A small story slipped out of the business pages this week that almost nobody framed as a fashion story, but it is one of the most consequential fashion stories of the year so far.
According to the annual Political Risk Survey released by Willis on Tuesday — a poll of 57 senior executives across manufacturing, technology, retail and real estate in Europe, North America and Asia — tariffs have officially overtaken war as the single biggest threat business leaders see in 2026. Not war in the Middle East. Not the closure of the Strait of Hormuz. Not the prospect of further escalation in Iran. Tariffs.
Sixty-one percent of executives named heightened import duties as the most difficult factor to manage in today's business climate. The same proportion reported that their company has already taken financial damage from them. Less than half — forty-six percent — named conflict in the Middle East as one of their top three concerns. The numbers, in plain English, mean this: the people running international companies are more frightened of trade policy than they are of war.
For the fashion industry specifically, that finding is not a surprise. It is a confirmation of something the sector has been quietly bracing for since April 2025, when the current US administration unleashed the reciprocal tariff regime that has now reshaped the cost structure of almost every garment sold in the country. What is new is that the consequences are about to land on the consumer.
What actually happened to clothing prices
The headline number is brutal and worth saying directly. Tariffs have increased the first-cost of apparel and leather goods by approximately thirty-five percent. That figure comes from McKinsey, working with the Business of Fashion on the State of Fashion 2026 survey. Apparel and footwear sit among the most exposed categories in the entire economy, partly because so much of the supply chain still passes through China, Vietnam, and Bangladesh, and partly because the margins in fashion are thin enough that a thirty-five percent input shock cannot be quietly absorbed.
Throughout 2025, most brands chose to absorb the costs rather than pass them on. They pulled inventory forward, paid the higher duties on the orders already in motion, ate the gross margin compression, and waited to see whether the Supreme Court would rule against the administration's use of the International Emergency Economic Powers Act to justify the duties in the first place.
That strategy has now expired. The inventory hedges are gone. The Supreme Court declined to dismantle the framework, even as it ruled against specific applications. And the executives surveyed by McKinsey are now telling a clear story about what comes next: seventy-one percent of fashion leaders plan to raise prices in 2026, up from fifty-two percent last year. In North America, forty-five percent expect to raise prices by more than five percent.
The consumer-facing language is going to be polite. The phrase you will hear over and over is selective price adjustments. The actual experience will be that a sweater you bought last spring for ninety dollars is now one hundred and ten, that the dress you have been waiting on a sale for has quietly disappeared from the sale rack, and that the brands you trusted to deliver the same value year after year have stopped doing so.
The structural shift hiding inside the headline
The price story is the surface of it. The structural story underneath is more interesting, and almost no consumer publication is covering it clearly.
Eighty-four percent of the executives surveyed by Willis said they are now actively considering or preparing for a future in which their business has to be structurally divided between Eastern and Western markets. Read that sentence again. The vast majority of the people running global businesses no longer believe in the global market. They are quietly rebuilding their operations on the assumption that the world will function as two parallel economies, one organised around the United States and its allies, the other around China and its trading partners, with limited bridges between them.
For fashion, that means a fundamental rewriting of where things are made. The McKinsey data shows manufacturing flows already shifting. Vietnam and Bangladesh are taking share. Indian exports are being squeezed by the tariff regime they sit under. Cambodia and Indonesia are absorbing more orders than their factories can comfortably handle. The familiar supply chain that produced cheap fast fashion for the past two decades — a smooth flow of goods through a small number of mega-ports — is being unbundled into a messier, slower, more expensive system that nobody has fully figured out yet.
This is what consumers are actually paying for when they see prices rise. Not just the duty itself. The disruption it creates downstream: weaker supplier relationships, lower investments in factory capacity, gaps in industrial knowledge that take years to rebuild. The thirty-five percent first-cost increase is the visible tip. The hidden cost is an industry rewiring itself in slow motion.
Who actually benefits from this
It is tempting to read this story as bad news across the board, and for most large retailers, it is. But there are two groups quietly benefiting from the same forces that are punishing everyone else.
The first is the resale and secondhand market. Vinted, The RealReal, ThredUp, Vestiaire Collective. Every piece already in circulation in the United States is a piece that has already paid whatever duties applied when it first arrived. None of it pays the new ones. The result is that as new clothing prices climb, the relative value of the secondhand market climbs with them. Items that used to look like a price compromise now look like a price win. The McKinsey report explicitly identifies this dynamic as one of the reasons resale is now forecast to grow two to three times faster than the new market through 2027.
