When the Trump administration released a new list of proposed tariffs on April 2, it included more than 30% “reciprocal tariffs” on imports from China, Cambodia, Vietnam, Indonesia, and several other countries. These nations happen to be some of its largest sources of clothing, footwear, and accessories.
Markets reacted immediately. Stock prices for major sportswear brands like Nike, Adidas, Lululemon, and Skechers dropped on the news, while luxury labels collectively sank to new lows. As the world’s largest fashion and luxury goods market, the US consumes around USD 80 billion in textiles each year and serves as a lifeline for both fast fashion and sportswear giants.
As of this writing, only a handful of countries and regions have received exemptions—granted in exchange for zero-tariff treatment of all US imports. But that has done little to restore investor confidence or lift stock prices. Shoppers are left wondering whether cheap tees hanging on store racks might soon become relics of the past. For companies, the new tariffs signal a potential overhaul of the rules of the game.
A complex supply chain and the push to diversify sourcing
“When textile factories in Dongguan began installing automated cutting tables, factory workers in Vietnam were learning to operate Brother sewing machines—it’s like a relay race, only no one knows where the finish line is.” That’s how a textile consultant with 20 years of experience described the current migration of the industry to 36Kr.
From the cotton mills of Manchester in the 18th century to the industrial parks of modern Ho Chi Minh City, the textile production line has constantly flown with the migratory patterns of lower costs. After the 2008 financial crisis, factory owners in China’s coastal cities began sensing a shift. “Wages were rising 20% each year. It felt like we were racing against time,” a Taiwan-based entrepreneur in Suzhou recalled. He eventually moved his factory to Vietnam in 2015.
The real turning point came in 2016. That year, Beijing’s 13th five-year plan formally called for industrial upgrades, toppling the first domino in a series of manufacturing shifts. Local governments began rejecting land applications from low-end manufacturers. Environmental standards suddenly tightened. Projects that lacked high-tech components or branded value were denied outright.
Then came the pandemic in 2020, which sped up the great migration. When Shanghai’s ports stalled under strict Covid-19 measures, global fashion brands got a wake-up call that they can’t put all their eggs in one basket. Afterward, many textile factories that had once moved from Taiwan to mainland China accelerated their southward exodus. Those unable to relocate simply shut down.
Today, each player on the global textile map has carved out its niche. Bangladesh and Cambodia have become fast fashion hubs. Vietnam makes half the world’s sports shoes. South Asia and North Africa are skilled in silk production. Chinese factories now handle the most technically demanding orders. A “China Plus One” model has become the industry consensus—maintaining production capacity in China while selecting one or more backup or supplementary locations, such as Vietnam, India, or Mexico.
At the same time, companies are increasingly leaning into “nearshoring,” choosing nearby countries for manufacturing so products can serve adjacent markets more directly.
Among European luxury houses, nearshoring has become the norm. These brands can absorb higher labor costs thanks to product markups, and in some cases, a coveted origin label can even boost brand value.
To solidify its positioning, Hermes has been building new leather workshops in France since last year to ensure its signature Birkin bags can be produced in Europe. Louis Vuitton, whose main growth market is in North America, took things a step further by relocating production to the US. Its parent company LVMH now operates three factories in California and Texas. Chairman Bernard Arnault said in January that the group plans to expand further in the US.
But for fashion retailers whose products carry lower markups, require quick inventory turnover, and bear heavy marketing costs, is nearshoring even viable?
The case for nearshoring in fashion retail
Adidas and Zara offer two distinct, yet equally instructive, approaches.
Since taking the helm, Adidas CEO Bjorn Gulden has been steering the company away from his predecessor’s overdependence on trend-driven markets.
In an interview with 36Kr, Gulden said that Adidas would continue to increase the share of products made in China for the Chinese market. That figure currently sits at 80%.
His comments reflect more than just a tailoring of products to suit a mature consumer base, also signaling a calculated approach to mitigating supply chain risks.
Under this model, Adidas has begun managing markets on a case-by-case basis.
In China, for instance, the “in China, for China” strategy allows Adidas to fully sidestep tariff risks. For the US—where the model isn’t yet replicable—Gulden has taken a holistic view, prioritizing tariff desensitization for popular products. This involves evaluating factors like controllable costs, ease of shifting production sources, and final price sensitivity to reduce the brand’s exposure to tariff fluctuations.
Gulden pointed out that two of Adidas’ strongest performers in the US market are the “Superstar” and “Campus” lines—both different from the “Samba” style popular in Europe and Asia. These shoes are predominantly produced in lower-risk countries. Prior to Trump’s reciprocal tariffs, that often meant places like Mexico, Vietnam, or Cambodia.
Because tariffs often come with a delay, Adidas has moved toward updating orders with supply chain partners on a monthly—or even weekly—basis. This gives the company a crucial buffer against sudden policy changes.
Adidas’ nearshoring strategy is thus less about literal proximity and more about market-oriented supply chain regionalization, representing a balancing act between cost and tariff sensitivity. For fast fashion brands, which tend to be even more vulnerable to tariffs, Zara’s more extreme nearshoring model may hold greater appeal.
According to a Harvard Business Review report, Inditex—the parent company of Zara—handles about half of its production in-house, mostly in Europe. Key processes like cutting and design are managed by a dozen or so factories in Spain, while the sewing work is outsourced. This setup enables Zara to respond to market shifts with speed.
In recent years, Inditex has also been shifting more production to Turkey and Eastern Europe to further shorten the supply chain for its biggest market, Europe.
Zara now enjoys profit margins of up to 85% of retail price, far above the industry average of 60–70%. This allows the brand significant pricing flexibility in the face of rising costs due to tariffs.
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RBC Capital Markets analyst Richard Chamberlain revealed in a report that prices for 40 Zara items in the US and Mexico were at least 60% higher than in Spain. In Gulf countries, the same products cost 71–91% more than their Spanish counterparts.
Although Adidas and Zara employ different playbooks, both exemplify the fashion industry’s pivot away from a singular obsession with cost-cutting and toward a focus on building supply chain resilience. Adidas is adapting through regional supply chains optimized for tariffs and local markets, while Zara’s European production focus enables speed and better inventory control.
Still, whether through tariff desensitization or nearshoring, these responses remain just that—reactions to the present trade climate. Since last year, many fashion brands have started to reduce their SKU counts, a subtle signal of growing caution. As rising production costs bump up against constrained consumer spending, it remains to be seen how shoppers will respond to locally made goods.
What we’re witnessing is a reckoning. With the benefits of globalization fading, the fashion industry must now strike a new balance between cost, speed, and risk. Who will come out ahead in this new era? It’s still anyone’s game.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by He Zhexin for 36Kr.