Adidas kept growing through the period. First-half 2025 sales were €12.11 billion and operating profit rose 57.7%.
What the 2026 schedule changes: Vietnam is in the 12.5% group and Indonesia in the 10% group. Footwear brands with large Indonesian bases now have a modest cost advantage over those concentrated in Vietnam. MFN rates on some footwear lines are already high, so the added Section 301 layer stacks on an existing burden.
Goodbye, $800 parcel
For ultra-low-cost platforms, the biggest trade change was not a headline tariff rate. It was the end of de minimis, the rule that let parcels worth under $800 enter the US without formal declarations or duties. The threshold was raised from $200 to $800 in 2016. Shipments then grew to 1.36 billion in fiscal 2024. A 2023 US International Trade Commission briefing found that Shein and Temu together accounted for more than 30% of de minimis imports in 2022, according to Digital Commerce 360.
| Date | De minimis milestone |
|---|---|
| 2016 | Threshold raised from $200 to $800 |
| Fiscal 2024 | Peak of 1.36 billion shipments |
| April 25, 2025 | Temu says it will raise prices, citing new trade rules |
| May 2, 2025 | Exemption ends for China and Hong Kong |
| Early May 2025 | Temu shifts US sales to locally based sellers and local fulfilment |
| July 30, 2025 | Executive order suspends de minimis for all countries |
| August 29, 2025 | Global suspension takes effect |
Temu went local
Temu made the clearest change. In early May 2025, its US site began listing only “local” products held in domestic warehouses. It stopped shipping Chinese-made goods directly to US customers, CBS News reported. Temu said all US sales would be handled by locally based sellers, with orders fulfilled inside the country, and that it was recruiting US merchants. In some cases US shoppers had seen tariff surcharges that doubled the price of an item. Trump called the de minimis exemption “a big scam going on against our country.”
Shein raised prices and went quiet
Shein and Temu both announced tariff-related price increases in April 2025. Their US consumer advertising then fell, Digital Commerce 360 reported. In August 2025, Bloomberg reported that Shein was considering moving its headquarters from Singapore to Hong Kong, a step that could support a Hong Kong listing. Our companion report, Fast fashion’s reckoning, compares the Shein and Temu model with Zara, H&M, Mango and the mid-market.
Why Zara and H&M got off lighter
Large store-based fast-fashion chains import in bulk containers, not individual parcels, so they never relied on de minimis. Their exposure is to the headline rates on their sourcing countries. Inditex produces much of its range in Spain, Portugal, Morocco and Türkiye. H&M sources more heavily from Asia, including Bangladesh. In the 2026 structure, Bangladesh’s 10% compares with 12.5% for Türkiye and China. The mid-market gained something too: the end of de minimis removed a cost advantage that platforms selling directly from China had held over them.
How brands fought back
Company disclosures from 2025 and 2026 show seven main responses. Most large groups used several at once.
| Lever | How it works | Who used it |
|---|---|---|
| 1. Targeted price increases | Raise US prices only, often on new products | Hermès, Nike, Adidas (from 2026), Temu |
| 2. Sourcing shift | Move volume out of the highest-tariff countries | Nike (out of China), sportswear generally |
| 3. Cost-sharing | Negotiate costs with factories and wholesale partners | Nike |
| 4. US production | Assemble or finish in the US | LVMH / Louis Vuitton (Texas workshops) |
| 5. Local fulfilment | Stock goods in US warehouses instead of shipping parcels | Temu |
| 6. Absorbing the cost | Accept lower margins to protect volume | Tapestry (230bp headwind), many brands per Allianz margin data |
| 7. Claiming refunds | Reclaim IEEPA duties through CAPE | US importers of record across the sector |
Pricing power decided which lever a company used. Hermès, with long waiting lists, could raise prices immediately. Adidas wanted to avoid being the first to raise prices in a competitive market, so it waited. Temu’s model depended on sending individual parcels without duties, so it had to change how it operated. The table above is a menu, and each segment chose from it according to its margins.
Courts, states and a lot of lawyers
Tariffs became both a legal battleground and a political one. The Supreme Court case was brought by importers, including the educational-toy maker Learning Resources. The ruling set a limit: the president cannot use emergency economic powers to impose tariffs. It did not stop tariffs. Within hours, the administration used another statute, and five months later a third.
On August 3, 2026, 25 states sued to block the Section 301 forced-labor tariffs. New York’s governor and attorney general announced the suit, which argues the tariffs repeat what the Supreme Court rejected. Industry groups have also challenged the new measures. Separately, the administration began a Section 338 action against Canada. Greenberg Traurig noted that duties on certain Canadian products could take effect on August 19, 2026, on top of the new tariffs.
Trading partners have also been negotiating. The EU’s July 2025 framework, the UK’s 10% arrangement and the Swiss deal of November 2025 show that bilateral deals can override the headline rates. Allianz has warned of the risk of escalation over digital-services taxes. In its scenario, a 100% tariff tied to digital services on the EU would raise the EU’s effective rate to 52%.
What happens next?
- The lawsuits against Section 301. If courts strike down the forced-labor tariffs, the rules for sourcing would change a fourth time.
- New Section 301 actions. Allianz expects further Section 301 and 338 measures to lift the average US tariff to 12.4% and China’s to 35%.
- Refunds in earnings. Watch how listed brands report IEEPA refunds, and whether any share them with customers or wholesale partners.
- Tariff-rate quotas. The three-year quotas for Bangladesh, Cambodia, Indonesia and Malaysia could make them more attractive for basic apparel.
- Inflation in 2027. Allianz expects the inflation effect of tariffs to peak in the second quarter of 2027. That would test shoppers’ tolerance for higher prices in the mid-market.
- Europe’s response to cheap parcels. With the US route closed, low-value parcels from China are flowing toward Europe. That is shaping EU rules on parcels and fast fashion, which are covered in our fast-fashion report.
So, are tariffs breaking fashion?
As of August 2026, the latest month measured by Penn Wharton, the US effective tariff rate was about three times its January 2025 level, and forecasters expect it to rise again. The legal basis had moved from emergency powers to trade-remedy law. More than $100 billion had been certified for refund to importers. In fashion, the effects followed pricing power. Luxury raised prices. Sportswear moved production and shared costs with partners. Platforms selling cheap parcels directly from China had to rebuild their US operations.
Sources: Penn Wharton Budget Model (October 2026); Penn Wharton Budget Model (September 2026); Allianz Research, “Trade war 3.0”; Greenberg Traurig; Covington; Thomson Reuters; National Retail Federation; New York State; Digital Commerce 360; CBS News; FashionUnited (India); FashionUnited (Hermès); FashionUnited (luxury); Swissinfo; Reuters via The Star (Nike); Modern Retail (Nike); nss magazine (Adidas).
Leave a Reply