Bonus: The Trade War’s Off, For Now. What's Next for Fashion?

0:07Hello, and welcome to The Debrief from The Business of Fashion, where each week we delve into our most popular BOF professional stories with the correspondents who created them. I'm executive editor Brian Baskin. And I'm senior correspondent Sheena Butler-Young. On Monday, May 12th, the U.S. and China announced a deal that would have both countries lower tariffs for three months. The rest of the day played out like Liberation Day in reverse. Fashion stocks rallied and business owners across the industry breathed a huge sigh of relief. But is the trade war really over? And even if it is, can fashion ever go back to how things were on April 1st?

0:45Joining us to discuss are BOF retail editor Kathleen Chen and BOF correspondent and tariff guru Mark Bain. Hi Kat, hi Mark, welcome to the Debrief podcast. Hey guys. Hey Sheena. So I think we should start with what is becoming my favorite reoccurring opening question on the Debrief, which is, Kat, Mark, what just happened? So on Monday, after a weekend of talks between the Trump administration and China, we got a deal that would essentially de-escalate the trade war for a 90-day period. You know, we'll see what happens at the end of that period. But for now, the giant tariffs that the U.S. and China had put on each other's goods have come down, not all the way, but down significantly.

1:30So the U.S. tariff on China goes from 145 % down to 30%, and the Chinese tariff on U.S. goods went down from 125 % to 10%. Why did the U.S. and China decide to ease tensions now? Like, what was driving the decision now? Or do we even know? Because it seems like we often don't know. I mean, I think it's just because both sides were aware that this was not going anywhere good. The analysis that I've generally seen is that the Trump administration blinked, that China really held firm, and the U.S. is kind of the side that backed down first. I think it's clear that neither side really felt like things were going well.

2:11We saw the chaos that has already started to sort of unfold here in the U.S. We've seen, you know, cargo volumes dropping, investors panicked. Even just the recession projections going up in March and in April, coupled with the news that GDP contracted in the first quarter, I think there would have been pretty catastrophic effects on the economy at large. And Trump would have obviously taken the blame for that. and we can't say what were the conversations behind closed doors, but there was a lot of doom and gloom, at least in the U.S., just about where the economy was headed. All those cries of pain from the fashion industry that we've been reporting, someone was actually listening, it sounds like.

3:01Well, I don't know if they were listening to fashion, but they were certainly listening to other parts of the economy. Didn't Walmart and Target go and have a meeting and basically say, like we're looking at empty shelves in the months to come. Like this is going to be that. I actually agree with you, Mark. I think that was a real turning point when two of the biggest retailers in the country said we're talking empty shelves, you know, annoyed to panicked consumers. That's hard to brush off. And Kat, we'll talk in a little bit about a story you're working on, on exactly this topic and how realistic that prospect is.

3:33But first, I did want to say, Even with what was announced on Monday, the tariff landscape is looking quite different than it did a little over a month ago. Is that right, Mark? Yeah. I mean, I spoke yesterday with Steve Lamar, the president and CEO of American Apparel and Footwear Association, a giant trade group. They talk to a lot of brands. The way he described it to me is that 145 % tariff was, in effect, an import ban. I mean, the Trump administration never phrased it that way, but he's like, that is effectively what it did. It was saying, do not import products here from China. The costs are just too high.

4:11No company could reasonably do that. Lowering that to 30 % is a different situation. You know, it's saying like, go ahead, import your stuff, but it's going to still be expensive. So it's a little bit more nuanced in this way that it like the tariffs apply on top of any existing tariffs that were already in place, like the most favored nation tariffs, as well as the usual customs duties on products. And those vary by product. So some products, it could still be prohibitively expensive to import them. In some small companies, a 30 % tariff might still be too high to bear. But other companies are certainly saying like, OK, we can resume shipping.

4:55We can get things back. This is a cost we can handle. So we'll see how things play out. But some different scenarios. I found the reaction quite interesting, too. In the market, stocks just zoomed up, basically erasing most or all the losses that a lot of companies had seen since April 2nd. But then the people that you and Kat talked to for the story that we ran on Tuesday really struck a different tone. I mean, you know, Steve Lamar, who you mentioned, you know, he talked about how we're still going to see an inflationary situation. A lot of people saying, well, this is nice, but not quite enough to quiet our concerns.

