Editor’s Note: This article is the first in a three-part series by Richa Agarwal examining how the 2025 tariff environment and broader economic disruption are reshaping the global fashion industry. Here, in Part 1, Richa explores the macro forces at play – from trade policy upheaval and economic volatility to shifting consumer behavior and sustainability crosswinds – and how they are rendering long-held operating models obsolete.
In Part 2, Richa will outline the strategic transformations now underway – and in Part 3, she’ll distill the road ahead into a set of actionable imperatives, offering a blueprint for antifragile value networks.
The Storm Hits: A System Under Siege
The global fashion industry is currently navigating a perfect storm; a confluence of disruptive forces testing its foundations like never before. As a seasoned veteran of the apparel and footwear sector, I’ve witnessed numerous market cycles, but the current environment – characterized by extreme trade policy volatility, significant U.S. economic headwinds including a recent credit rating downgrade, and persistent geopolitical instability – presents a challenge of unprecedented scale and complexity.
The “tariff whiplash” initiated in early 2025 – characterized by a new baseline 10% U.S. duty on most imports, compounded by steep “reciprocal” tariffs on key sourcing hubs (with China, for example, seeing effective rates swing dramatically before settling temporarily around 30-54%), and the pivotal elimination of the de minimis provision for China and Hong Kong – was already reshaping our operational landscape.
Now, as of late-May 2025, these trade pressures are amplified by new economic realities, most notably Moody’s recent downgrade of the U.S. sovereign credit rating. This development, signalling concerns over national debt and fiscal stability, has sent jitters through financial markets, threatening to increase borrowing costs for businesses and consumers alike, and potentially dampening already fragile consumer confidence. The old playbooks are not just outdated; they are obsolete.
The New Mandate: Rethink, Rebuild, Respond
But within this perfect storm of tariff chaos, credit concerns, and persistent global uncertainty lies a stark, unignorable mandate: this is not merely a crisis to be weathered, but a powerful, if painful, catalyst for the profound evolution of the fashion industry. It’s an urgent call to accelerate the adoption of intelligent technologies, build radically resilient value networks, and fundamentally rethink how we plan, source, and deliver value in a new global era.
The Shattered Illusions of a Bygone Era
For too long, many segments of our industry operated on a model of hyper-optimized, lowest-cost sourcing, often heavily concentrated in specific regions. This paradigm, while delivering margin benefits in a more stable world, carried inherent fragilities – exposure to geopolitical shifts, a lack of deep supply chain transparency, and mounting ethical and sustainability pressures. The trade policy shocks of 2025, now compounded by broader economic anxieties, have shattered the illusion of that old stability.
The immediate repercussions are being felt across the board:
1️⃣ Intensified COGS and Margin Compression
Persistently high effective tariff rates—the U.S. average remains at its highest since the 1930s, despite temporary rollbacks on some China tariffs—continue to inflate the COGS (Cost of Goods Sold). This, now potentially combined with broader inflationary pressures and higher capital costs following the credit downgrade, places extreme and ongoing pressure on margins.
2️⃣ The Beleaguered Consumer
Tariff-driven price hikes, with apparel and footwear, projected by the Yale Budget Lab, to see sustained double-digit increases (14-16% for apparel and 15-19% for shoes in the long run), are now confronting a consumer base potentially more cautious due to wider economic uncertainties and the prospect of increased borrowing costs. Major retailers like Walmart have already signaled the inevitability of passing these costs on to the consumers.
3️⃣ Inventory Risk Reaches Critical Levels
The combination of volatile consumer demand, disrupted global supply chains, and uncertain cost structures makes inventory management a high-wire act. The risk of crippling overstocks or damaging stockouts is significantly amplified.
4️⃣ Sustainability’s Crossroads
While direct investment in ambitious ESG programs faces even greater financial headwinds, the economic pressures on consumers could inadvertently accelerate trends towards product durability, repair, and the already burgeoning resale market —sectors not directly impacted by tariffs on new goods. This aligns with the critical need for verifiable sustainability claims, moving beyond platitudes to leverage AI and granular Product Carbon Footprint (PCF) data for genuine transparency, as I’ve emphasized in my broader work.
The Road Forward
The disruptions of 2025 have shattered long-held assumptions and laid bare the vulnerabilities in fashion’s global value system. But if Part 1 has mapped the contours of the crisis, Part 2 is about the response – the strategic recalibrations, technology investments, and organizational shifts already taking shape.
t-2 sleeps til Part 2.
Sources
Frontier.cool, 2025 Tariff Changes: Impact on Fashion, Textiles & Manufacturing, 12 Apr. 2025
UPS Supply Chain Solutions, 2025 Tariffs and Their Impact on Global Trade, 12 May 2025
Yale Budget Lab, State of U.S. Tariffs: May 12, 2025
Wall Street Journal, What the U.S.–China Tariff Rollback Means for the American Economy, 12 May 2025
Just Style, Outlook 2025: What’s Plaguing the Apparel Supply Chain?
Fashion Dive, Nearly Half of Shoppers Are Concerned About Tariff-Related Fashion Costs, 13 May 2025
Anadolu Agency, US Loses ‘Top’ Credit Rating from 3 Major Credit Rating Agencies, 19 May 2025
Palmetto Grain, Stocks Set to Open Sharply Lower After U.S. Credit Rating Downgrade, 19 May 2025
Investopedia, A Trade Loophole Is Closing. Here’s What That Means for Your Online Shopping Costs
For a full list of citations and further resources provided by the author, please contact us or reach out to Richa directly.
