TCF POST Special Report
Phnom Penh: Asia’s textile and garment sector spent the second quarter of 2026 adjusting to a fundamentally reshaped U.S. trade landscape, as exporters across Bangladesh, China, Cambodia, Myanmar, Pakistan and Vietnam absorbed the fallout from a landmark U.S. Supreme Court ruling and the rollout of a new tariff regime.
The transition brought a more predictable framework in place of the old reciprocal-tariff system, but not necessarily a calmer one: a pending Vietnam tariff determination, an active forced-labor investigation in Myanmar, and a new 50% duty on Canadian apparel all landed within the quarter, while sustainability rules tightened and workforce pressures persisted across the region.
The findings are drawn from the Q2 2026 Quarterly Regional Roundup of the STAR Network (Sustainable Textiles of the Asian Region). The report is a compilation of data supplied by STAR Network’s nine member associations, including Bangladesh’s BGMEA and BKMEA, China’s CNTAC, Cambodia’s TAFTAC, Myanmar’s MGMA, Pakistan’s PTEA and PHMA, and Vietnam’s VITAS.
Tariff Whiplash: From IEEPA to Section 301
The quarter’s defining story was trade policy. On February 20, the U.S. Supreme Court ruled in Learning Resources, Inc. v. Trump that the president had exceeded his authority under the International Emergency Economic Powers Act (IEEPA) in imposing sweeping reciprocal tariffs, striking down the baseline duties that had governed sourcing decisions for more than a year.
Rather than easing pressure, the ruling triggered a scramble to new legal footing. A temporary Section 122 global surcharge of 10% filled the gap before expiring on July 24 — the same day finalized, country-specific Section 301 tariffs took effect, built around U.S. findings on forced-labor safeguards in each exporting nation’s supply chain.
The result is a two-tier system that now clearly separates winners from laggards:
- 10% tier: Cambodia, Bangladesh, Pakistan, Indonesia, Malaysia and India, among 17 countries
- 12.5% tier: Vietnam and Thailand — the highest rate among major Asian apparel suppliers
A carve-out sweetens the deal further for some: Bangladesh, Cambodia, Indonesia and Malaysia can exempt designated export volumes from the tariff entirely if they use U.S.-origin cotton and fibers — a mechanism designed to steer sourcing toward American inputs while rewarding stronger anti-forced-labor enforcement. India gets no such exemption, eroding its position relative to regional peers. Vietnam, despite negotiating its initial 46% reciprocal rate down to 20% earlier in the year, still ends up worse off than Cambodia and Bangladesh under the new framework.
Layered on top, Section 232 national-security tariffs continue to bite: steel and aluminum remain at 50%, and a new 50% duty on Canadian apparel — covering HTS Chapters 50–63 — takes effect August 19, even for USMCA-origin goods, in retaliation over Canadian dairy and auto policy.
A Sector Splitting in Two
Beneath the tariff headlines, Q2 revealed a sharpening divide between upstream and downstream segments. Rising global prices for cotton, wool and chemical fibers lifted returns for yarn and fabric producers — China’s textile exports climbed 3.5% to $73.01 billion — while garment makers further down the chain absorbed higher input costs and softer brand orders, with China’s apparel exports slipping 0.6% over the same period.
Global apparel demand is forecast to grow just 3% in 2026, down sharply from 6% growth in 2025, as U.S. retailers order more cautiously and EU buyers increasingly tie purchasing to sustainability compliance. Chinese manufacturers are responding by chasing emerging markets in Russia, Central Asia and Africa as competition for share intensifies in saturated Western markets.
Country Snapshots
Bangladesh — RMG exports were roughly flat at $19.34 billion in H1 2026, with the sector still contributing over 80% of quarterly export earnings. Dhaka boosted cash incentives for domestic textile manufacturers from 1.5% to 5% to strengthen backward linkages ahead of LDC graduation, while the country added four more LEED-certified factories, bringing its global-leading total to 290.
China — Textile and garment exports reached $146 billion in H1, up 1.4%, with a standout June driven by a 16.8% surge in shipments to the U.S. Beijing rolled out a 2026–2028 standards action plan targeting green production, digital traceability and over 300 new industry standards.
Cambodia — GFT exports rose 6.12% to $8.09 billion in H1, powered by strong U.S., ASEAN and Japanese demand, with garment shipments to the U.S. up nearly 30% year-on-year. The government raised the minimum wage to $210 a month and industry group TAFTAC pushed for a complete domestic upstream supply chain by 2029.
Myanmar — Garment exports grew 4% to $1.585 billion in the January–April period, still dominated by EU demand (47% share). But Chinese-owned factories — roughly 65% of the sector — continue to capture most new orders, while tightened import-licensing rules are straining non-Chinese manufacturers.
Pakistan — Textile exports edged up 0.26% to $17.93 billion in FY2025-26, with cotton yarn (+12.4%) and readymade garments (+3.87%) leading gains. July alone brought a stronger 9% jump in textile exports. Islamabad is finalizing a new Textiles and Apparel Policy alongside a five-year National Industrial Policy to address energy costs, taxation and export facilitation.
Vietnam — Textile and garment exports reached $22.20 billion in H1, up 1.7%, with Vietnam holding the largest single share of the U.S. import market (18.66%) even as that market contracted overall. But the higher 12.5% Section 301 tariff — stacking with existing duties to roughly 32.5% combined exposure — is squeezing margins and pushing manufacturers toward automation and market diversification.
The Bigger Picture
Sustainability compliance moved decisively from aspiration to market-access requirement this quarter. The EU’s ban on destroying unsold textiles took effect in July, and frameworks like the Digital Product Passport are now shaping sourcing and investment decisions across the region — prompting Cambodia to plan a regional DPP workshop in August with counterparts from Bangladesh, Vietnam and Pakistan.
Meanwhile, Vietnam and India are deepening cooperation on raw materials, footwear and textiles as both countries look to reduce reliance on volatile import channels and strengthen regional supply chain resilience.
With the Section 122 surcharge gone and Section 301 tariffs now the backbone of U.S. trade policy toward the region, Asia’s garment exporters enter the second half of 2026 with more clarity than they’ve had in over a year — but also a starker, more permanent hierarchy of winners and losers.