Fashion Industry Concerned About Potential Tariffs on Vietnam
Fashion Industry Concerned About Potential Tariffs on Vietnam
The fashion sector, heavily dependent on imports, is preparing for current and potential tariffs from the countries it sources products from. President Donald Trump has proposed various tariff policies in the first 100 days of his second term that could affect the profit margins of the fashion industry. Companies are developing strategies to adapt to these policies.
Although China remains the most important supplier country for the sector, Nasim Fussell, senior vice president at Lot Sixteen, a Washington D.C.-based lobbying and communications firm, states, "We are all a bit concerned about Vietnam." Fussell spoke about trade policy during Trump's second term's first 100 days at an executive summit held last week by the American Apparel and Footwear Association (AAFA).
Vietnam is the second-largest apparel and footwear supplier after China, and potential tariffs applied by the United States could create a significant obstacle for the sector. Fussell remarks, "Recently, we have seen very high tariffs applied to our closest trade partners like Canada and Mexico, despite long-standing trade agreements. This situation makes you feel unsafe no matter where you are right now."
In recent years, Vietnam has become an important supply source for the apparel and footwear industry. In response to this situation, the country has developed its infrastructure—roads, railways, and ports—to serve factories. David Swartz, senior equity analyst at Morningstar Research Services, notes that wages in Vietnam are lower than in China and some China-based manufacturers have opened factories in the country.
Had Trump been re-elected in 2020, the president would likely have applied tariffs to Vietnam similar to those applied to China at that time. Now, there remains uncertainty about whether the administration will adopt a reciprocal tariff approach toward the country or apply tariffs in another manner. Fussell states, "Whatever way they do it, I'm quite certain they have Vietnam under the microscope."
Fashion companies have diversified their supply chains by moving away from China, and many firms have adopted Vietnam as an important sourcing point. Companies in this category include Nike and On. Fussell suggests that fashion companies may look for alternative supply options in Southeast Asia or the Americas. However, he asks the question, "At the end of the day, who is safe?"
Fussell is not the only one raising alarm about the potential impact of tariffs on Vietnam for the fashion industry. In a client note published last month, Morgan Stanley analysts noted that Vietnam tariff risk is a potential obstacle that could affect the sector. This situation could pose a high risk for brands such as Allbirds, Nike, On, and Skechers. Analysts also state that Lululemon and Tapestry are facing high risk.
On the other hand, denim and lifestyle giant Levi Strauss appears protected from this situation according to analysts. Investors' concerns regarding the tariffs proposed by Trump have largely focused on China. This is consistent with responses to previous trade tensions.
Potential tariffs on Vietnam could lead to significant changes in the fashion industry's supply chain. Companies may consider shifting production to other countries or reassessing relationships with existing suppliers. This situation could result in restructuring of global supply chains and increased costs.
Key Takeaways:
Vietnam is the second-largest apparel and footwear supplier after China.
Potential tariffs that the U.S. applies to Vietnam could create a significant obstacle for the fashion industry.
Companies like Nike and On have adopted Vietnam as an important sourcing point to diversify their supply chains.
According to Morgan Stanley analysts, brands such as Allbirds, Nike, On, and Skechers are at high risk from potential tariffs on Vietnam.
Levi Strauss appears protected from this situation according to analysts.
Potential tariffs could lead to significant changes in the fashion industry's supply chain and increased costs.
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News Link: https://www.supplychaindive.com/news/fashion-industry-vietnam-tariff-risks/742433/
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