The business world is bracing for impact as new trade tariffs take effect, and the apparel industry is right in the middle of it all. This post breaks down the changes, explains what they mean for your business, and offers strategies for navigating this evolving landscape.
***This article was originally written on Monday, February 3, 2025. By the end of the day, tariffs on Canada and Mexico had been put “on hold” for a minimum of 30 days. We are still sharing this information with you as written, so you can be prepared for what may come in March, 2025.
The New 2025 Tariff Breakdown:
Starting Tuesday, February 4th, businesses importing goods into the United States will face new tariffs:
25% tariff on goods from Canada and Mexico.
10% tariff addition on goods from China.
These tariffs are essentially taxes levied on imported goods at US ports. The US Customs Department will assess your goods and documentation (accuracy is crucial!) and issue an invoice for the applicable tariffs, duties, and taxes. Your business will be responsible for paying this invoice.
Please allow me to repeat that last sentence. Your business will be responsible for paying this invoice.
Not your manufacturing partner in any of these countries.
So, Isn’t This Normal?
That is true!
While these specific tariffs on North American trade are new, import duties and tariffs are a standard part of international trade. Every time we import goods into the United States, there is a rate that you are required to pay to the US Customs Department. The standard percentages that we’ve grown accustomed to seeing can range anywhere from 0% to 32% in the apparel industry.
You might remember several years ago, when additional tariffs were imposed on Chinese goods, ranging from 7 to 15%. This situation is a reminder that trade policies can change, and businesses need to be adaptable in working these fees into their budgets.
How Tariffs Impact Your Business:
It is true that the added costs can significantly affect your bottom line. I’ve seen companies who were not prepared for fees have to shut their doors because the invoices exceeded their available budget.
Consider this example: a men's cycling jersey imported from China, previously subject to a 32% duty, PLUS the additional 15% tariff from several years ago, now faces an additional 10% tariff, bringing the total to 57%. This increase can force businesses to:
Absorb the cost: This can squeeze profit margins and put your company in financial trouble.
Raise prices: This could affect customer demand and push people even more toward fast fashion.
Negotiate with manufacturers: Splitting the cost with your manufacturer might be an option.
Re-evaluate manufacturing locations: The tariffs might make other regions more attractive.
Negotiating with Manufacturers:
Open communication with your manufacturers in Canada, Mexico, or China at this time is essential. Discuss the possibility of sharing the tariff burden. While some manufacturers may be unwilling to absorb any of the cost, others, especially those with whom you have a strong relationship, might be open to negotiation.
This is another key reminder that building a positive relationship with your manufacturer will work to your advantage in many ways. Those brands who continue to blame their suppliers for everything that goes wrong will likely not have this as an option for negotiation.
Kindness and empathy are always a good business tactic, IMHO.
The End of a Loophole:
Another key piece of information being released this week is that a previous loophole that allowed for duty-free shipments of orders under a certain value (previously around $800) directly to consumers is being closed. This change will significantly impact businesses that relied on this strategy to avoid customs fees.
Direct-to-consumer shipping models that leveraged this loophole will need to be re-evaluated.
US Manufacturing: A Viable Alternative?
The tariffs have spurred increased interest in US-based manufacturing. It’s one of the most prominent questions we are receiving right now at Unmarked Street!
So I’ll tell you what we’re telling our community: While US manufacturers can often handle smaller orders (hundreds to a few thousand units), they may struggle with the massive production capacities required by large companies with tight deadlines. Small businesses may benefit from making a switch at this time, but it can take years to on-board a new vendor properly.
Quite frankly, things are changing so fast (less than 12 hours after writing this article, things had already changed again!), we have no idea where we’ll be with these tariffs by time you move all of your production.
This capacity limitation is a key challenge for businesses considering shifting their production to the US, and will require massive change in our country.
The Impact on Consumers:
Ultimately, these increased costs are likely to be passed on to consumers in the form of higher prices for goods. Businesses must carefully consider how these price increases will affect customer demand and their competitive position in the market. Consumer research on price sensitivity is crucial.
What You Can Do:
Inventory Management: If possible, building up some inventory before the tariffs take effect could provide a buffer.
Stay Informed: Keep up-to-date on the latest developments in trade policy.
Advocate for Change: Consider joining industry efforts to petition lawmakers regarding the tariffs.
Explore Alternatives: Evaluate manufacturing options in other regions, such as Central America, which currently (at least for now…) has a number of countries with no new tariffs.
Reassess Pricing Strategies: Analyze your pricing models to determine how to absorb or pass on the increased costs while maintaining healthy margins.
Communicate with Your Community: Let them know if your business will be affected by these changes, and talk to them about how they’d like to support your company.
Moving Forward:
The trade landscape is changing rapidly. Businesses must be proactive, adaptable, and well-informed to navigate these challenges successfully. Open communication with manufacturers, careful inventory management, and a thorough understanding of the tariff implications are critical for mitigating the impact and ensuring continued profitability.
Stay tuned for further updates as this situation evolves.
And check out our recent videos on the topic to gain even more insight:
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