The US 10% temporary global import tariff on Chinese goods expires on July 24, marking a new cycle for the tariff system. Keqiao's China Textile City, a national hub for fabric distribution, hosts numerous merchants, home textile firms, and garment exporters focused on the US market. The sector faces a dual scenario: short-term tariff relief under a bilateral agreement, and two permanent Section 301 tariffs targeting forced labor and overcapacity. Industry analysis suggests the 2026 H2 to 2027 period offers a strategic window, but low-end OEM firms face heightened order losses and accelerated polarization.
Short-Term Gains: Tariff Reduction and Strategic Window
Recent China-US trade negotiations resulted in a framework agreement for reciprocal tariff reductions on at least $30 billion in goods, including textiles, apparel, and footwear. This is a key positive signal for Keqiao merchants. Previously, Chinese textile exports faced cumulative tariffs of 7.5% to 25% under Section 301, with some categories reaching 45%, severely squeezing OEM margins. Keqiao's bulk polyester and knit fabric exporters were particularly affected.
If the US finalizes the tariff reduction list, additional tariffs on related products could drop significantly to most-favored-nation rates. The USTR also introduced a textile-specific tariff buffer mechanism, offering additional rate benefits for quota-compliant firms. The industry views 2026 H2 to 2027 as a critical strategic window for Keqiao firms to adjust product mixes and customer portfolios.
Long-Term Pressure: Two Permanent Section 301 Tariffs
Alongside short-term relief, two permanent Section 301 tariffs will replace the expiring temporary tariff, creating long-term cost burdens. The first, targeting forced labor, covers 60 economies with differentiated rates: 12.5% for mainland China and Hong Kong, versus 10% for 14 compliant economies. Textiles and apparel have no exemption, unlike energy, rare earths, and select pharmaceuticals.
The second, addressing global manufacturing overcapacity, is expected in July and likely to increase textile export costs. Morgan Stanley estimates the combined new rules will stabilize the US average effective tariff at 9-10%, transitioning from temporary to permanent policy. Keqiao exporters must integrate this into long-term cost structures.
Industry Polarization Accelerates
The tariff overhaul brings two major changes. First, while tariff reductions modestly ease burdens, the fixed 12.5% surcharge remains. Southeast Asian countries' persistent tariff advantages will continue attracting buyers, accelerating order shifts for low-end apparel and footwear. Keqiao's basic fabric OEMs have already seen order declines in H1 2026, and small workshops face heightened risk.
Second, polarization intensifies. Top firms with overseas capacity, high-end fabric R&D, and diversified sales channels leverage Keqiao's complete weaving, dyeing, and design chain to offset tariffs. However, single-factory firms with homogeneous products and US-focused clients face dual shocks of rising costs and shrinking orders. The survival of many SMEs may hinge on the 2026-2027 window.