As the uncertainty wrought by the U.S. trade war continues to stymie the fashion industry, sourcing executives are reexamining their production options. Today, they’re prioritizing factors in a different way, ranking agility, verticality and quick turn higher to attempt to dodge risk and insulate margins.
Through this lens, new production hubs are gaining traction—and Guatemala is eager to capitalize on the moment. The country, which counts t-shirts as its top apparel export category, has turned its focus to value-added garments as a way of carving out a niche that, combined with its proximity to the U.S. market, makes it an attractive option for navigating ongoing supply chain volatility.
Representing the country’s export-oriented textile and apparel sector, VESTEX, the Guatemalan Apparel and Textile Association, has been at the center of that evolution.
“Where global sourcing is shifting away from a purely low-cost model toward one that values resilience, speed to market and compliance, Guatemala has become an increasingly attractive destination,” says Karin De León, who leads promotion, trade and investment for VESTEX. The country’s geographic advantage is a key part of that appeal: with access to ports on both the Atlantic and Pacific, Guatemala can efficiently serve both U.S. coasts, offering shorter lead times compared to Asian suppliers.
Even with these benefits, VESTEX data shows Guatemala’s share of the U.S. market dipped last year as exports slowed.
It’s no mystery why, De León said. Like so much of the rest of the world, U.S. trade policy and broader geopolitical instability are taking their toll on the country. With more than 90% of the sector’s exports bound for the U.S., either directly or transformed in CAFTA-DR trade partner countries, Guatemala is highly susceptible to any negativity originating in Washington.
“Market uncertainty has been reflected in a decrease in production orders and a lack of decision-making regarding investment projects,” De León noted, adding that rising costs—particularly for raw materials—and shifting consumer confidence are also weighing on demand.
Still, there is cautious optimism that Guatemala’s trade position will remain stable. The country recently signed a free trade agreement with the U.S., which allows for qualifying textile and apparel products to be exempt from the 10% tariffs under Section 122. De León has reason to believe that no matter the outcome of the current Section 301 investigations, these goods will continue to enjoy a similar treatment, preserving one of the country’s most critical competitive advantages.
In the following Q&A, De León discusses how Guatemala’s apparel sector is handling the upheaval, where it is investing to improve competitiveness and what brands should understand about sourcing from the region today.
HGI: How would you characterize business currently for VESTEX Guatemala textile and apparel producers?
KDL: With over 75% of Guatemala’s textile and apparel exports headed to the U.S., the industry has faced challenges stemming from the uncertainty that the market has experienced. As of December of last year, Guatemala’s share of the U.S. market in dollars reduced by 0.05%.
Traditionally, Guatemala’s apparel sector grows between 3% and 5% annually; however, according to the Central Bank of Guatemala in 2025, exports decreased by 2.14%.
With all the changes in trade policies and a year in which surcharges fluctuated, the main problem is the uncertainty, and this problem is reflected in the fact that brands have been cautious in placing orders.
HGI: How has the textile and apparel industry evolved in Guatemala over the last 5 years?
KDL: The yarn-forward rule established under the CAFTA-DR agreement promoted stronger collaboration among Central American countries. By allowing the accumulation of inputs and processes from within the region, CAFTA-DR has significantly strengthened intraregional trade, so the increased production of yarns and fabrics in Guatemala has allowed the supply chain to grow.
Driven by shifting market demand, textile production in Guatemala has been expanding beyond knits, with a modest increase in woven fabrics as well. Investments in innovation and technology have enabled the industry to offer specialized processes, including antimicrobial treatments, absorption, UPF protection, enzymatic washing, softening and plush finishing, among others. A particularly important advancement has been the investment in elastic knit fabrics, which has opened the door to the production of categories such as sportswear, intimate apparel (seamless), shapewear (technical lingerie and compression fabrics) and medical textiles.
Guatemala has been characterized by offering a diverse and flexible production, exporting high value-added products. So, despite the uncertainty in the market, Guatemalan companies have managed to survive by fulfilling orders for more specialized products and reorders that need to reach the market quickly. This is reflected in the average price per equivalent square meter. While the average price of world imports is $3.14, Guatemalan imports are $5.24.
HGI: How does the country stack up in terms of sustainability practices?
KDL: Guatemalan apparel companies operate under a strong framework of labor and environmental compliance. Companies demonstrate full-spectrum commitment to input traceability, adherence to strict rules of origin, and continuous improvement of processes to reduce resource consumption.
Guatemalan manufacturers are obtaining certifications like GOTS (Global Organic Textile Standard), OEKO-TEX, Global Recycled Standard, Recycled Claim Standard,Bluesign, Higg FEM, among others, ensuring their products meet international sustainability standards.
Many mills are upgrading to water and energy-efficient machinery, as well as more sustainable dyeing and finishing processes.
VESTEX is a member of Cascale and supports manufacturing companies in complying with the Higg-Index.
We are increasing renewables sources as well.
