Tariff Turmoil Hits Vulnerable Fashion Manufacturers in Southeast Asia

When Donald Trump announced tariffs of up to 145 percent on US imports back in April, global brands reeled. The US president then paused the scheme following financial market turmoil, reverting to a 10 percent ‘baseline’ tariff on imports from all countries except for China at 30 percent. But despite lawsuits over the scheme’s legality, the threat of much higher ‘reciprocal’ tariffs remained in place unless countries reached a new trade deal with the US within 90 days. That deadline is set to expire July 9.

As the world’s largest exporter of textiles and apparel by value to the US, China clearly has a lot at stake in the trade war with Trump. But so do Southeast Asian countries like Vietnam, Indonesia and Cambodia, which rank among the top ten fashion exporters to the US. The jeopardy they face was evident earlier this year when industry leaders attempted to quell panic among local manufacturers, with Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association, saying they need to “stay mentally strong” in the face of the US tariff threat.

Now, manufacturers and factory workers across Southeast Asia are once again in the eye of the storm. If Trump’s reciprocal tariffs do come into force and are upheld by US courts, countries in the region are set to incur the following average tariff rates: Cambodia 49 percent, Laos 48 percent, Myanmar 44 percent, Thailand 36 percent, Indonesia 32 percent, Malaysia 24 percent, Brunei 24 percent, Philippines 17 percent and Singapore, no adjustment. Vietnam was expected to be hit with a 46 percent tariff but last week’s bilateral deal suggests it will now be charged 20 percent unless the US deems goods have been transhipped through the country, in which case there will be a 40 percent levy.

Meanwhile, in a bid to avoid the highest possible tariffs — including Trump’s threat of an eye-watering 145 percent levy on China — US brands have been expanding their manufacturing footprints. “Brands have typically expanded from 1-3 suppliers to 5-10 in the past year,” said Kathleen Chan, CEO of US-based sourcing platform Calico, which connects brands and retailers with more than 150 apparel and footwear manufacturers worldwide, spanning Asia, Europe, South America and the US.

Chan confirms it’s small enterprises that face the biggest diversification challenges. “Brands are asking suppliers to negotiate pricing to soften the [tariff] blow — compromises [include reducing] FOB prices in the short term, but [in return, suppliers] want [assurances of] long-term partnerships with the brands.” However, some manufacturers are not willing to yield. “Capacity in Vietnam and other factories is down because many [brands] are diverting production [to the country] already. Where there is competition there is price tension, so [fewer] concessions may be available for brands.”

“For the first time, I saw factories in Vietnam turn away [US] customers because they are looking for [export orders] to Europe [to avoid US tariffs],” Chan added.

🇻🇳 Vietnam

• $16.3 billion of textile and apparel exports to the US (2024, OTEXA Trade Data)
• 2nd largest textile and apparel exporting country by value to the US
• 20-40 percent ‘reciprocal’ US tariff rate

Vietnam’s tariff reduction will be welcome news to many in the country, but Trump’s erratic policies have already done significant damage to local factories like GM Apparel and Accessories in Ho Chi Minh City. “The [tariff] effects have already been challenging [and] there is [still] a risk that clients may shift production to alternative markets with more favourable trade conditions,” warned company director Silvia Van, prior to the announcement of recent trade deal.

“We’ve seen a decline in order volume, which threatens job security for our workers…The United States is our largest export market [so] we’ve slowed down our investment plans, particularly the expansion into new product lines,” said Van, who employs 95 staff at the factory manufacturing for brands like Mission, Chubbies and Mugsy, adding that she has been trying to diversify her client base and reduce dependency on the US market.

Vietnam has seen sales to the US market surge in recent years, partly because footwear and apparel manufacturers shifted production there from China. The Southeast Asian nation hosts factories for companies such as Nike, Gap and Lululemon among others. Nike alone had more than 100 suppliers in Vietnam in 2022. The country has benefited from other foreign investors too. Hansae Group, whose global clients include H&M and Zara, is one of the South Korean giants that have an overseas production base in Vietnam.

Even though Vietnam exports large volumes of fashion to multiple countries across Asia and Europe, the US is by far its largest market.

GM Apparel and Accessories isn’t the only Vietnamese supplier trying to hedge its bets ahead of the US ‘reciprocal’ tariff deadline. “We are changing our [business] focus to retailers in other countries too,” said Jennie Hope Peterson, partner and director at New Focus Textiles, which operates a joint-venture factory in Vietnam and owns textile mills in China and Portugal.

In the meantime, subsidising tariffs to maintain business with US brands appears to be commonplace, even after goods have been dispatched. “We’ve shipped fabric to Indonesia [and] Bangladesh that’s waiting to be made into garments and are being asked to pay back part of the [fabric] price to the brand and [garment] vendor to help offset their costs,” revealed Peterson.

