Tue Dec 30,
Insights
US reciprocal tariffs raised costs for UK fashion exporters, with some luxury fabrics facing up to 35 per cent duties in the US.
Currency weakness further squeezed margins across the sector.
UK policy responses eased imports from developing nations and reshaped supply chains.
Exporters increasingly diversified towards MENA and Asia-Pacific markets, signalling a shift in trade strategy.
When the US imposed 10 per cent reciprocal tariff on the UK in the beginning of April, it shook the fashion and textile sector of the island nation. The 10 per cent tariff on the UK threatened to reduce its exports and impact UK fashion and textile manufacturers, at a time when they were already facing unprecedented cost increases. Although the 10 per cent tariff on the UK exports was lower than the 20 per cent on the EU products, its addition to existing tariffs made some luxury fabrics from the UK subjected to a 35 per cent tariff in the US. Meanwhile, the UK retailers and brands, manufacturing in countries such as Vietnam and Bangladesh and shipping directly to the US, faced huge increase in costs. The new US tariffs not only increased prices for the US consumers, they also made the cost of raw materials for US manufacturers more expensive.
UK Trade
The UK exports more to the US, which is its second largest export market for fashion and textiles, than to any other single country. In 2024, UK exports to the US stood at more than £59 (~$77) billion, 16 per cent of all UK goods exports, and imports amounted to £57.1 ($74.48) billion. The US importing more goods from UK than it exports leads to a trade deficit, which attracted President Trump’s reciprocal tariffs. While the UK’s next largest market is Germany, accounting for £32 ($41.74) billions of goods exports in 2024, it exported £174 billion of goods to the EU as a whole, approximately 48 per cent of the total.
Falling Currency Pressures
UK pound began 2025 staying around 2 per cent down against G10 currencies after a crisis of confidence in the bond market, prompted by the autumn budget and higher government borrowing costs. Same time, leading banks predicted the pound could fluctuate by 10 per cent against the euro going up to April. These factors contributed to a palpable sense of apprehension in currency markets. Since fashion and textile manufacturers and retailers are exposed to currency markets at almost every stage of their business model, the day-to-day fluctuations in prices make some of their orders cheap and others expensive. With weakening of the pound, fashion and textile businesses encountered eroded profit margins in the first quarter and beyond, exacerbated by a potent cocktail of new risks, with US tariffs being one of them.
Economic Prosperity Deal
On May 8, the UK and US governments announced the general terms of an Economic Prosperity Deal initiated in early 2025, aimed at mitigating the impact of the US tariffs on the UK industries and deepening bilateral economic ties. The terms of the agreement were only partially implemented by October, as they were designed to evolve over time. The deal focused on sector-specific tariff reductions and regulatory cooperation though textiles and garments were not reported under its scope.
Developing Countries Trading Scheme (DCTS)
While facing US tariff pressure in July, the government eased tariffs under DCTS on some key garment supplier nations, making it simpler for them to trade with the UK and provide UK consumers greater access to competitively priced imports, ranging from fashion to electronics. These measures aimed to simplify imports from developing countries. The upgrades to the scheme included simplified rules of origin, enabling more goods from countries like Nigeria, Sri Lanka, and the Philippines to enter the UK tariff-free, even when using components from across Asia and Africa. The new rules of DCTS ensured textiles and garments manufacturing countries, such as Bangladesh and Cambodia, continue to benefit from zero tariffs on garments. This opened up new commercial opportunities for the UK businesses to build resilient supply chains, invest in emerging markets, and tap into fast-growing economies. The scheme allows some of the world’s poorest countries to export to the UK duty and quota-free, with over £16 ($21.44) billion in UK imports benefiting from tariff savings since its launch in June 2023. In addition to the DCTS changes, the UK offers targeted support to help exporters in developing countries to access the UK market and meet import standards. It makes it easier for partner countries to trade services, such as digital, legal, and financial, by strengthening future trade agreements. The reforms specifically support trade with emerging markets in Asia and Africa, strengthen the UK’s global partnerships, and benefit UK’s major fashion retailers like M&S and Primark, who will be able to maintain long-standing and trusted relationships with their key partners in Asian manufacturing nations, via strong supply chains. This will allow them to continue procuring quality clothing and home products at great value for their customers, more efficiently.
End of De Minimis
Although the end of de minimis tariff exemptions in August was expected to hit Asian manufacturing countries hard, a study of search traffic showed that UK businesses became worried too, as the move affected online fashion retailers, marketplace sellers and D2C brands in the country. The ending of the de minimis meant low-value parcels would no longer be exempted from fees when entering America. When in force, the de minimis used to allow UK and other non- US companies to ship goods, up to a value of $800 per day, duty free to consumers in the US.
The announcement left exporters with little time to prepare for the change, making them face reciprocal US tariffs even on low-value parcels or flat-fees of between $80 and $200 per shipment. The UK brands and exporters stood highly impacted because, in 2024 alone, 41 million de minimis shipments to the US came from the UK, which ranked as the fourth largest shipper of small parcels to the US after China, Canada and Mexico. The top three—China being the world’s largest manufacturing hub, and both Canada and Mexico being in close proximity to the US, were no surprises but UK was. A set of data showed UK searches for ‘Trump Tariffs’ rose 90 per cent in late August, coinciding with ending of de minimis, as fashion brands raced to respond.
Quest for Alternatives
Retail Economics data reported 76 per cent of UK exporters diversifying beyond the US, with many turning to territories in Middle East and North Africa (MENA), including the UAE, to tap new cross-border growth potential. Reflecting same sentiments, UK retailers overhauled their international business strategies in response to protectionist trade policies that disrupted longstanding export patterns in the UK.
A study further revealed that 71 per cent of small retailers in the country lacked preparedness for potential trade disruptions with the US. The US tariff compelled half of the participating retailers to reassess the feasibility of trading with the US in case tariffs exceeded 22 per cent. They could not continue overly relying on a single trade corridor, rather move to new regions. The shift in strategy is evident with a 34 per cent surge in exports to the MENA from 2021 and 2024, in which the UAE emerged as the fastest growing UK export market outside the EU. Exports in non-EU western Europe and Asia-Pacific also increased by 15 per cent and 6 per cent respectively. In fact, two-thirds of retailers are prepared to compromise profit margins for export growth, the study said.
UK in 2026
While key barriers to international expansion will be logistics costs, operational complexity and regulatory uncertainty, the ‘made in UK’ label will continue to command a premium perception overseas due to high safety and regulatory standards. To benefit from this, the UK retailers are increasingly partnering with firms that can provide comprehensive market entry services to mitigate challenges associated with entering new markets. With these developments in pipeline, UK may be seen operating on a new trade map in 2026.