The newest wave of U.S. tariffs has driven apparel manufacturers to consider diversifying their manufacturing locations — and spurred a growing interest in nearshoring clothing production, according to a report by Alixpartners. In “2025 Nearshoring in Apparel,” the business management consultancy makes a case for why more apparel brands and retailers should consider production in Mexico and Central America.
China’s rising costs
China has been the apparel industry’s predominant sourcing region for several decades, utilized by 100% of the participants in the United States Fashion Industry Association’s 2025 Fashion Industry Benchmarking Study. The country drew in textile businesses in the early 2000s with low labor costs, industrial subsidies that enabled high-volume production and vertically integrated operations that combined material production with clothing assembly.
However, global events have eroded these cost benefits in recent years. These include tariffs and rising geopolitical tensions in 2018 and COVID-19 shutdowns between 2020 and 2021. This year, tariffs on Chinese goods rose again from 22.9% to 69.1% — well above any other major apparel import market and almost triple the worldwide average.
While many companies still source products from China, the country’s total share of the U.S. apparel market has fallen from 40% in the late 2000s to 15% in 2025, according to OTEXA data. Approximately 70% of respondents to the USFIA study report that China is no longer their top supplier, and 80% plan to further reduce sourcing from China over the next two years.
Central America’s opportunity
In response to tariffs and policy uncertainty surrounding China, 80% of companies plan to diversify their sourcing base, according to the USFIA. That represents opportunities for other nations to fill the void. Central America, which has held steady at about 15% of U.S. apparel imports since 2010, could be a prime beneficiary. But, according to Alixpartners, “despite years of headlines, nearshoring has struggled to gain traction.”
The consulting firm said the reasons are clear. The region has lagged on account of relatively high garment labor costs — $13,600 per year in Mexico, more than double the average cost in Vietnam and five times the cost in Bangladesh, according to the report — as well as land freight costs and a lack of existing infrastructure for raw material production.
Even with comparatively low tariff rates to the U.S. and proximity, USFIA found that only 44% of companies plan to expand their supply chain into the Western Hemisphere. Even fewer, 17%, intend to source textiles and apparel “Made in USA” — a Federal Trade Commission label that applies to products produced and assembled in the United States.
Still, some large companies are making the shift.
South Korean apparel manufacturer Hansae has recently announced an expansion of its operations in Nicaragua, with 60 new sewing lines planned by 2026, according reports in Sourcing Journal. New York City-based sourcing firm Jay Apparel announced a similar expansion into Central America in May, following the tariff announcement in April.
Miami, Florida-based Intradeco is partnering with Recover, a recycled cotton fiber producer, to expand cotton recycling in El Salvador, and NYC-based Cathay Home is investing in what it calls “the largest home textile manufacturing operation in the Americas.”
Ultimately, about half of USFA survey respondents noted plans to expand sourcing in Mexico and CAFTA-DR countries in the next two years. However, that report stated, “Notably, nearly all of these companies also
intend to increase sourcing from Asia, indicating that U.S. fashion companies view nearshoring from the Western Hemisphere as a complement, not a replacement, to their broader sourcing diversification strategy.”
Mexico’s competitive market
The Alixpartners compared sourcing costs between Mexico and Vietnam, China and Bangladesh to illustrate how “tariffs are shifting the economics” of international trade.
The report first highlighted that duties and tariffs make up 33% of the cost of a garment in China, and 25% of the cost in Vietnam and Bangladesh, while United States Mexico Canada Agreement- compliant garments produced in Mexico face no tariffs or duties on exports to the United States.
This lack of tariffs levels the playing field for Mexico with major Asian producers. According to an Alixpartners Analysis cost model, the production cost for a 60/40 cotton/polyester men’s T-shirt made with virgin PET is currently 20% cheaper to produce in Mexico than in China. The same shirt is 21% cheaper in Vietnam than China and 22% cheaper in Bangladesh.
Other advantages of Mexican and Central American production include lead time reductions — between three and six weeks — and capital efficiency, the report stated. Shorter lead times can translate into lower markdowns and clearance rates, and faster turnarounds reduce working capital. Alixpartners’ calculations found that this can translate into cost savings of 1-2%, making virgin polyester production roughly equal in cost-effectiveness in Mexico, Vietnam and Bangladesh.
Nearshored production also makes recycled garments more viable, Alixpartners noted. While recycled PET is slightly more expensive to produce, the report pointed out that materials are more easily sourced in the Western Hemisphere than the Eastern Hemisphere, eliminating the need for trans-Pacific shipping. This in turn lowers the garments’ carbon footprint and satisfies consumer demand for sustainable garments, allowing for a higher price premium.
Potential changes
While the numbers favor nearshoring today, the current geopolitical environment is volatile.
President Donald Trump’s IEEPA tariffs are up for consideration in the Supreme Court, and cost structures may change in Asian or Central American countries, driven by currency and minimum wage changes.
The USMCA is also up for review next July, and it is not yet clear whether this process will be a formality or a complete renegotiation, or whether new clauses or restrictions may make compliance more difficult.
Still, these uncertainties are only part of the larger equation of nearshoring consideration.
“We believe now is the time for retailers and brands to re-assess opportunities to expand nearshoring,” the Alixpartners report reads. “This includes developing a flexible cost model that can be used to assess total landed cost under various tariff and country scenarios… The economics, infrastructure and consumer sentiment are aligning — and the window to act is open.”