5:33Yeah, for sure. I think, look, it's not just the China tariffs, right? There's still the reciprocal tariffs and deals being ironed out now, hopefully. And there's just a lot of uncertainty still that lingers in the industry. I think, you know, especially on the sort of analyst industry observer side, it's even harder to say on behalf of brands that their headaches are over. Yeah, I think beyond what's going to happen with tariffs with dozens of countries, there's also the issue of consumer confidence and sentiment and whether there will be demand to drive sales for the products that do end up in the U.S.

6:19Although, Kat, you spoke with a Real Live brand founder yesterday, minutes after this announcement. I mean, what was their reaction? I mean, they actually did take immediate action right after they heard this news, right? Yes, absolutely. So I spoke with the founder of Bog Bags. It's a brand of plastic, washable, beach bags. They're doing really, really well, actually expanding into wholesale this year. Sort of the crocs of beach bags, right? Exactly. So the CEO, Kim, she was able to tell me that immediately she got on the phone with her factory in China and greenlit the orders that she had suspended for fall and holiday.

7:00She said that she basically went ahead with 90 % of these products that were on hold. And so she definitely was celebrating yesterday. But then the other half is she had started to look for alternatives to China and she's not exactly ending that search, right? Yes. Yeah. I think actually a lot of retailers are in this boat. I think diversification, regardless of tariffs, it's a safer bet for any kind of business. So when the tariffs were at 145 % on Chinese made goods, it was a very urgent quest for her and her team to establish relationships with factories in Vietnam and Sri Lanka. And funny enough, she said that it's actually the same factory owners from China, but just setting up camp in these other countries.

7:54But now it's looking like that she'll be able to still keep 40 % of production in her Chinese factory and then figure out the rest, dividing between the two future factories in Vietnam and Sri Lanka. It's so funny. It's like a classic negotiation thing that you do. You tell people, oh, it's going to be 150%. And then you're like, actually, it's 30%. It feels like a relief, but 30%, to Mark's point, isn't nothing. It's still something. It's still a challenge for brands. I wonder from where both of you sit, there are these emerging production hubs or even larger than emerging, but like in Vietnam and Cambodia and India that were preparing for this windfall because China was going to face these really high tariffs.

8:39What's the impact on those production hubs now that they might not get this new business, if you will? I don't know how much preparation anyone could really do at this stage just because, you know, We have this 90-day pause on the country-specific tariffs. And depending on what happens with those negotiations, the whole landscape could shift. Say you're Vietnam and you're banking on China having 145 % tariff, and so everyone's going to come to you. The China tariff drops down. Say negotiations don't go well. You still have a high tariff. People might go to China or to somewhere else entirely. I mean, that's kind of the issue.

9:20I didn't hear America anywhere in the equation, which is also funny. It's like people are thinking about everywhere but America, which is like the initial premise here is that you're going to bring production back. So that, am I correct that that's still not really a plausible result here? Yeah, I don't think so. I mean, and that's sort of one of the big confusing points over and over with the way the Trump administration has negotiated all of this is like, is the point to negotiate more favorable deals with these other countries or to bring manufacturing back to the U.S.? Because depending on what the goal is, your tariff levels would be different.

9:57And they talk about both as if they're the same thing. And it just creates a lot of confusion for businesses that are trying to plan for the future. We'll be back with more of The Debrief right after this.

10:15So this deal lasts about 90 days. What do both of you think is likely to happen next? Any predictions? I think that a lot of brands right now are going to take advantage of this 90-day window and go ahead and make their orders for holiday. I think what I've heard is that we're sort of at the end of the window for orders for holiday. And this sort of came just in time. And I'm sure that was part of the decision making with negotiating this agreement. But it's just in time to make the necessary orders for holiday. And I think in terms of inventory, fashion is going to be in a pretty solid position through the rest of the year.

10:59Tell us more. What do you mean by that? Well, I think there were a lot of very alarming headlines that have come out in the past couple of weeks about cargo imports dropping drastically, dropping by 50 % or more, looking at week-over-week data, which I think is pretty misleading. Most of the retailers that I've been following and founders that I've spoken to have pulled ahead on inventory for summer, back to school, and now they're making the holiday orders. But essentially, we're in a really good inventory position looking at earnings reports from Aritzia, Revolve, Tapestry. Their inventory levels are up, which means that they do have products on the shelves and they will have products on the shelves in the coming weeks.

