Three tariff regimes in a year: how fashion re-plans sourcing in real time

On 24 July 2026 the United States put its third tariff regime in twelve months on imported clothing. New Section 301 duties of 10% or 12.5% on 60 economies replaced a temporary 10% levy under Section 122 of the Trade Act, which had itself replaced the "reciprocal" tariffs struck down by the Supreme Court in February. A sourcing manager who costed an autumn range in August 2025 against a 20% duty on Vietnam is now looking at 12.5%, plus a refund claim on what was paid in between.

For the industry's largest players the sums are large in both directions. Nike told investors in September 2025 that it expected USD 1.5 billion in annualised gross incremental tariff costs. Nine months later it said it expects to recover about USD 986 million in IEEPA refunds, and its fourth quarter gross margin rose 890 basis points to 49.2%, which the company attributed to that expected recovery.

The direct answer to how fashion companies re-plan sourcing under these conditions: by treating landed cost as a live variable rather than a once-a-season calculation. That means modelling duty scenarios by origin and product, shifting volume between countries, renegotiating with suppliers and repricing selectively. Surveys show AI is now used for parts of this work, especially forecasting and cost optimisation, but company filings show the decisive levers are still sourcing shifts, inventory timing and price.

What US tariffs apply to apparel imports in 2026?

The legal basis has shifted three times. Under executive orders using the International Emergency Economic Powers Act (IEEPA), reciprocal rates took effect on 7 August 2025: 20% for Vietnam, Bangladesh and Sri Lanka, 19% for Cambodia, Indonesia and Pakistan, and 25% for India, all on top of normal duties. On 20 February 2026 the Supreme Court ruled that the President lacks authority to impose tariffs under IEEPA. A 10% global tariff under Section 122 took effect on 24 February, but that provision allows duties for only 150 days.

The administration used that window. The US Trade Representative ran a Section 301 investigation into forced labour enforcement across 60 economies and announced final duties on 23 July 2026, the day before the Section 122 levy expired. Since 24 July, Bangladesh, Cambodia, India, Indonesia, Mexico, Pakistan and Sri Lanka face an additional 10%, while 38 economies including China and Vietnam face 12.5%, according to Kelley Drye's summary of the final notice. Earlier Section 301 tariffs on Chinese goods were not affected by the court ruling. Lower rates are good news for South Asian sourcing, but the spread between origins has narrowed, which changes the economics of the China plus one strategies many brands built in 2025.

There is a further variable for textiles. The administration directed USTR to set three-year tariff-rate quotas for textile and apparel imports from Bangladesh, Cambodia, Indonesia and Malaysia, based on their use of US inputs. Quota volumes are to be set "as soon as feasible"; until they are, the standard Section 301 rate applies to these textiles and apparel. For sourcing teams, that adds a fibre-origin question to every costing: does a garment made in Dhaka with US cotton qualify?

What did the end of the US de minimis exemption change for fashion?

The second shock hit direct-to-consumer cross-border models. Executive Order 14324 suspended duty-free de minimis treatment for shipments worth USD 800 or less from all countries, effective 29 August 2025, with postal shipments facing specific duty rates linked to the IEEPA tariff.

Shein and Temu were the clearest test cases. Retail Brew, citing CNBC data, reported that Temu's US daily active users fell 52% in May 2025 compared with March, and Shein's by 25%, as both cut US advertising. Temu paused direct shipments to the United States, while Shein was moving to local seller networks. Consultants told Retail Brew that the companies had prepared for years, with many warehouse deals near US ports involving Chinese logistics firms. The lesson for other brands is that fulfilment design, not only factory location, now determines duty exposure: holding stock in the market changes when and on what value duty is paid.

How much have tariffs cost Nike, Adidas, Gap and Levi's?

Company disclosures give the clearest picture of the scale. Nike raised its estimate of annualised gross incremental tariff costs from USD 1 billion in June 2025 to USD 1.5 billion in September. About 16% of its US-imported footwear came from China last year, with further production in Vietnam, Indonesia and Cambodia. "Tariffs remain a dynamic cost headwind that we expect to continue looking forward," chief financial officer Matt Friend said on the June 2026 earnings call.

Adidas said in July 2025 that US tariffs would add about EUR 200 million to costs in the second half. Vietnam and Indonesia produce 30% and 23% respectively of the Adidas products sold in the United States, and chief executive Bjørn Gulden said footwear duties had risen from 26% to 46% for Vietnam and from 24% to 43% for Indonesia. Adidas front-loaded shipments, raising inventories by 16% to EUR 5.26 billion at the end of June. "We still do not know what the final tariffs in the U.S. will be," Gulden said.

Gap expected USD 250 million to 300 million in tariff costs and aimed to offset more than half; it guided to a tariff impact of 100 to 110 basis points on its annual operating margin. Chief executive Richard Dickson said reliance on China would be below 3% exiting 2025, from less than 10% in 2024, and that no single country would exceed 25% of supply by the end of 2026. Levi Strauss warned in October 2025 of a 130 basis point tariff hit to fourth quarter gross margin; it sources mainly from South Asia, secured about 70% of holiday inventory early and raised prices slightly.

What happens to tariff refunds after the Supreme Court ruling?

The February ruling created an unusual planning item: money coming back. Refunds are not automatic, and at the time of the ruling Customs had issued no guidance on whether post-summary corrections or protests would be accepted, according to law firm Cozen O'Connor. Modern Retail reports that refunds could total up to USD 175 billion including interest and are arriving slowly. Nike had received about USD 300 million in cash by the end of its fiscal year in May 2026.

