The US 10% global temporary import tariff, in place for a decade, expires on July 24, 2026, triggering a new tariff adjustment cycle for China. Keqiao, home to China Textile City and a hub for fabric merchants and garment trade firms focused on the US market, faces a dual challenge: short-term tariff relief and long-term cost pressures from two new permanent Section 301 tariffs. Industry data shows that if the full US tariff reduction list takes effect, additional tariffs on textile products could drop significantly to most-favored-nation rates, offering a brief respite for Keqiao exporters.
Short-Term Gains vs. Long-Term Costs
Previous US-China trade negotiations reached a framework consensus, with both sides agreeing to tariff reductions on at least $30 billion worth of goods, including textiles and footwear. Historically, Chinese textile exports to the US faced 7.5% to 25% additional Section 301 tariffs, with combined rates reaching up to 45%, squeezing profit margins for OEM firms. Keqiao's price-sensitive synthetic and knitted fabric exporters were hit hardest. If tariff cuts are implemented, the combined rate could drop significantly, with the industry viewing H2 2026 to 2027 as a strategic buffer window.
However, alongside the short-term relief, two new permanent Section 301 tariffs will take effect, replacing the expiring temporary tariff. One tariff targets specific labor practices, with a differentiated rate structure covering 60 economies: Mainland China and Hong Kong face a 12.5% surcharge, while 14 compliant economies pay only 10%. Another Section 301 investigation on global manufacturing overcapacity is expected to conclude in July, likely adding further cost pressure on textile exports. Morgan Stanley estimates that the combined effect of these new rules will lock the US average effective tariff rate at 9%-10%, transforming tariff barriers from temporary measures into permanent rules.
Industry Polarization Accelerates
The tariff restructuring will drive two major changes in China's textile export industry. On one hand, while tariff cuts slightly ease tax burdens, the fixed 12.5% surcharge remains unavoidable. Southeast Asian countries' persistent tariff advantages will continue to attract overseas buyers, accelerating order shifts for low-margin segments like basic garments and budget footwear. Small workshops relying on basic fabric OEM face rising order loss risks, with many Keqiao merchants reporting significant declines in US-bound orders in H1 2026.
On the other hand, industry polarization will intensify. Leading firms 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 advantages and product premiums. In contrast, single-factory operations with homogeneous products and a US-focused customer base face dual pressures of rising costs and shrinking orders, accelerating industry consolidation.