As an industry that relies heavily on imported goods, fashion stakeholders are prepping for a wave of proposed and potential tariffs on the countries from which it sources.
President Donald Trump has proposed various tariff policies that would impact the fashion industry’s bottom line, and companies are responding accordingly.
Though China is still the top sourcing country for the industry, “We’re all kind of nervous about Vietnam,” said Nasim Fussell, senior vice president for Lot Sixteen, a Washington, D.C.-based lobbying and communications firm.
Fussell spoke at the American Apparel and Footwear Association’s executive summit last week about trade policy within the first 100 days of Trump’s second term.
Vietnam is the second largest apparel and footwear supplier behind China, and increased U.S. tariffs could become a large headwind.
“What we just saw…with very high tariffs on two of our closest trading partners, Canada and Mexico, who have a long standing trade agreement with us, unfortunately shows that it doesn’t really feel safe wherever you go right now,” Fussell said.
In recent years, Vietnam has become one of the key sources for the apparel and footwear industry, and in response, the country has improved its infrastructure with roads, railroads, ports to service the factories, said David Swartz, senior equity analyst for Morningstar Research Services.
Wages in Vietnam are lower there than in China, and some China-based manufacturers have opened factories in the country, Swartz said.
Had Trump won reelection in 2020, Fussell said it was likely the president would have applied tariffs on Vietnam along the lines of those applied to China at the time. Now it remains to be seen whether the administration will take the reciprocal tariff approach to the country or apply the duties another way.
“However they do it,” Fussell said, “I feel very confident that they’re looking at Vietnam.”
While fashion companies have diversified their supply chains away from China, many have turned to Vietnam as a key sourcing location, including Nike and On.
Fashion companies may be looking elsewhere in Southeast Asia or the Americas for further differentiated sourcing options, Fussell said. “But at the end of the day, who’s safe?”
Fussell wasn’t alone in sounding the alarm for the fashion industry about the potential impact of tariffs on Vietnam.
In a client note last month, analysts from Morgan Stanley said the Vietnam tariff risk is a potential headwind that could impact the industry. This will particularly affect footwear brands including Allbirds, Nike, On and Skechers, which have a high potential of being exposed to risk. Analysts also said Lululemon and Tapestry had a high estimated exposure.
On the other hand, denim and lifestyle giant Levi Strauss appears to be protected, Morgan Stanley analysts said.
Investors’ concerns following Trump’s proposed tariffs have mainly been focused on China, which is consistent with the reaction to trade tensions between the countries in 2018 and 2019, the analysts said.
“However, the new Trump administrations’ heightened focus on trade deficits means Vietnam could emerge as another meaningful tariff headwind,” the analysts for Morgan Stanley wrote.
Vietnam stands out as being at risk because it has one of the highest trade deficits with the U.S., per Morgan Stanley. This could, however, mitigate some risk because the U.S. currently imposes higher tariffs on Vietnam than vice versa.
“In our view, the possibility of Vietnam tariffs has not been a focus of the market, & thus isn’t fully priced in/understood in the same way the potential China impact is,” the analysts wrote.
When Covid-19 shut down production in Vietnam in 2021, Nike and others were adversely affected, which Swartz said showed the impact the region has on companies.
“With tariffs on both China and Vietnam, it will be more difficult for apparel firms to switch production to avoid them,” Swartz said. “There is also the risk that the tariffs are extended to other countries in Asia, which would create even more complications.
“Ultimately, any extension of tariffs on imports of apparel and footwear will bring higher prices to consumers and could reduce sales and profits.”
