While brands and retailers cite similar sources of anxiety in 2026 as they did in 2025, their outlook for the future is dimmer today than it was a year ago, according to newly released insights from the United States Fashion Industry Association (USFIA).
Compiled in collaboration with the University of Delaware’s Dr. Sheng Lu, professor of fashion and apparel studies, the 2026 Fashion Industry Benchmarking Study, released publicly Monday, revealed that the sector’s prospects are mired in uncertainty amid shifts in trade policy and geopolitics.
Optimism about the fashion industry’s long-term outlook has fallen to its lowest level recorded since the study began tracking the measure, with only 62 percent of executives saying they feel optimistic about the next five years.
The respondents, who hailed from 30 leading U.S. fashion companies and were surveyed between April and June, demonstrated some consistency in their responses from the same period last year.
For one, protectionist U.S. trade policies and policy-related uncertainty—including the impact of tariffs—remained the top-cited business challenge in 2026. Policy uncertainty in foreign countries and sourcing locales was another leading source of consternation, along with increased production or sourcing costs, which was ranked the No. 3 challenge to business.
Managing forced labor risks “emerged as a significantly higher priority,” USFIA wrote, as U.S. Trade Representative (USTR) Section 301 investigations into 60 countries on allegations that they failed to prohibit or effectively enforce bans on goods produced with forced labor concluded in June. Hearings on the issue took place this month, and the USTR aims to hit nearly all of the targeted countries with new, double-digit tariffs.
Another USTR investigation into 16 countries regarding structural excess capacity is expected to conclude imminently, and could yield a similar outcome.
The situation has executives wringing their hands, according to Lu, who said that the Supreme Court decision invalidating the bulk of the Trump administration’s tariffs—and the subsequent tariff refunds—have done little to provide relief or allay fears.
“The administration is determined to impose additional tariffs based on these investigations—and who can guarantee there will be no new investigations?” he said. Section 301 of the Trade Act of 1974 is widely viewed as a more durable trade statute than the administration’s previous strategies, and there are no limits on punitive tariff rates or the duration of the duties.
The 10 percent global duties imposed under Section 122 of the same trade statute will conclude on July 24, and the administration has expedited its efforts to conclude the Section 301 probes and implement new duties as a replacement measure.
“The overall sentiment [among brands is that they] just don’t know what to do to prepare. The upcoming one-to-two weeks will be really stressful for many brands,” Lu said.
Stress may have become the status quo in recent years, but there have been notable changes over the past 12 months with regard to how brands are handling their anxiety, and the sourcing shifts they’ve made.
Quite notable, in Lu’s estimation, is the geographical balancing that has taken shape since the last USFIA survey. While countries in Asia still dominate most company sourcing portfolios, utilization rates for some of the most historically prominent locales—China, Vietnam and Bangladesh—declined. Instead, sourcing from non-Asian markets like Guatemala, Egypt and Jordan reached their highest share in more than a decade, the research showed.
What’s more, respondents appeared to shift from “rapid geographic expansion” toward working more efficiently with their existing suppliers. While 65 percent of respondents reported that their companies source from 10 or more countries, fewer reported that they plan to source from new countries over the next year; instead, they want to consolidate their supplier base, strengthen relationships and create better operational resilience.
This finding surprised Lu. “I thought companies would continue to expand their sourcing base, because this is the most effective way to mitigate risk—but actually, this is not the case,” he said. “Likewise, last year, there was a phenomenon of diversification, but largely it was diversification within Asia—moving sourcing orders from China to Vietnam to Cambodia to India. But this year is very different. It’s about regional balancing.”
Jordan and Egypt haven’t made a big impression in benchmarking reports past, and this is the first year that either has made USFIA’s top 10 list.
Lu said there are several factors that may have contributed to the countries’ increased attractiveness to brands. Both countries are cost-competitive when it comes to labor and production, and both face lower tariff rates than their Asian competitors (though Egypt and Jordan are still targets of the USTR’s proposed forced labor tariffs).
“These countries’ most noticeable advantage is cost. This echoes the current business environment because of concerns about profit margin,” Lu said.
What’s more, both boast some trade policy advantages; Jordan has a free trade agreement with the U.S., and Egypt has Qualified Industrial Zones (QIZs)—designated geographical sites that allow manufacturers to export qualifying goods duty free to the U.S.
About one-third of respondents who said they planned to increase diversity in their supplier networks said they were looking to Egypt, with the utilization rate for QIZs up from 38 percent to 53 percent. Meanwhile, this year, the U.S.-Jordan Free Trade Agreement recorded the highest growth in utilization among all respondents, growing from 50 percent to 60 percent in 2026.
While Asia’s growth—including China—slowed for much of the year, as companies are committed to reducing the sourcing risks they perceive as a result of tariffs, the nature of that “de-risking” behavior is evolving.
Just 12 percent of respondents sourced more than 30 percent of their apparel products from China, and most sourced less than 10 percent, with China’s share of apparel imports falling below Vietnam and Bangladesh for the first time in decades. However, China’s share of the sourcing pie may be stabilizing from here on out, not continuing to fall.
Compared with earnings calls that Lu listened in on last year, wherein diversification away from China was a key order of business, that motivation has largely petered out in 2026. USFIA wrote that rather than accelerating efforts to exit the country, respondents seem to be holding fast to their current exposure levels while they simultaneously deepen their relationships with suppliers across the globe.
“The situation is very nuanced,” Lu said. “China, I think, is still very relevant. Companies do not plan totally cut their business ties with China.”
The country still boasts some hard-to-ignore competitive advantages: a highly verticalized supply chain, low minimum order quantities and strong capabilities and capacity for apparel manufacturing. Beyond that, its labor costs have fallen since 2025—the likely result of deflationary pressures within its domestic economy.
Many of those surveyed still regard the country as a highly competitive sourcing destination despite the trade tensions with the U.S. China’s tariff rate is now on par with apparel power players like Bangladesh, and with the cost of doing business on the decline, its appeal may be growing.
Case in point, Lu pointed out: U.S. apparel imports from China increased “dramatically” in May (the most recent month for which import data is available)—to the tune of 18 percent. This, compared to a 2.8 percent overall increase in apparel imports from around the world. “This is unusual,” the academic pointed out.
With Chinese President Xi Jinping slated to visit the U.S. in September, Lu said he believes relations between the U.S. and China will remain stable, or at least not intensify or worsen, in the interim. Both sides are invested in normalizing relations, and are unlikely to escalate tensions through tit-for-tat trade actions in advance of the meeting between President Donald Trump and President Xi.
That does not mean China will find itself at the front of the pack as the U.S. apparel sourcing juggernaut it once was. “Overall, I do not expect China to totally regain market share like in the past—and maybe it will go down again very quickly” from the May boost, Lu said. But the country’s influence on the regional—and global—supply chain will continue to grow, even if its direct exports to the U.S. don’t.
“I don’t think market share itself is a very accurate measurement of China’s success,” he said.
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