Navigating the Tides of Change: The Impacts of Tariffs on Global Trade and Sourcing Strategies

Arthur Zaczkiewicz
·5-min read

The dance of international trade is endlessly complex, influenced by factors as varied as political climates, economic shifts, and now, the fluctuating parameters of tariffs. But how do brands and retailers navigate amid the turmoil and uncertainty?

This was one of the key questions raised during a recent Fairchild Media Group (parent of WWD) roundtable with Björn Bengtsson, chief product officer at Untuckit, Robert Gorin, consumer practice leader at Getzler Henrich and Lauren Parker, director of Fairchild Studio. The conversation offered insights into how businesses are pivoting in response to these changes, which revealed a story of adaptation and resilience.

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​The seismic shifts in trade are not just about avoiding higher tariffs, but also about sourcing strategies that directly influence supply chains and, ultimately, the prices consumers pay. The narrative changed significantly during the recent global upheavals caused by the pandemic, but the introduction of new tariffs by different administrations around the world could potentially add another layer of complexity.

The Pivot From China to Alternative Markets

​Many businesses began diversifying their sourcing strategies long before the current discussions around tariffs. The pandemic only accelerated this trend, with significant shifts out of China into other countries like Vietnam, the panelists said. Despite Vietnam emerging as a popular alternative due to lower costs and avoided tariffs, it’s crucial to note that many factories in Vietnam are owned by Chinese companies, subtly channeling benefits back to China.

​“Most of us moved out of China about four years ago,” Bengtsson explained. “Today, most businesses are no longer China-heavy. We still have some production in China because there are some things that we have to make there, but most of the business has moved over to Vietnam already. There is not too much left in China. So, because there were already penalties during the pandemic on China, now an additional 10 percent is, of course, going to hurt. And if you’re heavy or you have a lot of sourcing in China, for sure, people are going to transition out. But I don’t know too many companies who are heavily invested in China anymore. With that said, with the new administration, anything might happen. We’re not safe because we moved to Vietnam.”

Bengtsson said many of the factories in Vietnam are owned by Chinese. “The money goes back to China anyway, and the country benefits from that manufacturing,” he said. “The question is: ‘Will the [Trump] administration include more of Southeast Asia in general?’ And that would definitely affect sourcing because Southeast Asia is one of the biggest sourcing regions in the world, which leaves you only with basically India and maybe North Africa to source from. That’s going to have a great impact.”

​This nuanced shift underscores a broader theme: globalization intertwines economies in ways that simple geographic shifts in manufacturing can’t fully disentangle. With the potential expansion of tariffs to broader regions of Southeast Asia, companies might need to look even further afield to places like India and North Africa, regions that are not traditionally as heavy in manufacturing infrastructure for Western markets, the panelists said.

Immediate Impacts and Consumer Prices

​One unmistakable outcome of increased tariffs is the impact on product pricing. Post-pandemic recoveries saw industries struggling with increased freight costs and raw materials prices, compressing margins to their limits. The imposition of additional tariffs leaves businesses with little room but to reflect these costs in consumer prices.

​For instance, garments made from synthetic materials like polyester are already subject to high duties when imported into markets like the United States. An increase in tariffs could render such imports economically unfeasible, pushing companies to either find new manufacturing bases or reconsider their product lines altogether.

​“No matter what, anything you put on top of the product at this point in time is going to be directly reflected in prices to the consumers because after the pandemic and those cost increases, we had in freight and everything, there’s no way we have enough margin to really absorb more cost,” Bengtsson said. “So, it will get reflected in prices eventually.”

Beyond Costs: Time and Responsiveness

​The modern consumer, influenced by the likes of Amazon, values not just price, but convenience and time. The ability to receive products quickly is now a part of the competitive edge businesses need to maintain. This requirement has led some companies to move their manufacturing closer to their primary markets. For example, Gorin said a company moving its production from China to Costa Rica significantly cut down shipping times to the U.S., enhancing their ability to offer quick turnaround and capitalize on fast-changing fashion trends.

​“Price is critical because I think the consumer is feeling very put upon right now and personal debt is at an all-time high, savings are low, so I think you’ve got to consider that,” Gorin said. “But it’s also time. Time has become much more important. And we can all thank Amazon for that because they have this concept of instant gratification and that’s what consumers want.”

Challenges Ahead

​The road ahead is fraught with uncertainties, the panelists noted. The regulatory landscape is constantly evolving, and geopolitical tensions or changes in administration could alter the situation overnight. Companies are also mindful of the quality of manufacturing as they move out of established bases like China into newer regions, which might not yet have the same level of infrastructure or expertise.

​As businesses navigate through these turbulent waters, the key will be flexibility and the ability to rapidly adapt to new regulations and market conditions, the panelists said. What is clear from these shifts is that the impact of tariffs is far-reaching, affecting not just the economics of trade, but also influencing where and how products are made around the globe. As the industry watches these developments unfold, the resilience and innovative spirit of businesses will undoubtedly be put to the test.

CLICK HERE to watch a related video featuring the panelists here, titled, “Retail Resilience: Evolving Your Business to Meet Consumers Where They Are.”

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