11:49Where the situation differs from previous seasons is that retailers are taking a lot more of a conservative approach when it comes to the assortment of items and seasonal items and really emphasizing evergreen pieces, core pieces that they can replenish and know that they can sell. So yeah, I think from a consumer standpoint, if you're looking to shop for your summer wardrobe, if in some states starting back to school shopping soon, I'm pretty confident that stock outs won't be super prevalent. That said, there's still very much a wait and see mentality among retailers. There's just so much anxiety over how the rest if the negotiations will play out.

12:39What's the logic behind selling these evergreen products, not stocking the Christmas sweaters, stocking the basic sweaters instead? There's just less risk on that inventory. There's season after season worth of data. These are the sellable items, right? If you're a brand and you know that your gray jersey T-shirt, which is pretty seasonless, it's not really a trendy item. If you know that's something that has sold again and again, it's a safer bet to continue selling that item. And it's interesting, actually, I've talked to a lot of brands, smaller brands that are saying that they are willing to just shoulder maybe some of the costs that might go up.

13:25One of the trickiest parts is that no one really knows how big of a margin hit that they are going to take. And I think the right approach is if you can, if you have the cash strength to just continue doing business, that's where there will be opportunities to win. Because the truth of the matter is the American consumer is still shopping. Like as of April, the American consumer is still buying stuff. A lot of the solutions that brands had initially come up with feel like they don't stick because of how quickly things change. I remember it was you, Mark, talking about brands slowing down their goods on like ships that were coming, like take the slowest route possible so that by the time your merchandise arrives or your inventory arrives, the trade war is over.

14:13Are those brands calling now and speeding up the ships? Like, what does that mean? Like, how do some of these previous solutions shake out now? Yeah, well, I mean. That would be great. Yeah, I was going to say, if you were one of those brands that your stuff is now arriving in two weeks instead of two weeks ago, that worked out really well for you. But now to the point that Kat made, now you have this 90-day window. Well, with China specifically, we have less time than that with the other countries. But if you're importing from China, you have 90 days of certainty. After that, we have no idea what the case is going to be.

14:50The tariffs could remain just as they are. They could go back up. Who knows? So I think we are going to see a lot of brands rushing to get product in. And one of the things that I heard from the trade groups that I talked to is that they're already keeping an eye on. And as everyone rushes to get their products in, you know, freight costs are going to go up because everyone is competing for that same space. So that's going to be an issue, too. And then, you know, you still do have that 30 percent tariff. So everyone is kind of expecting some inflationary pressure just on a few different fronts there that are likely to raise prices.

15:27The other big news out of this trade deal was a change to the de minimis loophole, my favorite loophole, which affects companies like Xi 'an, Timu, Quince, and others who ship directly from Chinese factories to American consumers. Mark, tell us what happened there and, again, whether we're resetting to a pre-April 2nd world or if this is something new. So we are not resetting entirely. So the Trump administration closed this loophole that used to allow packages valued at up to$800 to enter the U.S. duty free. That loophole closed on May 2nd, which caused all sorts of chaos for Shein and Teemu and these companies that you just mentioned.

16:13But as part of the deal yesterday, they didn't get rid of that exemption, but they cut the tariff rate down. So a small parcel sent from mainland China and Hong Kong will not be tariffed at 120 percent, which is what they were previously. It'll now be 54 percent. And this news was a little bit confusing. It seemed to come some hours after the main announcement of the 90-day pause. And there was even a Reuters story that was talking about how the de minimis loophole just remained in place. So, yeah, we are not back to pre-Trump tariffs. We're in a new territory and we will see exactly how much a 54 percent tariff means on packages from from Shein and Timu and those others.

16:57Well, it's funny. It feels like almost an afterthought, even though in our world it's such a big deal what happens to Shein and Timu. I mean, I think I think I found out about this because Bloomberg or Reuters had written a story and the White House literally sent an email saying, actually, we we did lower de minimis tariffs. I think for a lot of consumers, it's not even like they're going to shop and then they're expecting to see extra taxes. I think all the news about Shein and Temu has been enough to just keep that customer away. I feel like there might be this attitude of like, all right, well, we had a good run of really, really cheap stuff for a couple of years.

