On July 24, 2026, the US 10% global temporary import tariff expired, officially closing a low-tariff window that had lasted for years. For Keqiao, China's textile export hub, this is not a simple policy shift but the beginning of a structural tariff adjustment—short-term tax reduction benefits and long-term normalized barriers arrive simultaneously, placing the industry at a critical juncture for profit redistribution and capacity reshuffling.
Tax Reduction Window Opens, But Benefits Are Bounded
Under the framework consensus reached in previous China-US trade negotiations, both sides agreed to implement tariff reductions on at least $30 billion worth of goods, with textiles, apparel, and footwear explicitly included. This is the most positive signal Keqiao merchants have seen recently. For years, Chinese textile exports to the US have faced additional Section 301 tariffs ranging from 7.5% to 25%, with combined rates for some categories reaching as high as 45%, severely squeezing the profit margins of OEM enterprises.
In Keqiao, exporters of low-cost synthetic fibers and knitted fabrics have been hit hardest. If the tariff reduction list is formally implemented, additional tariffs on related products could drop significantly to most-favored-nation rates. Additionally, the US Trade Representative has introduced a dedicated tariff buffer mechanism for textiles and apparel, allowing eligible companies to enjoy further tax benefits. The industry generally views the second half of 2026 through 2027 as a strategic window.
However, this window is not unconditional. The coverage and volume of tariff reductions are limited, and implementation details remain unclear. Morgan Stanley estimates that even after reductions, the US's statutory average effective tariff will stabilize in the 9%-10% range. This means tariff reduction is only a temporary relief, not a systemic relaxation.
Normalized Tariffs Take Effect, Cost Pressures Become Long-Term
Simultaneously, two new permanent Section 301 tariffs are being implemented. The first, targeting forced labor, has completed public hearings. It covers 60 economies globally with differentiated rates: mainland China and Hong Kong face an additional 12.5% tariff, while 14 economies that have fulfilled compliance commitments are charged only 10%. The textile and apparel industry has no special exemption channels—only energy, rare earths, and a few pharmaceutical products are exempt.
This means that even if the tariff reduction list is implemented, Keqiao exporters will still bear a fixed additional 12.5% tariff. In contrast, Southeast Asian countries, with lower tax rates, continue to attract overseas buyers. Order shifts for low-margin categories like basic garments and affordable footwear will accelerate.
The second Section 301 investigation into global manufacturing overcapacity is expected to be announced in July, likely further increasing costs for textile exports. Once both new regulations are in place, tariff barriers will permanently shift from short-term temporary policies to long-term normalized rules. For SMEs relying on US retail chains, this is a double blow.
Industry Polarization Accelerates, SMEs Under Pressure
The direct consequence of tariff adjustments is accelerated industry reshuffling. In the first half of the year, many Keqiao merchants saw significant declines in US-bound orders, especially small workshops and micro-factories specializing in basic fabric OEM, which face sharply rising order loss risks.
In contrast, leading industrial and trading enterprises with overseas production capacity, high-end fabric R&D capabilities, and diversified sales channels leverage Keqiao's complete weaving, dyeing, and design supply chain to offset tariff impacts through supply chain integration and product premiums. Industry polarization is moving from trend to reality: SMEs with single factories, highly homogeneous products, and customer bases concentrated on US routes will face the dual shock of rising costs and shrinking orders.