For years, North America—especially Mexico—has been promoted as an attractive alternative to China for US fashion brands. It’s close enough to cut down on lead times, structured enough to offer preferential trade deals, and politically convenient enough to fit the industry’s push for diversification. But that appeal is getting more complicated.

This month, the US-Mexico-Canada Agreement (USMCA), a trilateral free-trade deal launched in 2020, went through its first mandatory six-year joint review. However, the US refused to reaffirm the pact as it currently stands. This follows President Donald Trump’s criticism of the deal he himself negotiated, as well as trade imbalances with Canada and Mexico.

The agreement is still in effect, but the three countries are now locked into annual negotiations until they reach a compromise, or until the deal expires in 2036. The US and Mexico are expected to meet this week for a third round of talks related to the USMCA review.

The USMCA is crucial for the fashion industry because it’s one of the few frameworks that can make a regional textile and apparel supply chain commercially viable. Its rules of origin determine which goods qualify for duty-free, preferential treatment. In apparel, the key standard is often called “yarn-forward,” meaning the yarn, fabric, and final garment generally must all be produced within the USMCA region for the finished product to qualify. For example, a shirt cut and sewn in Mexico might not get USMCA benefits if the fabric was made from yarn sourced outside North America.

For textile producers, this requirement is meant to ensure that duty-free treatment supports regional yarn and fabric production, not just final assembly. For brands, it can make Mexico attractive because the country offers nearby cut-and-sew and processing capacity, shorter lead times than Asia, and proximity to the lucrative US consumer market. But it also limits flexibility: if the yarns, fabrics, or specialized inputs a brand needs aren’t available in the region, the product may not qualify for USMCA treatment, even if the final garment is assembled in Mexico or Canada.

Now, fashion companies are facing an uncomfortable question: what happens when one of the regions positioned as a solution to trade uncertainty becomes another source of uncertainty itself? Like other countries, the US has pushed for diversification away from China. But while Mexico offers speed, proximity, and duty savings, the uncertainty around USMCA is already making some companies hesitant to expand their sourcing there.

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“Companies are scratching their heads looking for stable and competitive sourcing regions,” says Steve Lamar, president and CEO of the American Apparel & Footwear Association (AAFA). “While companies remain unsure where to go, many are keeping their sourcing relationships in China—not because it’s their first choice, but because the alternatives lack the predictability needed to justify major investments.”

The risks of instability
Just under a third (31.6%) of the 30 leading US fashion companies reported sourcing apparel from Mexico this year, down from 52.9% in 2025 and 60.7% in 2024, according to a survey by Sheng Lu, director of fashion and apparel studies at the University of Delaware, and Emilie Delaye, a graduate instructor, in collaboration with the United States Fashion Industry Association (USFIA). Only 33% planned to increase apparel sourcing from Mexico over the next two years, down from 47% in the 2025 survey.

This decline doesn’t mean Mexico has lost its sourcing advantages. Respondents still ranked it as the most competitive major sourcing destination for speed to market; 72% cited speed as a critical reason to source there, followDriven by duty savings of 63%, companies also saw Mexico as more flexible and lower risk when it comes to social and environmental compliance compared to many Asian suppliers.

The bigger question is whether the policy environment is stable enough for brands to deepen their commitments. “These results highlight the need for a stable and predictable policy environment,” Lu says.

Kim Glas, president and CEO of the National Council of Textile Organizations (NCTO), says the industry is relieved that USMCA remains in place, but the lack of reaffirmation has raised new concerns about the review process, the timeline, and whether the agreement will stay trilateral. Trump left the door open for separate agreements during an Oval Office meeting with Canadian Prime Minister Mark Carney in October, saying the US could pursue different deals if they offered better terms than the current framework.

“Given how integrated our industry is with Mexico and Canada, I think that uncertainty will hurt business until we get more clarity,” Glas says. “This adds uncertainty at a time when our industry has lost 41 textile plants over the last two years.”

NCTO estimates that 50-53% of the value of US textile exports goes to Mexico and Canada for processing. Glas says USMCA supports a three-country production chain, where specialty fibers may come from Canada, be spun or woven in the US, and then sent to Mexico for finishing.

Industry representatives say the trilateral structure matters because North American apparel production relies on a complex network of rules of origin, yarns, fabrics, cut-and-sew capabilities, specialty inputs, and cross-border processing. Data from the Office of Textiles and Apparel shows that in the first five months of 2026, 93% of US apparel imports from USMCA members claimed duty-free benefits under the agreement, up from 89% in 2025. Nearly 92% complied with yarn-forward rules of origin, up from 82% in 2025 and 70% in 2024.

These compliance rates now carry more commercial weight, because the Trump administration has waived additional tariffs on products that meet USMCA’s origin rules. The framework has also become a likely flashpoint in any review: brands and importers have long wanted more flexibility to use textile inputs not available in the region, while the US textile industry argues that strong yarn-forward rules are essential to support regional yarn and fabric production.

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Importers are closely watching the review process. Julia Hughes, president of the USFIA, says there is broad support for USMCA among fashion and retail companies in all three countries, and the industry has urged negotiators to keep the agreement’s textile and apparel framework intact. “The industry supports no changes to the rules of origin for our sector, and we believe the negotiators share that view,” Hughes says.