17:34And maybe we had enough of it. I was going to ask and reminded me of, I was thinking about how do you communicate to your customers, if at all, about all of the de minimis sounds like such a legal government kind of thing. And then tariffs, like sure, they're in the mainstream conversation, but should brands be marketing or talking to their customers about all of this? And how do you do it? I know there are some companies that have talked about putting the actual tariff, this is mostly an automobile, but like putting it on the price tag so consumers know you're paying this extra 30 % and this is what it is.

18:08And then the cost of the vehicle is this other cost. What have you heard? What do you make of how brands could or should communicate around tariffs? Maybe not De Minimis. I don't see Sheehan and Timu having a conversation about De Minimis, but maybe the tariffs. I saw an email from a baby brand. I'm not sure what baby products they sell, but they are having a live AMA with their customers about tariffs, which seems quite extreme to me. I got one too. I got an email, not from a baby brand, but from like a big retail conference that's slashing the prices of their tickets because the tariffs went down.

18:41I don't know if anyone else got this, but people are definitely promoting or like marketing around tariffs in a way that I think is quite funny. I don't know what would have been tariffed at this retail conference ticket, but they definitely used it to have a conversation and promote. Yeah, I've gotten emails too. I think you kind of have to explain to your customer at some point, like if you're going to raise your prices significantly, you've got to tell them why, ideally. And you kind of want to pin it on somebody else and not just be like, hey, we're just raising prices. You kind of want to say, like, there's a reason for this.

19:14So I've definitely gotten some emails from companies saying that this is the situation. Our colleague Haley actually wrote a really great piece about this that published toward the end of April about how brands are being very transparent about price increases to consumers. And that has been the conventional wisdom that if you're going to raise your prices, say something on the website, send an email. although the truth of the matter is that a lot of brands have been raising prices just silently, right? Like without acknowledging prices have gone up and there have been a lot of brands who were able to observe their elasticity, their ability to continue raising these prices and continuing to drive sales.

20:03And so I think it really depends on the brand and sort of its value proposition. I also think Monday kind of changed the thinking at a lot of brands because you look pretty smart now if you didn't make a big deal about tariffs and the price increases that were coming because now they're not necessarily coming. And as you said, lots of brands are raising prices and Trump is doing plenty of talking about tariffs himself. So consumers are generally aware that this is going on. And it's actually maybe a good time to just sneak in a price increase, whether you manufacture in China or not, because people just assume it's Trump's fault.

20:43Is that advice? It's not actionable advice and do not hold me accountable if your business subsequently tanks. At this juncture, we've talked about sort of navigating frenetic or unrelenting uncertainty. Are there any best practices that have emerged just to kind of tie this all together, that brands should abide by right now or that they are abiding by right now. We've seen a mix of, you know, you maybe you don't do anything, but then that doesn't seem smart either. Like not being agile, having a plan in place. But then if you have a plan in place, be prepared to pivot the plan. We also saw brands actually already closed their doors.

21:22We mentioned this in the earlier episode of the debrief, like there were brands on Instagram posting that they just know they won't survive the tariffs and they're done. You can't really reverse that anymore. Any thoughts on emerging best practices that you've heard from brands or industry experts now? I mean, for me and Kat made this point earlier, like diversify your supply chain. Don't count on any one place. And another thing I've heard is also like specifically have some redundancy built in. So if one location becomes untenable for some reason, you can shift to another spot. If you're making your single most valuable product in one factory in China and something goes wrong there, you might have a real issue.

22:05That's a big one that I've heard over and over. And that's something we learned, aside from the tariffs, just from COVID, from supply chain disruptions over the past several years, everyone has been trying to diversify and build in some layer of redundancy. Totally, totally. Another thing that I've heard is this idea of partnership now is a really great time to forge stronger ties to your suppliers, to your vendors, to even to your retail partners. I think before price increases, a lot of what brands are assessing is how they can work together with all of their partners through distribution and supply chain so that everyone takes a little bit of a hit to minimize what is ultimately passed on to the customer.

