In June 2026, China's textile exports showed a rare divergence: exports of upstream materials such as yarn, fiber, and fabric maintained steady growth, while garment export growth slowed noticeably. Behind this seemingly ordinary data lies a redefined global textile value chain—China is accelerating its role as a 'fabric supplier,' while Vietnam and Bangladesh take on an increasing share of garment assembly orders.
Background
US customs statistics show that in the first half of 2026, US imports of knitted and woven garments from China both declined, while garment exports from Vietnam and Bangladesh to the US rose steadily. However, these two Southeast Asian countries have not built a complete textile supply chain; instead, they continue to expand purchases of Chinese-made filament and staple fiber. In other words, Chinese fabrics are first exported to Southeast Asia, then cut and sewn locally, and finally enter Western markets under 'Made in Vietnam' or 'Made in Bangladesh' labels.
This division of labor appears to align with the 'China+1' strategy—relocating labor-intensive sewing operations abroad to reduce labor costs and avoid some tariffs. However, the EU and US enforce strict rules of origin for textiles, which do not rely solely on the place of sewing but trace back to the source of yarn and fabric. If garments use Chinese-made fabric and are merely assembled in Southeast Asia, customs may still deem them as originating from China, disqualifying them from tariff preferences under trade agreements.
Industry Impact
For companies already operating in Southeast Asia, this means their upfront investments could be at risk. If the origin determination is overturned, they may face retroactive tariff payments, cargo detention, fines, and even supply chain disruptions. More critically, Vietnam and Bangladesh lack sufficient local spinning and weaving capacity, making full localization difficult in the near term—so dependence on Chinese fabrics is likely to persist.
From an industry perspective, this 'materials go out, garments come back' model actually shifts China's competitive advantage from finished products to intermediate goods. For Chinese companies, it is both a challenge and an opportunity: on one hand, the growth in upstream fabric exports proves that China's core manufacturing strength remains solid; on the other hand, simply relocating sewing operations does not resolve all trade barriers, forcing companies to rethink the compliance logic of their overseas expansion.
It is worth noting that enforcement of rules of origin is tightening. Western customs are increasingly rigorous in verifying textile origins, especially when companies apply for tariff preferences under free trade agreements. Without complete documentation—raw material purchases, processing records, logistics vouchers—companies may face delays or rejections at customs.