The expiration of the US 10% temporary global import tariff on July 24, 2026 marks a new phase in the tariff system targeting China. China Textile City, a core fabric distribution hub in Keqiao, is home to numerous merchants and trading firms focused on the US market. Market sentiment is mixed—short-term tariff reductions offer a glimmer of hope, but two new permanent Section 301 tariffs are accelerating into effect, placing the industry at a critical policy crossroads.
Short-Term Gains vs. Long-Term Costs: A Policy Double-Edged Sword
Previous China-US trade talks reached a framework consensus, with both sides agreeing to tariff reductions on at least $30 billion worth of goods, including textiles, apparel, and footwear. If the full US reduction list is implemented, additional tariffs on these products could drop significantly to most-favored-nation rates. The USTR has also introduced a special tariff buffer mechanism for textiles, offering additional rate benefits to quota-compliant firms. The industry generally views the second half of 2026 through 2027 as a strategic window.
However, two new permanent Section 301 tariffs will take effect simultaneously, replacing the temporary tariff. One, targeting alleged forced labor, covers 60 economies with differentiated rates: mainland China and Hong Kong face a 12.5% surcharge, while 14 compliant economies pay only 10%. Textiles and apparel have no special exemptions. Another 301 investigation on global manufacturing overcapacity is expected to be released within July, likely adding further cost pressure. Morgan Stanley estimates that under these new rules, the US average effective tariff rate will stabilize at 9%-10%, transforming tariffs from temporary measures into permanent rules.
Industry Response: Polarization in Keqiao
The tariff overhaul brings two visible changes. First, while reductions slightly ease tax burdens, the 12.5% permanent surcharge remains unavoidable. Southeast Asia's persistent tariff advantages will continue attracting buyers, accelerating order shifts for low-end apparel and footwear. Small workshops and mills focused on basic fabrics face rising order losses, with many already reporting declines in US-bound volumes in the first half of the year.
Second, industry polarization intensifies. Leading firms with overseas production capacity, high-end fabric R&D, and diversified sales channels leverage Keqiao's complete weaving, dyeing, and design supply chain to offset tariff impacts through efficiency and product premiums. In contrast, single-factory operations with homogeneous products and concentrated US retail clients face simultaneous cost increases and order shrinkage. Industry consolidation is accelerating.
Historically, Chinese textile exports to the US have faced 7.5%-25% Section 301 surcharges, with combined tariffs reaching 45% on some items, severely squeezing OEM margins. Keqiao's large-volume, low-cost synthetic and knit fabric exporters have been hit hardest. While the tariff cuts provide temporary relief, the 12.5% permanent surcharge sets a higher cost floor, making the low-price volume model unsustainable.