Seismic shake-ups to global trade took shape Wednesday as the Trump administration’s reciprocal tariffs were slated to take effect — but didn’t.
The stock market was rocked by news in the early morning hours that China had drastically escalated its retaliatory duties on the U.S., and the European Union approved 25 percent tariffs as a countermeasure to the president’s steel and aluminum tariffs, announced last month. “BE COOL! Everything is going to work out well,” Trump posted on Truth Social as the markets trembled.
But by early afternoon, the president seemed to realize all was not, in fact, cool. Hitting back at China, Trump posted that he would raise the stakes in the trade war, upping import duties on China-made goods to 125 percent, effective immediately.
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Highlighting the contrasting stance of about 75 other U.S. trading partners, which have rushed to the phones to implore the president to reconsider double-digit duty increases, Trump said he would authorize a 90-day pause — “and a substantially lowered Reciprocal Tariff during this period” of 10 percent, also effective as of Wednesday.
The president attributed the backtracking to the fact that “these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States.”
Within minutes of the news breaking, the markets rallied, with the Dow Jones Industrial Average and the S&P 500 seeing their largest one-day gains since 2020.
“We are relieved that President Trump is pausing the onerous reciprocal tariffs on most of our trading partners. Ninety days offers an opportunity to hold serious discussions about trade barriers and craft substantive market opening agreements,” Julia Hughes, president of the U.S. Fashion Industry Association, told WWD’s sister publication Sourcing Journal. “Our motto at USFIA is ‘Fashion Made Possible by Global Trade’ and we know that fashion benefits from the opportunity to source across the globe.”
While the tempering of tensions with much of the trading world represents a step in the right direction, Hughes said she remains “concerned about the escalating trade war with China.”
“Ultimately no one wins in a trade war so we hope that today’s dueling tariff increases will lead to a serious negotiation to resolve the long-standing trade issues between the U.S. and China,” she added.
“Chaos” and “paralysis” were the terms American Apparel and Footwear Association policy lead Nate Herman used to describe the current trade landscape and the industry’s reaction to it.
“There’s no way to plan, because you don’t know if what you’re dealing with is going to change 20 minutes from now, two hours from now, two days from now, or two months from now,” he said.
The 90-day deferral of reciprocal duties will provide some relief for brands that have orders on the way from offshore sourcing locales. “I think the one thing that the reprieve does, if you want to say it does anything, is that people will get the current orders filled and not make any real changes to the current orders,” he said.
As for the strategy of front-loading orders before the tariffs take effect? “Bringing stuff in under the wire — that’s been done, we’re sort of past that point now, because everybody thought that April 2 was the deadline,” he said.
Even if they could accelerate orders before the end of the duty deferrals, brands and retailers have been operating under the assumption that demand is going to take a nosedive in the coming months, Herman said. “Not only were apparel, footwear and accessories prices going up, prices for every single product American families buy was going to go up. American consumers were just going to have less money overall, and they were going to balk at paying higher prices,” he said.
“American consumers are reacting to all this uncertainty by just pulling back altogether, and there was the assumption that demand was going to drop,” he added. In response, U.S. apparel firms are likely going to hold back on new orders or greatly reduce their volume.
Trump’s 10 percent universal baseline tariffs, which went into effect April 5, will have near-term impacts on pricing at retail, as well. “You’re going to start seeing prices go up as soon as late spring. I could see by Memorial Day…if not sooner,” Herman said. Goods from China are their own beast — and the price hikes will be astronomical by comparison.
Herman believes that Trump’s tariff strategy may achieve one objective among many unintended consequences: “I think no matter what, people are saying, ‘We have to get out of China.’ Everybody was trying to do that as much as they could as it was.
“The question is, where do you go?”
With only a 90-day reprieve from reciprocal duties, making future-facing decisions with long-term impacts is ill-advised, he believes. “Is Vietnam safe? Is Cambodia safe? Is Bangladesh safe? Nobody knows,” he said.
While Herman said AAFA’s members, which include U.S. apparel makers, have seen inquiries about expanding onshore production, there’s little opportunity for brands to produce real volume in America with such limited manufacturing capacity. Meanwhile, many of those outfits are dependent on China-made inputs and machinery that now face 125 percent duties.
“I heard about an apparel manufacturer that wasn’t able to open a new plant because their machinery costs shot up $3 million or $4 million,” he said. “This is handicapping U.S. manufacturing, which supposedly is the whole point of this process.”
Meanwhile, the same American makers are feeling the sting of retaliatory duties from the country’s biggest apparel, footwear and accessories export market, Canada, which took in $2.1 billion worth of those products in 2023, according to AAFA’s most recent data. Canada’s 25 percent tariffs on American-made goods have already driven down business.
And even as many acknowledge the troubling nature of China’s dominance over the trade of fashion goods, the country represents a critical export market for U.S.-made products. China took in the most U.S. cotton, and the third-highest amount of American textiles and apparel, in 2023. Now, “That market has been shut down,” Herman said.
Footwear Distributors and Retailers of America president and chief executive officer Matt Priest called the current tariff turbulence “unprecedented” and “historic for all the wrong reasons.”
“These are the types of duties that we saw 100 years ago,” he said. “We’re having a cultural experience that none of us have ever lived through.”
Priest said the trade group’s members have been firing off emails and texts and blowing phones off the hook with urgent questions about how to price goods and whether to cancel orders since the president made his most recent tariff announcement. Asked whether they’re worried about raising prices, revamping sourcing strategies or moving out of China, he said, “All of the above.”
“It clearly depends on your exposure to China and other markets, and where you sit relative to the footwear marketplace in the U.S. — what’s your average selling price and which retailers you engage with, what’s the profile of your customer?” he said.
Many footwear firms source predominantly from China, and they’re particularly concerned. Vietnam, another footwear haven, is safe from escalated duties for several months, but may see a ramp-up when the pause lifts, and shoe retailers have to factor in those anticipated costs. An FDRA member illustrated the conundrum for Priest, saying, “I’ve got to figure out how to sell the same shoe to the customer that I sold last year for double the price this year.”
This will be especially tough for those that sell into mass retail, as cost-conscious consumers will be the first to retreat due to sticker shock. But shoppers across the board will contend with higher prices, smaller selections and weakened spending power. “There’s going to be damage done to the consumer,” Priest said, noting that he anticipates prices will go up within weeks, not months.
Amid the chaos, Wall Street finally exhaled on Wednesday.
Shares of fashion stocks rallied strongly on the news, showing just how much the threat of a global economic collapse can help Trump finesse the Art of the Deal.
A basket of 70 fashion-specific stocks trading in the U.S. gained nearly $57 billion in market capitalization for the day.
Leading the way higher was Capri Holdings, which saw its shares jump 31.1 percent to $16.36, helped along by the tariff switch and hopes that the company might sell Versace to Prada.
The other big gainers included VF Corp., up 27.5 percent to $12.42; Kohls Corp., 25.6 percent to $7.76; Levi Strauss & Co., 20.2 percent to $14.93, and Macy’s Inc., 18.5 percent to $11.87.
Those kinds of gains are not normal, but they are in sync with the times.
The CBOE Volatility Index, better known as Wall Street’s Fear Gauge, fell 36 percent after the about-face on tariffs.
The president has proven much more ready to shake things up in his second term and investors as well as retailers are going to have to get used to living with that reality.