Trump’s Tariffs: Assessing the Impact, One Week Later

To many in the fashion industry, the days after Donald Trump’s April 2 tariff announcement had a familiar, sinking feeling to them.

“I’ve heard this analogy a number of times from my members: It feels a lot like the first few weeks of March [2020] when Covid was hitting and everything was closing down,” said Matt Priest, president and chief executive of Footwear Distributors and Retailers of America, the largest footwear trade association in the US. “Our members were trying to think through cost-cutting exercises, the potential for furloughs, how to stay profitable.”

Except this time the crisis was incited by the US president.

“I can’t overemphasise how bewildered and angry a lot of our members are,” Priest added.

Shares of many fashion brands and retailers plunged yet again on Tuesday, a sign that investors, at least, are still adjusting to the new reality of global trade. Trump’s tariffs were higher and farther-reaching than even the worst-case scenarios analysts expected. A baseline tariff of 10 percent on all countries took effect last week, while country-specific tariffs, such as a 46 percent duty on Vietnam and a 49 percent levy on Cambodia, came into force just after midnight Eastern time on Wednesday. China — the largest clothing exporter to the US — has been hit with tariffs totaling 104 percent as the countries have engaged in a tit-for-tat tariff battle.

As the shock wears off, fashion businesses are starting to draw up plans to navigate a market that is still rapidly changing under their feet.

Levi’s, which on April 7 became the first major apparel brand to report earnings since Trump’s so-called “liberation day,” excluded any effects from the tariffs in its guidance for the year. Speaking on the company’s earnings call Monday, chief executive Michelle Gass called the present moment “fluid and unprecedented.”

She also detailed the steps Levi’s is taking to respond. It’s assembling a task force to analyse different scenarios, working with its vendors, leveraging the flexibility of its supply chain and considering “surgical” price increases, particularly in its premium products, where it believes consumers will be most willing to pay a little extra for the Levi’s brand.

The company’s approach reflects how other brands and retailers may try to tackle the tariff chaos. Most have a bit of time to work out a game plan: Many retailers already had a stockpile of inventory in the US that will show up in stores first. But if Trump holds firm, the new duties will affect virtually all clothing and footwear sold in the US, and by extension, the entire global fashion supply chain.

“It’s a very tough situation for everyone,” said an executive at one Pakistani manufacturer who asked not to be named as they will likely need to negotiate terms with customers. “What I foresee is that if this remains for even six months, we’ll start to see shutdowns.”

Immediate Impact

The market response has been swift. Apparel and footwear stocks have plunged in the past week, with investors weighing how much each company manufactures in the countries hit by the highest tariffs, as well as how reliant they are on the US for sales.

Shoe brand Steve Madden has seen its stock drop about 30 percent since April 2. It manufactures most of its products in China, which now faces heavy tariffs, and while it has been aggressively diversifying out of the country, alternative sourcing destinations are staring down high duties of their own.

After Vietnam — the top source of US footwear imports and the second largest in apparel behind China — and other nations signaled their willingness to cut duties on US products, several stocks got a slight reprieve on hopes that the countries might dodge the tariffs or see them reduced.

But the selloff resumed on Tuesday after the US trade representative, Jamieson Greer, emphasised that the tariffs will go ahead as scheduled, including the extra tariff on China.

Sports brands in particular are at risk from the duties on Vietnam, where many have moved manufacturing over the years. Lululemon, for one, produced 40 percent of its products there in 2024, with the rest made in Cambodia, Sri Lanka, Indonesia and other countries. William Blair analyst Sharon Zackfia estimated in an April 3 research note that the brand would need to hike prices as much as 12 percent to protect its profits, though noted any price increases are likely to be surgical rather than universal across all products. Since April 2, Lululemon’s stock is down more than 12 percent.

Fashion companies aren’t just looking at rising costs and lower margins. The tariffs risk ushering in an economic slowdown in the US at their current level — possibly even a recession — which would lead consumers to slash spending.

In a small survey conducted after Trump’s April 2 announcement, McKinsey found more than half of US consumers expected to spend less on apparel, with most saying they would delay purchases entirely. TD Cowen analyst John Kernan wrote in an April 7 note that they expect the tariffs as they stand now “to lead to bankruptcies in retail … and significant consolidation.”

A downturn in the US economy would also be an issue for luxury, which has looked to the country to bolster its sales as business in other regions has slowed in recent years. Analysts believe that more than any cost increases from tariffs, it’s the pressure on shoppers and reduced spending that pose the greatest threat to luxury. On April 7, Bernstein analyst Luca Solca revised the firm’s forecast for the industry this year from 5 percent growth to a 2 percent decline.

“Even with higher than expected tariffs, we do not believe the first level impact of tariffs are a big deal,” Solca wrote. “What concerns us are the second- and third-order effects: the uncertainty, recent stock market crash, USD devaluation and threat of a global recession.”

Burberry’s stock has dropped even more than its peers’, which do most of their production in Europe, as the brand manufactures some products in Asia, where Trump’s tariffs were higher.

Persistent Uncertainty

The uncertainty Solca alluded to is one of the greatest challenges facing fashion businesses at the moment. The Trump administration has offered mixed messaging on whether the tariffs will stay put or could be lifted if countries concede to Trump’s demands. (Those demands are high. Trump’s top trade advisor, Peter Navarro, said in an interview on CNBC Monday that Vietnam’s offer to remove all tariffs on US imports was not enough.) As a result, brands and retailers are uncertain which future to plan for.

“I think in many cases people are not going to change their sourcing decisions in terms of their sourcing makeup right now, because they just don’t know what’s going to happen,” said Nate Herman, senior vice president of policy for the American Apparel & Footwear Association.

The lack of clarity on the future extends through the supply chain, where manufacturers are nervous about the potentially devastating blow to their businesses. Many garment makers in Asia already operate on incredibly slight margins and could struggle if brands start asking for price cuts to offset their own costs, as Walmart reportedly has.

“We’re in touch with most of the brands and everybody is obviously concerned, but everyone is waiting to see what happens next,” said Miran Ali, a member of the interim board at the Bangladesh Garment Manufacturers and Exporters Association. “The key I think to everything is going to be which country is able to open negotiations first.”

With the new tariffs in effect, some brands will start to face challenges sooner than later. Fashion and footwear companies order products months in advance and might have budgeted a set amount for import duties. But products being shipped from Asia that are on the water now will be subject to much higher levies than anticipated once they arrive. This scenario could place a significant strain on the cash flow of small brands in particular.

For companies that had hoped Trump would reverse course before his biggest tariffs took effect, reality is now settling in, Herman said. Discussions with some countries such as Vietnam and Indonesia are still set to take place, but brands are realising they can’t count on any certainty at this point.

Priest of FDRA said they’re trying not to create a false sense of hope for the organisation’s members.

“We’re guiding our members in the sense that this feels inevitable, you need to treat it as such,” Priest said. “If for some reason there’s a pull back or there’s an opportunity for a deal … then we will celebrate.”

With additional reporting by Sarah Kent.