HGI: In what areas does the country need to improve?
KDL: Guatemala needs to address:
- Infrastructure and logistics.
The need to strengthen national infrastructure, particularly ports, customs processes and internal transport routes is a key issue. - Limited availability of regional inputs.
The industry continues to face constraints in the local production of certain yarns, fabrics and specialized fibers. Inputs such as viscose, spandex and rayon are not yet manufactured in the region at scale, which limits vertical integration and forces reliance on imports from outside the hemisphere. Expanding textile capacity in these areas is a central issue to ensure resilience and broaden the exportable supply. - Market visibility and buyer perception.
Despite its high level of integration, many international buyers remain unaware of Guatemala’s strengths in complex products, compliance and sustainability. - Differentiation and specialization under nearshoring.
Another key challenge is sustaining competitiveness through higher-value products. Today, 54.11% of Guatemala’s apparel exports already include advanced finishing processes, and the industry is investing in spinning, woven fabrics and technical textiles. However, scaling these capabilities requires reinvestment and foreign capital inflows—both of which are being constrained by global uncertainty.
“Despite the uncertainty in the market, Guatemalan companies have managed to survive by fulfilling orders for more specialized products and reorders that need to reach the market quickly.”
—Karin De Leon, VESTEX
HGI: Even prior to the new U.S. trade policies, has Guatemala been garnering foreign direct investment interest?
KDL: Since the pandemic in 2020, when many global companies accelerated nearshoring strategies, Guatemala has successfully attracted new foreign investment and supported the expansion of companies already established in the country—particularly in the spinning industry. [This was aided by] electricity costs, which are the most competitive in the Central American region.
In general, this region is more focused on cotton products and we even make blends. But of course synthetics is the thing that we need. We have access to the U.S. market in polyester, and rayon in a limited way, but the situation is the price. So we definitely want to increase the investment in synthetics to open more opportunities, because in the end, the brands and the customers are always looking for a better price. The import duties in synthetics in the U.S. is around 32%. That’s why, since the CAFTA agreement, we are starting to increase synthetic garments, but we need more.
We had a lot of investments from Korea. The Korean sector is huge here in Guatemala. We also have new local investment as well as investment from Sri Lanka. But not really China. We are very aware of the compliance situation in the U.S. market [related to] forced labor for the last three years, so we are trying to move away from using Chinese raw materials.
Since 2025, all of the projects have stopped. VESTEX has an investment area, and we try to support companies looking to invest here. Before Liberation Day, there were around five or six potential investment projects in Guatemala, and they stopped because no one knows what is going to happen in the market. The worst thing for the industry is the uncertainty so the investment projects stopped, and the orders stopped or are getting slow.
When it was announced that textile products from the CAFTA-DR region would have zero tariffs, we started to receive small signs of one or two companies thinking about investment projects.
HGI: What’s the main thing you’d like buyers to know about Guatemala that might be different from their experiences years ago?
KDL: We’ve had some brands come to the region to explore opportunities. They think they’re going to find the same thing they’re used to in Asia, but we are different. When we compare Vietnam and China, we can do almost every kind of garment, but with different capabilities. Our people have a lot of skills, which is why we can do a lot of high value-added products.
We want buyers to give us the opportunity to show Guatemala’s capabilities, because one of the biggest advantages that we have is our proximity to the U.S. market, that plus our free trade agreement, under which Guatemala has 0% additional tariffs for apparel and textiles produced under the rules of origin of the CAFTA-DR. It also allows for improvements in some processes related to trade facilitation. And the message that we receive from the Washington entities is they are going to try to maintain this 0% for the CAFTA-qualifying goods.
Buyers have to trust in the region, because we need the brands in order to increase the capabilities. If they don’t place orders here, we are not going to receive more investment, and the companies here are not going to grow.
HGI: You mentioned Guatemala’s free trade agreement but it is CAFTA-DR that allows the region to share resources, particularly because of the cumulation clause. What advantage does that offer?
KDL: Cumulation means we can share inputs. For instance, we can make cotton yarns in Guatemala. Then send it to Honduras where they make the garment, and they export to United States. Because we’re all part of CAFTA, that garment will qualify for 0 tariffs as a CAFTA-qualifying good.
Each country has a lot to offer in different ways, and we’re very close to each other. For example, in Guatemala we do a lot of yarns and fabrics. El Salvador has capabilities in synthetics for athletic garments. Unifi already has a production plant there. Honduras is very known for the volumes they have. A lot of U.S. companies, like Fruit of the Loom and Hanes, export huge volumes. In the case of Guatemala, we export less volume, but more value added.
HGI: There’s been a lot of talk in the industry about brands and retailers moving to smaller, more frequent orders. How well positioned is Guatemala to be able to accommodate that strategy?
KDL: It’s definitely a good opportunity for us, because we are seeing, in the last few years, a lot of customers that place replenishment orders here and pick and pack orders. From Guatemala to the port in Miami, it only takes three days.