Refunds also carry reputational risk. Consumers filed a class action against Nike in May 2026 seeking to recover tariff-related price increases; the complaint argues that "Nike stands to recover the same tariff payments twice." Analysts were sceptical about flattered margins: Neil Saunders of GlobalData said Nike's result "is highly flattered by the tariff recovery." For finance and pricing teams the practical point is that entry-level data, by origin, tariff code and regime, determines what can be reclaimed. Companies that cannot reconstruct which duties were paid on which entries leave money on the table.

How are fashion companies using AI to re-plan sourcing and landed cost?

Why does this matter so much now? Because the rate tables above changed faster than a typical product calendar. Ranges are typically designed and bought many months before they ship, and the duty is fixed only when the goods are entered. Between August 2025 and July 2026 the duty on a Vietnamese garment entering the United States moved from a 20% reciprocal rate to a 10% global levy and then to 12.5%, each with different exemptions and transition rules. Teams that cost ranges in spreadsheets once per season were working with numbers that were out of date before the goods sailed.

The most reliable evidence comes from surveys rather than case studies, because few companies attribute tariff decisions to AI in their filings. The 2026 Fashion Industry Benchmarking Study by the University of Delaware and the US Fashion Industry Association, based on about 30 executives at large US brands, retailers and importers, found that 56% use AI for demand forecasting and inventory planning and 50% use AI for sourcing strategy and cost optimisation, as well as for risk management and sustainability tracking.

The same study shows what the tools are being used to decide. 92% of respondents named protectionist US trade policy and uncertainty as a top-two business challenge. 63% renegotiated supplier contracts and 58% diversified sourcing to offset tariffs, yet only 21% plan to add source countries through 2027, against 59% in 2025, and nearly half intend to trim supplier rosters. "Successful sourcing strategies have shifted from diversification to consolidation," said Julia K. Hughes, the association's president. 76% now source from CAFTA-DR countries, up from 64%.

In practice, AI and scenario tools do three jobs in this setting. They recalculate landed cost when a duty, freight rate or currency moves, across thousands of styles and several possible origins. They link that cost to demand forecasts, so a buyer can see which styles still clear a margin target at a given price. And they flag exposure, for instance which open purchase orders would land after a regime change. None of this requires generative AI; much of it is optimisation and forecasting. What changed in 2025 and 2026 is the frequency: a calculation once run before each season now needs rerunning whenever Washington publishes a notice.

Can AI pricing absorb the tariff shock?

Only partly. In The State of Fashion 2026 by BoF and McKinsey, 71% of executives expected to raise prices, up from 52% a year earlier, and 45% said sourcing costs were the most pressured part of their economic model. 76% named responses to trade disruption and tariffs as the biggest theme of 2026, while executives ranked AI as the industry's biggest opportunity. Consumers are pushing back: an Alvarez & Marsal survey cited by Retail Brew found 34% of shoppers planned to cut spending, 43% of them citing tariffs.

The pressure is not confined to the mass market. Steiger noted that tariffs did not fully hit until the second half of 2025, so their full effect may still be ahead, and the Alvarez & Marsal survey found that 24% of higher-income shoppers also planned to pull back. Reuters reported in October 2025 that tariffs had also weighed on margins at Ralph Lauren, Abercrombie & Fitch and Tapestry, although companies serving more affluent customers can pass on higher costs more easily. Alvarez & Marsal's Joanna Rangarajan recommended automation and digitisation in partner factories to lower the dutiable value of goods, a reminder that the cheapest tariff saving is often a lower first cost.

That is where AI pricing and forecasting tools earn their place: deciding which styles can carry a higher price, which need a promotion and which should be cut. Mintel's Brittany Steiger told Retail Brew that AI will remain a key lever in 2026 for forecasting, inventory and planning. Adidas's approach of holding prices on existing models while setting new prices on new products is an example of the kind of selective repricing these tools are meant to support. But software cannot change the underlying cost; it can only allocate it more precisely.

What are the limits and risks of tariff modelling with AI?

The first limit is legal, not technical. Rates changed through executive orders, a court ruling, a 150-day statute and a new investigation, and further Section 301 cases on China and on Vietnam's intellectual property practices are pending. No model forecasts that reliably; scenario tools are only as good as the policy assumptions fed into them. The second is data quality: tariff-rate quotas based on US inputs, country of origin rules and refund claims all depend on accurate bills of materials and entry records, which many brands do not hold centrally.

Third, optimisation can mislead. A model that sends volume to the lowest-duty origin may ignore capacity, quality, compliance with forced-labour rules (the stated basis of the new Section 301 action) or the cost of qualifying new suppliers. The USFIA findings suggest experienced sourcing teams are consolidating rather than chasing every rate change. Finally, front-loading and early buying, as at Adidas and Levi's, tie up cash and raise markdown risk if demand weakens, as Nike's chief financial officer warned it might: "Our consumer is under pressure around the world."

What should fashion companies do now?

1. Make landed cost a live figure Recalculate duty, freight and currency per style and origin whenever a notice is published, not once per season.
2. Clean up entry-level data Hold tariff codes, origins and duties paid per entry so you can claim IEEPA refunds and prove eligibility for quotas.
3. Model fibre origin for quotas Check which South and Southeast Asian styles use US inputs that could qualify for the planned tariff-rate quotas.
4. Run three policy scenarios Plan for current Section 301 rates, a higher China and Vietnam case and a relief case, and set trigger points for each.
5. Consolidate with intent Use cost models to concentrate volume with fewer capable suppliers rather than spreading orders after every rate change.
6. Reprice selectively Use forecasting and pricing tools to decide where price rises stick and where cost must be absorbed or styles cut.
7. Review fulfilment structure Assess whether holding stock in the US market changes duty timing and exposure for direct-to-consumer sales.