In July 2026, China's overall exports grew, but the textile sector showed clear divergence: apparel export growth slowed while exports of yarn, fiber, and fabrics remained strong. This contrast reflects the reality of the 'China+1' supply chain—large volumes of Chinese fabrics are shipped to Southeast Asia for sewing and then exported to Western markets under other countries' labels. However, tightening rules of origin are making this path increasingly risky.
Background
US customs data show that China's knit and non-knit apparel imports to the US declined, while Vietnam and Bangladesh increased their imports of Chinese man-made filaments and staple fibers. On the surface, this is a success of industrial relocation, but it hides a lurking danger. The EU and US enforce strict yarn-forward and fabric-forward rules of origin for textiles, meaning the origin of apparel is not simply determined by where sewing occurs but traces back to the source of yarn and fabric.
This implies that if core fabrics come from China and only cutting and sewing happen in Southeast Asia, customs verification may still deem the goods as Chinese origin, denying tariff preferences. Companies may see their relocation investments undermined and face retroactive duties or cargo detention.
Industry Impact
For companies relying on the 'China+1' model, these rules are a wake-up call. Many exporters focus only on labor cost advantages in Southeast Asia, ignoring upstream material compliance. Vietnam and Bangladesh lack sufficient spinning and weaving capacity, making full local supply chains unlikely in the near term. Their dependence on Chinese fabrics is a structural weakness.
This dependence means relocating sewing alone cannot mitigate trade risks. Instead, it may put companies in a bind: bearing operational costs in Southeast Asia while failing to avoid tariff barriers. For China's upstream textile sector, this is a positive signal—strong raw material exports prove the irreplaceability of Chinese supply chains.