The situation: High tariffs have become an unavoidable part of doing business in the US following the implementation of President Donald Trump’s sweeping reciprocal duties.

• The overall average effective tariff rate currently stands at 18.3%, the highest level since the Great Depression, according to the Yale Budget Lab.
• That could go up: The Trump administration has threatened to impose additional duties on India and China as a penalty for purchasing Russian oil. That would add to companies’ already hefty bills and threaten plans to diversify supply chains.

Disproportionate impact: While brands across all sectors have warned of tariffs’ threat to their bottom lines, the pain is especially acute for those in the apparel industry. The vast majority of apparel and footwear sold in the US comes from overseas, with China, Vietnam, and Bangladesh accounting for the majority—and collectively responsible for over half of apparel imports to the US in the first two months of 2025.

• Adidas expects tariffs to cost its business €200 million ($216.4 million) in the second half of the year alone—although that estimate came before Trump announced unilateral tariff rates on manufacturing hubs like Bangladesh and Cambodia.
• Tariffs are a multifaceted challenge for Crocs: Not only does it expect Q3 operating margins to decline by 170 basis points, but it also anticipates a 9% to 11% drop in topline revenues due to its mitigation strategies.

Up in the air: The biggest challenge for retailers is that the tariff situation is murkier now than it was on July 30, before Trump announced the revised reciprocal rates. The president’s insistence on using tariffs as a diplomatic tool means that no trading partner is protected from sudden hikes—wreaking havoc on companies’ attempts to divert sourcing away from countries facing steep duties.

• Steve Madden’s example is a case in point: The shoemaker’s plan to rely on Brazil to produce more products for the US market is now on hold due to the latest tariffs—along with most of its supply chain diversification strategy.
• The many companies that once saw India as a solution to their China manufacturing problems are being forced to shift gears quickly once again. Garment maker Pearl Global, which produces items for chains including Gap and Kohl’s, told Reuters that clients are asking it to move production to Bangladesh, Guatemala, and elsewhere to avoid hefty new tariffs on Indian imports.

Our take: Retailers are slowly becoming resigned to the fact that higher tariffs are here to stay—for now. But their ability to minimize business disruption is severely hampered by the fact that new tariffs can be imposed at any time, which could immediately turn any attempts to adjust sourcing into sunk costs. As e.l.f. Beauty CEO Tarang Amin told CNBC, “It’s the uncertainty around the tariffs that makes things more difficult.”

Given the lack of clarity, the best brands can do for now is to go into defensive mode. Bringing production back to the US isn’t an option for most companies, given labor challenges, high costs, and the possibility of more shifts in trade policy. Instead, brands will have to control costs any way they can—whether it’s reducing inventory orders, cutting their workforce, or selling fewer products.