22:52And, you know, I think, Shina, when you mentioned brands are going on Instagram saying that this is it for them, these are brands and not to disparage them, but my guess would be that they don't have extremely strong ties to their factories. They are brands that their factories probably are not prioritizing because if I'm a manufacturer and I work with, let's say, half a dozen brands, whoever is bringing in the most volume, I'm going to be most inclined to take a margin hit alongside. And so, yeah, I think partnership is the name of the game. But Mark and I also had a really fun conversation with a customs lawyer last Friday.

23:33Mark, you're maybe doing a story on this, right? If you want to walk through some of the more legal oriented solutions. Yeah. I mean, there are like little things you can do also to bring down the fees you're paying. There's something called the first sale declaration. Basically, if you're a brand in Europe and you buy something from China, import it into Europe, and then send it on to the US, if the US sees that it's coming from Europe, it's going to put tariffs on you at one rate. This is not the best example because the EU, you would actually have a lower tariff than from China. But what you can actually do is wherever you initially bought the product, you can declare that as the country of origin and, you know, use that as the country that the tariff rate would apply to.

24:27There are other things brands are doing, like, you know, I'm sure you've heard of like tariff engineering. There's the famous Converse example, adding the like fabric flocking on the bottom of the shoe. Apparently they, I think the Biden admin sort of closed the loophole in that. So they switched to doing some like leather flocking, if I remember right. You have to tell us what that is. I don't know the famous Converse workaround, putting like material at the bottom of the shoe that gets you out of a certain tariff or tax. So I think this goes back a long way to the U.S. trying to protect the rubber industry here.

24:59And so there were high tariffs on like rubber products, including athletic shoes with rubber soles. And so what they figured out was if you put these like little microfibers of fabric on the bottom of the sole, you could claim that it's a fabric sole, not a rubber sole, and be taxed at a different rate. And there are all sorts of weird little things like this. Like Columbia Sportswear has talked about how like if you put pockets in I think the lower half of a woman's blouse, you can claim it as like a different product category and get the rates lowered. And there are other things you can do if you like raise the level of natural fibers over synthetics, you know, that sort of stuff.

25:39You know, none of these things on its own is going to like completely dodge every bullet out there, but together they can add up to, you know, a pretty significant amount, like 30 % savings potentially. One of the most interesting things that I thought that the customs lawyer said was, he said that they're dusting off a lot of like old workarounds because, Because, well, this is my impression, correct me if I misunderstood Mark, is that in the past 15, 20 years, trade has opened up in such a way that these little tricks were no longer necessary. But now with, you know, all these tariffs on the horizon, that they're dusting off this old playbook of tricks.

26:25That's awesome. I love a good loophole. I feel like we should invoice people for this like legal advice. These are really nifty loopholes. No matter what happens with China, there are still major potential tariffs looming over a lot of other countries where the fashion industry does its manufacturing. And none of that's been resolved yet, right? I mean, does anything that happened on Monday affect what happens in Vietnam, let's say? Well, as I understand it, people are at least hopeful that this deal, because China was sort of maybe the most intractable sort of situation that U.S. trade was facing.

26:59It creates hope that we could get deals with other countries soonish. One possible scenario that would kind of prevent that is if the China deal takes up all the administration's attention and they push these other deals to the side. But they've said that they're working on these other deals. The other thing, Matt Priest, the president and CEO of the Footwear Distributors and Retailers of America, told me that in his opinion, this China deal sort of sets the bar for what these other trade deals could look like too. So if China came down from 145 % to 30%, there's no reason to expect that a 46 % tariff on Vietnam would stay in place.

27:40Like most likely it would come down as well, potentially to 30 % or below that. So the expectation is we will see some other deals and that they'll probably lower the tariff rates from what we saw on April 2nd. Mark, Kat, thanks so much for joining us today. Of course, it was my pleasure. Thanks so much. Please be sure to check out Mark and Kat's article with the trade war on pause. Here's what's next for fashion. And look out for another article from Kat coming in the next few days. These and other stories are available to BOF professional subscribers only. And you can find the links in the episode notes.

28:19You've been listening to The Debrief, produced and edited by Olivia Davies and Eric Bria. I'm Sheena Butler-Young. And I'm Brian Baskin. We'll be back next week with a new episode. Thanks so much for joining us and be sure to follow us wherever you get your podcasts.