The US temporary 10% global import tariff expires on July 24, 2026, marking a new phase in Sino-US textile trade. Keqiao, home to China's largest textile fabric distribution center, faces a dual impact of short-term tariff reductions and long-term cost increases. Previously, US-bound textile products faced additional Section 301 tariffs of 7.5% to 25%, with some categories reaching a combined rate of 45%, severely squeezing margins for Keqiao's mass-market polyester and knit fabric exporters.
Background
Sino-US trade negotiations have reached a framework agreement, with both sides committing to tariff reductions on goods worth at least $30 billion each. Textiles, apparel, and footwear are explicitly included in the reduction scope, a positive signal for Keqiao merchants. If the full tariff reduction list is implemented, additional tariffs on these products could drop significantly to most-favored-nation rates. The US Trade Representative has also introduced a textile-specific tariff buffer mechanism, offering additional rate benefits to eligible companies. The industry widely views the period from H2 2026 to 2027 as a critical strategic window.
However, two new permanent Section 301 tariffs will simultaneously take effect, replacing the expiring temporary tariffs. One targets forced labor, covering 60 economies with differentiated rates: mainland China and Hong Kong face a 12.5% surcharge, while 14 compliant economies pay only 10%. Another Section 301 investigation into global manufacturing overcapacity is expected to conclude in July, likely adding further costs. Morgan Stanley estimates that the US statutory average effective tariff will stabilize at 9% to 10% under the new rules, making tariff barriers permanent.
Industry Impact
The tariff adjustments will trigger two major changes. First, while tariff reductions may slightly ease tax burdens and restore profit margins, the 12.5% fixed surcharge remains unavoidable. Southeast Asian countries' persistent tax advantages will continue to attract overseas buyers, accelerating order shifts for low-profit categories like basic garments and budget footwear. Small workshops focused on basic fabric OEM face rising order loss risks, with many merchants already reporting declining US-bound order volumes in the first half.
Second, industry polarization will intensify. Leading companies with overseas production capacity, high-end fabric R&D, and diversified sales channels can leverage Keqiao's complete weaving, dyeing, and design supply chain to offset tariff impacts through product premiums. In contrast, single-factory operations with homogeneous products and concentrated US customer bases face dual pressures of rising costs and shrinking orders, accelerating industry consolidation.