🇮🇩 Indonesia

• $4.8 billion of textile and apparel exports to the US
• 5th largest textile and apparel exporting country by value to the US
• 32 percent ‘reciprocal’ US tariff rate

Indonesia’s textile industry can’t afford to lose out over US tariffs. “Over the past three years, we’ve seen a dramatic decline in the textile industry, as evidenced by the layoffs. Almost 180,000 to 200,000 workers have been dismissed from the textile and garment sectors,” stated Danang Girindrawardana, executive director of the Indonesian Textile Association (API), in a local TV interview in December.

A month later, the shutdown and subsequent financial scandal of one of Indonesia’s largest textile companies Sritex left more than 10,000 workers jobless, according to Jakarta Globe. In May, following the US tariff announcement, local media reported on the Indonesian Textile Association’s estimate that [production] demand could drop by up to 30 percent, prompting some in the industry to urgently seek new markets.

Now, looming ‘reciprocal’ US tariffs could damage the fragile sector further, suggests Redma Gita Wirawasta. The chairman of the Indonesian Filament Yarn Producers Association told the Kohan Textile Journal that “this tariff hike could disrupt the entire value chain, trigger a flood of cheap imports domestically, and accelerate layoffs.”

If Indonesia does suffer a decline in fashion exports to the US, the country could pivot to another big market, the European Union, pending ratification of a free trade agreement with the bloc that is said to be near completion.

🇰🇭 Cambodia

• $4.6 billion of textile and apparel exports to the US
• 6th largest textile and apparel exporting country by value to the US
• 49 percent ‘reciprocal’ US tariff rate

In April, when Trump doled out the highest tariff to Cambodia (bar China) at 49 percent, it sent shockwaves through the sector. The country’s Textile Apparel Footwear and Travel Goods Association (TAFTAC) tried to demonstrate resilience, stating that the rate would not cause Cambodia to “lose its entire competitiveness” considering similarly high rates incurred by neighbouring countries Vietnam and Myanmar. But others felt differently.

“Trump’s measures will expose hundreds of thousands of Cambodian workers to harsh working conditions, increased exploitation, and their well-being, living conditions and future being jeopardised,” concluded local media Camboja, citing a report by Sot Sophorng, a research officer at the local NGO, Workers’ Information Center.

Sophat warned in the report that wages are already too low to cover living costs, and tariffs may squeeze manufacturers further, with workers paying the ultimate price. As conveyed by the Workers’ Information Centre, Sophat “request[ed] the government to negotiate [well] with the US on the tax issue so that factory owners will continue to invest here,” rather than shift production to other countries.

According to Cambodia’s deputy prime minister Sun Chanthol, speaking to local media Kiri Post, the government “submitted three documents to the US [on June 16], including a trade agreement on tariffs, compliance requirements for Cambodia, and a draft taxation framework that we have to provide for US products.”

Peter Ford, a Cambodia-based garment sector consultant, said that during an industry conference in the days before the tariff announcement there was excitement at the prospect of business expansion. “The theory was that China would get impacted by tariffs [and] most of Asia was feeling bullish and wanted to integrate factories vertically to move beyond Tier 1 (garment production) into Tier 2 (textile production) – but now, who knows?”

🇲🇲 Myanmar

• $320 million of textile and apparel exports to the US
• 33rd largest textile and apparel exporting country by value to the US
• 44 percent ‘reciprocal’ US tariff rate

Although Thailand (in 18th place at $1.1 billion) and the Philippines (in 23rd at $610 million) export more textiles and apparel to the US than Myanmar, it is the latter country that is arguably the most vulnerable to punishing US trade policies.

Back in April, the Myanmar Garment Manufacturers Association (MGMA) said that US tariffs were causing “considerable concern” in an industry employing more than 500,000 people, mostly young women, according to a France 24 report.

The country experienced a devastating earthquake just days before Trump announced the tariff increase on the country which he had already severed humanitarian aid to, and paused passage of refugees from. The earthquake caused nearby factories to close, pausing the work, and therefore income, of an estimated 100,000 workers, according to MGMA managing director Aye Mi Shein.

The earthquake was just the latest crisis to hit the country. In recent years, labour unions have urged multinational companies, including major fashion brands, to exit Myanmar over reports of human and labour rights abuses linked to the military junta and a civil war that has been rumbling on since 2021. H&M and Inditex-owned Zara have indicated they are gradually phasing out sourcing from Myanmar.

“Amid Myanmar’s current challenging context, the new tariffs will increase the vulnerability of Myanmar businesses that have been struggling to stay afloat,” MGMA concluded in a statement.