In July 2026, China's overall exports maintained growth, but the divergence within the textile industry became increasingly evident: apparel exports grew modestly, while exports of upstream raw materials such as yarn, fiber, and fabrics continued to strengthen. US market data is even more telling—imports of clothing from China declined notably, while Vietnam and Bangladesh saw steady growth in apparel exports to the US, alongside persistently high imports of Chinese fibers and fabrics. This pattern of 'raw materials heading south, sewing moving further south' is becoming the new normal in global textile supply chains, but the underlying compliance risks related to rules of origin remain largely underestimated by exporters.
Background
The so-called 'China+1' model involves Chinese companies relocating garment assembly to Southeast Asian countries like Vietnam and Bangladesh to circumvent overseas tariff pressures. Data from June 2026 confirms this shift: US imports of knitted and non-knitted apparel from China declined, while Vietnam and Bangladesh increased their imports of man-made filaments and staple fibers from China. On the surface, this represents a clear division of labor—China supplies yarns and fabrics, Southeast Asia handles cutting and sewing, and exports are shipped under local labels. However, many companies mistakenly believe that simply relocating assembly and stamping 'Made in [country]' will bypass tariff barriers. Reality is far more complex.
Industry Impact
The trap of rules of origin lies in the strict yarn and fabric tracing requirements enforced by the EU and the US. The origin of apparel is not determined solely by where sewing takes place; it traces back to the source of yarn and fabric. If the core fabrics and fibers come from China, and only cutting and sewing occur in Southeast Asia, customs authorities may still deem the goods as Chinese-origin, rendering them ineligible for tariff preferences. This means that earlier investments in relocation could be undermined, with risks of retroactive duties or cargo detention.
A deeper issue is that Vietnam and Bangladesh lack robust upstream supporting industries. Local spinning and weaving capabilities are limited, making it difficult to achieve full industrial chain localization in the short term, thus they remain heavily reliant on Chinese fabrics. This structural dependency ensures that the 'China+1' model cannot easily escape Chinese origin labeling in the near future. For domestic companies, this implies that relocation is not a panacea for trade barriers; instead, it may lead to a situation where they have relocated but still face tariffs.
From an industry trend perspective, the outward migration of apparel assembly is inevitable, but China's upstream textile raw materials and fabric sector retains strong competitive advantages. Data from 2026 confirms this: despite pressure on apparel exports, yarn and fiber exports grew well, indicating that China's upstream position in the global textile supply chain remains unshaken. Companies should view the 'China+1' strategy rationally, not just focusing on Southeast Asia's labor cost advantages while ignoring upstream raw material compliance issues.
Practical Recommendations
Facing uncertainties in rules of origin, textile foreign trade enterprises should shift from passive response to proactive planning. First, before expanding overseas, they must thoroughly understand the origin determination standards of target markets, especially the EU and US tracing rules for textiles. Second, establish a full-chain compliance archive, documenting raw material sources, processing procedures, and document traceability to provide a complete evidence chain during customs inspections.
For Buyers - When sourcing apparel from Southeast Asia, require suppliers to provide certificates of origin for fabrics and yarns, and verify compliance with EU/US tracing rules. - Prioritize factories with complete upstream traceability systems to avoid customs clearance issues due to unclear raw material origins. - Include origin compliance liability clauses in contracts, with compensation mechanisms if tariff losses occur due to supplier faults.
For Exporters - Re-evaluate 'China+1' layouts; if core fabrics still rely on domestic supply, assess origin risks in advance and adjust process design if necessary. - Strengthen internal compliance training to ensure staff understand target market origin rules and avoid retroactive duties or cargo seizures due to operational errors. - Collaborate with domestic upstream suppliers to explore localized production of fabrics or yarns in Southeast Asia, gradually reducing dependence on a single origin.
Supply chain restructuring presents both challenges and opportunities. If Chinese textile enterprises can understand and internalize the rules, they can safeguard their bottom line while leveraging global multi-location layouts, transforming industrial strengths into sustained competitiveness.