The tariff fog is real: how to make sourcing decisions when nobody knows what's coming

I've been watching founders freeze for eight months now.

Not the kind of freeze where you can't execute. The kind where you have a sourcing decision in front of you, you've done the spreadsheets, you know what the math says today, and you still can't pull the trigger because you're terrified tomorrow's headline flips everything.

I get it. I've been there. Not with tariffs specifically, but with the same fundamental problem: making irreversible capital allocation decisions when the ground keeps shifting.

Here's what I've learned, watching brands die and brands thrive through this kind of uncertainty: the founders who win aren't the ones who predict policy correctly. They're the ones who build sourcing architectures that survive being wrong.

What does tariff uncertainty actually mean for your P&L in 2026?

The direct cost hit is brutal and measurable. Average tariff rates on U.S. apparel imports reached 35.1% in December 2025, a sharp climb from 14.7% in January 2025. That's not a rounding error. That's a complete restructure of your landed cost model.

According to McKinsey, 45% of fashion executives say sourcing costs are pressured the most under their economic model. McKinsey estimates that tariffs will drive short-term sourcing price increases by 35% for apparel and 37% for leather goods.

But here's what the research actually shows that should concern you more than the rate itself: the effects of tariffs on U.S. fashion companies have gone far beyond costs, affecting broader sourcing, assortment, and pricing practices. The uncertainty surrounding tariff policy appears to be even more concerning than the tariffs themselves.

Read that again. The uncertainty is worse than the actual cost.

Why? Because you can model a known cost. You can price around it, source around it, position around it. What you can't model is a policy that might flip in 90 days. Or might not. Or might partially flip. Or might flip in a direction nobody predicted.

USFIA president Julie Hughes told Just Style: "While we hope 2026 will be different, we anticipate that fashion brands and retailers will continue to face uncertainty for sourcing to the US because of the Trump tariffs." She adds that "unpredictability will make it difficult for brands and retailers to be confident in their sourcing strategies since everything could be turned upside down by sudden changes in tariffs."

That's not an opinion. That's the trade association that represents the industry telling you: nobody knows.

Why are brands consolidating suppliers when diversification seems smarter?

This is counterintuitive and I want you to understand why the smart money is doing it.

Relative to 2025 figures, far fewer brands intend to add new suppliers or enlarge their vendor rosters in the next two years. This indicates that rather than pushing for swift geographic growth and variety, some companies are emphasizing capacity, adaptability, inventory responsiveness, and regional equilibrium.

The reason is operational, not strategic. Diversification sounds good on paper. In practice, every new supplier relationship costs:

• 6-12 months to validate quality and reliability
• Development costs (samples, tech packs, corrective runs)
• Working capital tied up in safety stock across more locations
• Management bandwidth that doesn't scale

When you don't know which tariff scenario plays out, spreading thin across many suppliers means you've made many small bets but have no deep relationship anywhere. When policy shifts, you need a partner who will work with you on terms, timing, and inventory flexibility. That partner is the one you've done real volume with, not the backup you ordered 500 units from once.

The USFIA report concludes that these findings imply U.S. fashion companies now see effective tariff mitigation as demanding not just sourcing proficiency but also deep knowledge of trade regulations and tight cooperation with suppliers and other supply chain participants.

The move isn't away from diversification. It's toward strategic diversification: fewer, deeper relationships in regions that cover multiple scenarios.

What does scenario-based sourcing architecture actually look like?

Let me walk you through how I'd structure this if I were a founder running a $2M to $10M apparel brand in Los Angeles right now.

Step one: define your three scenarios

Scenario A: Current rates hold. The 30% baseline on China sticks. Section 122 tariffs on Asian suppliers remain. USMCA/CAFTA-DR exemptions continue.

Scenario B: Rates increase 15-20%. Trade negotiations break down, reciprocal tariffs return, or Section 122 expands. Your landed costs from Asia spike further.

Scenario C: Rates decrease via trade deal. A new bilateral agreement with a major sourcing country (Bangladesh, Vietnam) creates a preferential lane. Or China rates drop as part of a broader deal.

I'm not asking you to assign probabilities to these. I'm asking you to build a supply chain that doesn't blow up under any of them.

Step two: map your current exposure

Let's say you're sourcing 100% from Vietnam. Under Scenario A, you're fine. Under Scenario B, you're exposed. Under Scenario C, you might be better or worse depending on which countries get deals.

Now let's say you add a nearshore relationship in Mexico. Under Scenario A, you're paying more per unit but hedging. Under Scenario B, you've got a tariff-exempt fallback. Under Scenario C, you might be overpaying for insurance you didn't need.

The question isn't "which scenario is right?" The question is: "What's the cheapest insurance that covers my downside without destroying my unit economics today?"

Step three: build the relationships before you need them

This is where most founders fail. They wait until Scenario B happens, then scramble to find a Mexico partner. By then, everyone is scrambling. Capacity is tight. Terms are bad. Quality is unvalidated.

The smart play is to place a small validation order with a nearshore partner now. Not to shift volume. To build the relationship, test the quality, and establish terms. So that when you need to shift, you can shift fast.

This incentive could be reinforced by the fact that, since February 2026, apparel imports from many Asian suppliers have been subject to the new Section 122 tariffs, while qualifying apparel products from CAFTA-DR and USMCA remain exempt. It may also represent a historic opportunity to expand investment in MMF textile manufacturing in CAFTA-DR and USMCA countries, thereby increasing regional production capacity and diversifying product offerings.

How is the Port of Los Angeles handling this, and what does it tell founders?

If you're running a brand on the West Coast, your goods are almost certainly flowing through San Pedro Bay. The Port of Los Angeles is ground zero for watching how importers are actually behaving.

