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Executives expected Trump’s latest round of tariffs, announced on 2 April, to be bad. They were far, far worse than imagined.
The “Liberation Day” tariffs on $2.5 trillion worth of imports moved executives from companies based in the US with overseas production to mobilise, calling board meetings and spending time on the phone with suppliers in countries like Vietnam, Cambodia and Bangladesh, which were slapped with 46 per cent, 49 per cent and 37 per cent tariffs, respectively. One US brand created a “tariff task force” on Thursday, assembled with team members across sourcing, production, product development, merchandising, IT and more. Stock prices tumbled, with the S&P 500 losing $2.4 trillion in one day. Companies like Nike, American Eagle, Gap, Ralph Lauren and Tapestry saw shares plummet as much as 30 per cent in the wake.
Chaos, uncertainty, anxiety and volatility were the common threads in conversations with brand executives and founders, many of whom spoke on background, citing potential retaliation from the Trump administration for speaking negatively about the tariff policy to the press. American Eagle, Capri, Ralph Lauren, Abercrombie Fitch and Levi’s declined to comment or pointed to trade organisations, the National Retail Federation (NRF) and the American Apparel and Footwear Association (AAFA), for responses. Gap Inc, Tapestry, Nike, Nordstrom, PVH, J Crew, URBN and New Balance did not respond to a request for comment.
“These [tariffs] are significantly more than people expected,” says Jonathan Gold, NRF’s VP of supply chain and customs policy. “The administration needs to understand that this will be significant for retailers both large and small, especially small, because they can’t shift as quickly. They’re talking to officials and expressing concerns. Will they be able to stay in business with these cost increases? In understanding the real downstream impact that this has, from job losses, all the way to going out of business, consumer confidence is already down, and this will make it go lower.”
The NRF published a survey on 31 March that found 76 per cent of US consumers were concerned about the impact of tariffs on prices, while 81 per cent were worried about small businesses closing due to the economy.
For most brands, tariffs as high as 54 per cent (on China, the highest rate after the new policy) mean that they’ll have no choice but to raise prices, likely around 15 per cent on average, according to sources. Discussions with vendors have centred around how much of the cost they can absorb without being pushed to the brink, but overseas manufacturers notoriously operate on razor-thin margins already; restructured supply chains and nearshoring could put them out of business. Ideas to soften the blow to consumers by being transparent about why prices are going up — naming the tariffs directly, potentially as a line item like taxes — have been batted around, but fears of angering the administration loom.
“This is an existential threat. Everybody is holding their breath,” says Sanjeev Bahl, CEO of Saitex, a denim manufacturer with operations in Vietnam and Los Angeles, who was in Ho Chi Minh at the time of the tariffs announcement. “Sourcing teams are looking at other options; people are crunching numbers. Nobody has yet approached a formula of ‘what if’. That will start once we know the final numbers and if there are negotiations.”
Negotiations to lower the rates are seemingly being banked on, at least by some companies that have held shipments currently ready to be imported to the US to avoid the new tariff costs, according to those familiar with the decision. But that response can only last so long before inventory is jeopardised. Whether or not the rates are up for negotiations has been unclear: Trump said Friday that negotiations were possible, contradicting an aide who said the opposite the day before. And on Friday, Trump said that the Vietnamese leader Tô Lâm was at the negotiating table already, wanting to bring tariff rates down to zero. Nike, which produces its sneakers in Vietnam, saw shares climb 4 per cent in response to the news.
Companies are counting on a Hail Mary as there’s really nowhere to hide: after Trump enacted stiff tariffs on China in his first term, companies moved some production to other countries. A blanket tariff policy, with high rates on those same countries, leaves brands with few options.
“The challenge is that these are going into effect so quickly, there’s very little brands can do,” says Gold. “For companies that took time to diversify away from China, they got the message and looked for other opportunities. But those countries are subject to higher tariffs now. They’re scratching their heads now to see where they can go. It’s unclear what countries can do to get out from under the tariffs. They will have an immediate impact, and companies are planning for the holiday season as we speak.”
Trump’s motives for starting a global trade war are questionable. If the goal is really to bring manufacturing and production back to the US, it’s going to be a hard-fought battle to get there, one that brands say they aren’t prepared to fight.
“My jaw would drop if that ever became a real option. On the floor,” one brand executive said ahead of the announcement.
Is US manufacturing really an option?
Sources are unanimous: the US is not equipped with the facilities, materials or talent to absorb overseas production at the scale it operates now. “Could some manufacturing come back to the US? Maybe. But it’s not going to happen overnight. Capacity is not there; materials are not there. You’re not going to make up for international sourcing — it’s just not going to happen. The scale is not there,” says Gold.
Bahl’s Saitex offers denim manufacturing in LA, but he says it would be impossible to move 100 per cent of the company’s operations to the US. He suggests that companies that do operate in the US, like his, should be rewarded for what they’ve already built. But he acknowledges that that’s a long shot. “We should get preferential treatment. I may be out of my mind when I say this, but I don’t think that if we import materials, we should be taxed the same duties.”
Thanks to tariffs, manufacturing in the US will also become more expensive as the cost of materials increases. “While the President touts ‘America First’ policies, this tariff plan overlooks the destructive impact it will have on the US manufacturers in our industry,” the AAFA said in a statement. “These American companies depend on foreign inputs which have no, or very few, American substitutes. Tariffs will significantly increase the cost of manufacturing in the US, and, when paired with the retaliatory tariffs that will surely come, will undermine US export opportunities as well.”
Already, some countries have enacted or threatened reciprocal tariffs in response to Trump’s policy. China has retaliated with 34 per cent tariffs on US imports, while the EU has weighed the option of taxing US imports as well as its tech services. And as the cost of everything is expected to rise thanks to tariffs, companies have to consider the cost of the entire supply chain, from the fertiliser used to grow cotton to the metals used to make zippers.
Katherine Tash, the owner of Katherine Tash Bridal, handmakes all of her wedding dresses in her Santa Monica atelier. But she sources silks from Korea (hit with 25 per cent tariffs) and lace from Italy and France (hit with 20 per cent tariffs) and the UK (10 per cent tariffs). “We’re reviewing our sourcing strategy. We’ve been on the phone all morning with all sources, trying to keep calm and remaining committed to continuing the quality of our work,” Tash said on Thursday. She says she’s determined not to increase prices, but acknowledges her margins will take a blow. “I care so much about preserving the quality of our business and the garments that we make, and I don’t want to panic. We want to keep our business. It’s a survival test, and it feels like we just did this during Covid.”
Covid is frequently referenced as a comparison to what’s happening now. “But that was a natural event. This feels self-inflicted,” says one executive. “There’s nowhere for anyone to hide. There’s no loophole. We’re in a full-blown trade war.”
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