How current tariffs are impacting garment manufacturing and employment in Bangladesh, Vietnam and India

A series of escalating tariff regimes—most notably a universal 10 to 15 percent tariff implemented by the US—is triggering a massive reshuffling of global apparel sourcing. In addition, the US Trade Representative (USTR) launched a sweeping Section 301 investigation into forced labour compliance, threatening an additional 10 to 12.5 percent tariff on countries failing to strictly police their supply chains.

Impacts vary on apparel manufacturing and employment in traditional garment-producing hubs. According to the US Office of Textiles and Apparel (OTEXA), imports from India declined by 28.7 percent year-on-year; from Bangladesh by 16.4 percent, while those from Vietnam increased by 5 percent. FashionUnited has taken a closer look at the situation in Bangladesh, India and Vietnam

Bangladesh: Double-edged trade deal among job losses

Bangladesh's textile sector has faced severe turbulence, caught between shifting tariff structures, domestic cost spikes and labour unrest. On the manufacturing side, Washington and Dhaka signed the US–Bangladesh Agreement on Reciprocal Trade to stabilise trade after the 2025 tariff shocks. This agreement reduced Bangladesh's headline reciprocal tariff rate to 19 percent, with a pathway to 0 percent tariffs only if factories use US-origin cotton or man-made fibres.

This “managed trade” deal has created a massive cost-push squeeze. Forcing factories to move away from cheaper, diversified cotton to more expensive US inputs has eaten away at net profit margins. Furthermore, the looming USTR forced labor ruling threatens to slap an additional 10 to 12.5 percent duty on top, stalling long-term brand orders.

On the employment side, the margin squeeze has hit factories hard. Western buyers are aggressively demanding discounts and stalling further order planning. According to the Business and Human Rights Centre (BHRC), more than 20,000 garment workers have lost their jobs through retrenchments or factory layoffs in the first half of 2026. Small-to-medium factories are facing bankruptcy due to falling export prices and rising energy and compliance costs.

India: Order drops and growing factory tension

As if the recent heatwave was not enough, India's garment sector has struggled significantly under the weight of the tariff changes, leading to severe localised industry friction.

Unlike Mexico, India enjoys no sweeping trade exemptions and has seen its garment and textile exports to the US drop by 29 percent. US brands rapidly redirected orders to lower-cost hubs when tariffs fluctuated, and Indian suppliers have found it incredibly difficult to win those customers back. “All the customers are already calling me. They want us to shift from India to the other countries,” confirmed Pallab Banerjee, managing director at garment supplier Pearl Global, when speaking to Reuters news agency.

To make matters worse, India was included in the USTR’s list of nations facing a potential 10 to 12.5 percent forced labour penalty surcharge, casting a shadow over future orders.

On the employment side, the 29 percent export drop has triggered intense financial distress across India's primary apparel hubs such as Noida and Tirupur according to the Federation of Indian Export Organisations (FIEO). Factory management teams have frozen wage hikes and delayed salaries, citing immense financial pressure from US tariffs. This has sparked widespread labour protests and strikes involving thousands of garment workers protesting unpaid wages and high domestic inflation as reported by the BHRC.

Vietnam: Restored competitiveness but supply chain risk remains

Vietnam has emerged as a resilient player, though it remains highly vulnerable to rules of origin violations due to improper labeling, falsified certification and the like. On the manufacturing side, Vietnam was the biggest beneficiary of the US Supreme Court ruling with the previous punishing IEEPA tariff of 46 percent plummeting to the flat 10 percent Section 122 surcharge (layered over standard Most-Favoured Nation (MFN) duties). This has restored Vietnam's cost competitiveness, helping its overall textile and garment exports rise by 1.7 percent to 22.2 billion US dollars in the first six months of 2026 according to the the Vietnam Textile and Apparel Association (VITAS).

However, a major hidden risk persists: Vietnam relies heavily on raw materials from China. Under US trade rules, if any Chinese-origin input is flagged, the garment faces transshipment penalties with punitive tariffs up to 40 percent. To combat this, Vietnam has rapidly scaled up imports of US cotton (now holding a 47 percent market share) to guarantee compliance.

While overall employment has stabilised due to a 1.3 percent uptick in shipments directly to the US (valued at 6.81 billion US dollars according to VITAS), the labour market is shifting. Basic Cut-Make-Trim (CMT) factories are downsizing, while specialised facilities focusing on high-value, sustainable and automated digital manufacturing are seeing job growth.

“The Vietnamese textile and garment industry no longer has much room for growth in scale. The road ahead requires us to shift towards improving productivity, added value, proactively securing raw materials, diversifying markets and promoting digital transformation and green transformation”, stated VITAS chairman Vu Duc Giang in a recent announcement.

Outlook

Recent shifts in US trade policy have disrupted Asian garment manufacturing, triggering severe job losses and export declines in Bangladesh and India due to tightening margin pressures, while enabling Vietnam to boost shipments and pivot toward automated, high-value production.

Going forward, apparel brands will increasingly bifurcate their sourcing, concentrating high-value, compliant orders in tech-forward hubs like Vietnam while strictly squeezing prices or exiting struggling South Asian markets unless those regions can rapidly automate and absorb these tariff-driven margin pressures.