The Port of Los Angeles processed 890,861 TEUs in April, 5.7% above last year. It marks the second-best April on record with strong import demand despite ongoing uncertainty around tariffs and trade policy.

In terms of retail, everything from footwear, apparel and furniture, to toys and electronics continue to be imported. Gene Seroka said companies are adjusting by replenishing inventories and locking in costs while they can.

That last sentence is the strategy: locking in costs while you can.

What does that mean practically? Brands with capital are front-loading inventory during windows of relative stability. They're eating the carrying cost to avoid the tariff uncertainty cost.

If you're a smaller brand without that capital, you need a different version of the same logic. You're locking in relationships, not inventory. You're negotiating terms now that will matter later. You're building the architecture that lets you move fast when the window opens.

A worked example: the LA-based activewear founder

Let me make this concrete. Say you're running a $4M activewear brand based in Los Angeles. You've been walking the floor at LA Textile at the California Market Center twice a year, sourcing performance fabrics, meeting with cut-and-sew contractors in the Fashion District.

Your current setup: 80% of production in Vietnam, 20% in a small LA contractor for fast-turn replenishment.

Here's how I'd structure your scenario response:

Immediate action (this quarter):

• Call your Vietnam factory. Understand their capacity situation, their terms flexibility, and what happens if you need to accelerate or delay orders. Document everything.
• Identify one Guatemala or Mexico CMT partner. Place a 200-unit test order. Not to shift production. To validate quality and build the relationship.
• Run the landed cost model under all three scenarios. Know your break-even points.

Next six months:

• Build your LA domestic capacity relationship deeper. The Fashion District contractors who stock inventory locally can turn goods in days, not months. That's your panic valve if tariffs spike and you need to bridge a season.
• Negotiate payment terms with your primary factory that flex with order timing. If you're a reliable partner, most factories will work with you on net-60 or even net-90 during uncertainty periods.

At LA Fabric Show at The New Mart, suppliers noted: "Here, since we stock everything in L.A., it takes only a few days." That speed premium is your hedge.

The psychology move:

Stop treating tariff decisions as predictions. Start treating them as portfolio construction. You're not betting on which scenario happens. You're building a portfolio of supplier relationships that generates acceptable returns across scenarios.

What is the margin reality for mid-market brands in 2026?

Here's the context you need to understand why this matters more for you than for Nike:

Average EBIT margins are stabilizing at 6-7%, a decrease from over 10% in 2018-2019.

Mass and mid-market apparel face challenges, with growth capped at 1-2% CAGR.

That's the industry baseline. Now add tariff uncertainty on top. If your EBIT margin is 8% and your landed costs spike 10%, you're not making margin compression decisions. You're making survival decisions.

U.S. fashion companies identified shifting consumer demand, macroeconomic volatility, tariff hikes, and ongoing policy uncertainty as their main business concerns. The pressure on middle- to low-income consumers' discretionary spending was emphasized as a structural issue that could persist in 2026.

Your customer is also facing uncertainty. They're watching their own spending. You're absorbing tariff costs they won't pay. The margin compression comes from both sides.

Should you raise prices or eat the cost?

This is the question every founder is asking. Here's the framework:

The McKinsey report says brands should base price adjustments on consumer reactions and competitor moves while fostering strategic partnerships to create diversified customer and supplier bases.

Translation: watch your competitors, test carefully, and don't move first unless you have brand strength to justify it.

If you're selling a differentiated product with real brand loyalty, you have more pricing power than you think. Test a 5-7% increase on new SKUs. Watch the conversion impact. If it holds, you've found headroom.

If you're selling commoditized product in a crowded category, you're probably eating the cost. Which means your survival depends on sourcing efficiency, not pricing power.

What are the watch items for late 2026?

The U.S.-Mexico-Canada (USMCA) trade agreement will begin its formal six-year review process in 2026. Despite broad industry support for upholding the existing agreement and calls to "do no harm," we cannot rule out the possibility that the Trump administration might seek significant renegotiation or even replace the USMCA with separate bilateral trade deals.

If you've built a nearshore strategy around USMCA exemptions, watch this closely. The exemptions could disappear.

Four strategies stand out from the USFIA research: continue sourcing diversification including reducing sourcing from China; expand sourcing from other lower-cost manufacturing hubs in Asia, such as Bangladesh and Vietnam; explore near-shoring opportunities in Mexico and Central America and take advantage of lower tariff benefits; carefully monitor newly negotiated trade agreements with the US.

These aren't predictions. They're the options larger brands are preparing for. You should be prepared for the same futures, just at your scale.

The real game: decision velocity

Here's what I've learned from sitting in the founder chair during uncertainty:

The brands that die aren't the ones that make wrong decisions. They're the ones that make slow decisions.

When you build scenario-based architecture, you're not eliminating risk. You're increasing your decision velocity. You've already thought through the moves. When the news hits, you're executing, not strategizing.

That's the competitive advantage of preparation. Not prediction. Preparation.

The tariff war of 2026 is reshaping the global fashion industry. While it introduces complexity and uncertainty, it also forces brands to become more strategic, more resilient, and more intentional. Supply chains are no longer just operational functions. They are competitive advantages.

Your supply chain is your moat. Build it for uncertainty.

The closing thought

I wish I could tell you what tariff rates will be in Q1 2027. I can't. Nobody can.

What I can tell you is that the founders who are thriving right now aren't the ones who guessed right. They're the ones who built structures that let them adapt fast.

You don't need to predict the future. You need to build a sourcing architecture that survives multiple futures.

That's the work. Start now.

Cheers,

Dougie

Dougie Taylor

Co-Founder, Ohzehn Textiles · Forbes & Inc. recognized brand operator