All respondents to the University of Delaware and USFIA survey supported keeping USMCA trilateral, because the apparel and textile value chain depends on a single regional framework for rules of origin, documentation, and duty-free treatment. Separate bilateral deals could fragment those rules, raise compliance costs, and make North America less attractive as a sourcing option. If the Trump administration revisits USMCA rules of origin, Lu says, the level of flexibility introduced into the current yarn-forward framework is likely to be one of the most contentious and politically sensitive issues in the debate.

United States Trade Representative Jamieson Greer has already framed the review around reducing reliance on imports from outside North America, strengthening rules of origin, and improving supply chain security. For apparel and textiles, this could mean pressure to keep or tighten yarn-forward requirements, so that duty-free benefits support regional yarn and fabric production.

However, brands and importers may argue that overly rigid rules make the agreement harder to use.When specialized materials aren’t available in North America and alternatives only exist on paper, it can be hard for brands to turn trade policy into everyday business decisions. Andrea Herrera, founder of Lora Baby—a small Canadian brand selling baby sleepwear in North America—says uncertainty around the USMCA is affecting nearly every part of her business. She’s been trying to move manufacturing to Canada, but says the process has been difficult and expensive. Growing in the U.S. is a priority, and she’s considered opening a U.S. business, but constant changes in laws, tariffs, and compliance rules have made her more cautious.

Lora Baby’s main product is bamboo sleepwear, a category where the fabric usually comes from China. The brand currently manufactures there, and each piece arrives ready to sell. Even if Herrera could manufacture in Canada, she says the product would likely still struggle to qualify for USMCA certification.

“Because of the origin rules, we couldn’t get the certificate even if we manufacture in Canada, since the fabric is made in China,” Herrera says. “From what I’ve found, no one in the U.S. or Canada produces this fabric.”

This is the rules-of-origin debate in a nutshell. For policymakers, yarn-forward requirements can help encourage regional textile production. For a small brand, they can mean that “made locally” isn’t enough if the fabric supply chain is outside the region.

Manufacturing locally in Canada would take more than just a willingness to pay. Herrera says she’s struggled to find manufacturers willing to work with a small brand and low production volumes, while higher costs could push prices beyond what customers will accept. Her pajamas are already positioned as a premium product.

U.S. sales are almost nonexistent right now, she says. On a recent U.S. order, the customer paid extra “government charges” and brokerage fees that added up to about 80% of the product’s price. That experience has made growing in the U.S. feel more like a risk than an opportunity.

“I’m sure big companies don’t care much, but when every dollar matters and you’re trying to grow a brand, it feels like running against crushing waves,” Herrera says.

Her experience highlights a usability problem at the heart of the USMCA debate: brands may want to source regionally, but they still need the materials, partners, and compliance pathways to make the agreement work. Smaller companies often have fewer options, less leverage with factories, and less room to absorb costs when trade rules change.

Claire Mercieca, founder of Canadian intimates brand Embrace, sees the same problem from a different angle. Embrace manufactures in China, with about 70% of sales coming from the U.S. and Canada and the remaining 30% from Asia. That diversification was intentional, Mercieca says, because the brand launched in late 2022, after trade policy had already become less predictable.

For Embrace, USMCA doesn’t directly lower costs, since its products are made in China and don’t qualify for preferential treatment. That can hide a more complicated material story: the brand uses Lenzing micromodal, a plant-based fabric made in Austria, and Supima cotton, a premium U.S.-grown textile. But once those materials become a finished garment in China, the country of origin is still China for customs purposes.

“A deterioration in U.S.-Canada trade relations weakens consumer confidence, slows retail investment, and reduces domestic spending,” Mercieca says. “It’s a snowball effect.”

The challenge is that shifting production isn’t as simple as moving a purchase order, she says. Intimates are one of fashion’s more technical categories, requiring specialized machinery, skilled lingerie technicians, knitting mills, dye houses, elastic and hardware suppliers, and factories with deep experience in bra construction. China has built that ecosystem over decades.

Frequently Asked Questions
Here is a list of FAQs about how the review of the North American trade agreement is impacting fashion sourcing plans

BeginnerLevel Questions

1 What is the North American trade agreement being reviewed
Its the USMCA the trade deal that replaced NAFTA It sets the rules for most goods traded between the US Mexico and Canada

2 Why is the review causing uncertainty for fashion sourcing
The review could change tariffs and rules about where fabric and yarn must come from Fashion brands dont know if their current supply chain will still be costeffective so they are hesitant to sign longterm contracts

3 How does this affect the price of clothes I buy
If new tariffs are added brands might pay more to import clothing from Mexico or Canada Those extra costs often get passed on to you as higher retail prices

4 Does this only affect clothes made in North America
No It also affects global supply chains Many brands use North America as a nearshoring hub If that hub becomes unstable they may shift orders back to Asia which changes global pricing and lead times

5 What is sourcing in fashion
Sourcing is the process of finding factories and suppliers to produce your clothing It includes deciding where to buy fabric where to cut and sew garments and how to ship them

AdvancedLevel Questions

6 What specific rules of origin are at risk in the USMCA review
The rules that require certain percentages of yarn fabric and sewing to happen within North America If these rules are loosened brands could use cheaper Asian inputs but if they are tightened current sourcing plans become illegal

7 How are brands hedging against this uncertainty
Many are using a dualsourcing strategykeeping some production in MexicoCanada while also building backup capacity in Vietnam Bangladesh or Central America Others are negotiating shorter 6month contracts instead of multiyear deals

8 Whats the difference between tariff risk and compliance risk here
Tariff risk The cost of importing goes up if new taxes are added