The second is independent designers who manufacture at smaller volumes, closer to home. A New York-based designer producing fifty pieces in a Manhattan atelier or a Brooklyn factory does not feel the tariff regime the way Zara does. A designer in Lisbon producing for European customers is not exposed to US duty schedules at all. A small Armenian leather workshop selling direct to consumers worldwide can absorb a higher unit price more easily than a Bangladeshi mega-factory operating on three percent margins. Smallness, in a fragmenting trade environment, is starting to function less like a disadvantage and more like a hedge.
This is the part the industry's largest players are quietly admitting in their earnings calls. The traditional advantages of scale — the cheap container, the negotiated freight rate, the optimised supply chain — are getting cheaper to replicate and more expensive to operate at scale. Meanwhile, the disadvantages of being small — higher per-unit costs, slower delivery, limited inventory — are matched by advantages that are getting more valuable: agility, traceability, geographic flexibility, a customer base that already accepts a different price logic.
What this looks like in your closet
If you are wondering how this shows up in the next twelve months of your own shopping, here is the realistic forecast.
Fast fashion prices will rise more than people expect. Brands like Shein and Temu, which built their entire model around tariff loopholes that have now been closed, are facing a different reality than the one they built for. The de minimis exemption that allowed sub-eight-hundred-dollar packages to enter the US without duties has been removed. The full tariff burden now applies. The structural advantages that made twelve-dollar dresses possible are gone. Expect price increases of fifteen to thirty percent across these categories through 2026.
Mid-market retail will keep getting hollowed out. The mid-market — the J.Crews, the Gaps, the Banana Republics — has been the most vulnerable segment for a decade and the tariff regime is accelerating the squeeze. They are too expensive to compete with Shein on price. They are not exclusive enough to compete with luxury on aspiration. Expect more bankruptcies and consolidations through the year.
Luxury will quietly stop raising prices the way it has been. Between 2023 and 2025, about eighty percent of luxury market growth came from price increases, not volume. That trick has now exhausted itself. The McKinsey data shows luxury executives planning the smallest price hikes of any segment in 2026 — only eighteen percent plan increases above five percent, compared to twenty-six percent in non-luxury fashion. The luxury segment is finally hitting the ceiling of what it can charge before customers walk.
Independent designers will quietly take share. Not in a dramatic, headline-grabbing way. In a slow, year-over-year way as consumers look at the price tag on a fast fashion blazer, then at the price tag on a small designer blazer made of better wool, and increasingly find that the gap has narrowed enough to make the small designer the rational choice.
The honest part nobody is saying out loud
The truth that the trade press is reporting in fragments and that the consumer press is barely reporting at all is that the tariff regime is doing something to fashion that twenty years of activism could not. It is making fast fashion more expensive, mass retail less competitive, and craft-based small production relatively more attractive. The mechanism is not ethical. It is economic. The outcome looks, from a distance, surprisingly similar to what sustainability advocates have been arguing for two decades — fewer pieces, higher quality, more local production, longer wear cycles.
None of this was the intention of the policy. The administration imposed tariffs to bring manufacturing back to the United States, narrow trade deficits, and recalibrate American leverage abroad. Whether any of those goals will be met is a question for another piece. But the side effect, in the specific case of fashion, has been to accelerate a transition the industry was already moving toward — just slower than economists thought, and faster than the largest retailers prepared for.
The Willis survey is a document about executives' fears. Beneath the fears is a story about what kind of fashion industry survives the next decade. The companies that depend on infinite cheap supply, fast turnover, and the assumption of a smooth global trading system are in trouble. The companies that depend on craft, scarcity, traceability, and direct relationships with customers are quietly entering a window where their structural disadvantages have become advantages.
This is the part of the news cycle nobody is putting on the front page. It is also, for anyone paying attention, the most important fashion story of the year.
Frequently Asked Questions
What did the Willis Political Risk Survey actually find?
The 2026 Political Risk Survey, released this week by Willis, polled 57 senior executives across manufacturing, technology, retail and real estate in Europe, North America and Asia. Sixty-one percent named tariffs as the single most difficult factor to manage in today's business environment, ranking them above conflict in the Middle East, which only forty-six percent placed in their top three concerns. Sixty-one percent also reported that their company had already suffered measurable financial damage from tariff costs.
How much have clothing prices actually been affected by tariffs?
According to McKinsey's State of Fashion 2026 report, tariffs have increased the first-cost of apparel and leather goods by approximately thirty-five percent. Most brands absorbed these costs through 2025 by pulling inventory forward, but those hedges have now expired. Seventy-one percent of fashion executives plan to raise consumer prices in 2026, with forty-five percent of North American executives planning increases above five percent.
Why is the East-West market split significant?
Eighty-four percent of executives surveyed by Willis said they are considering or actively preparing for a business future structurally divided between Eastern and Western markets. For fashion, this means rewiring supply chains away from China toward Vietnam, Bangladesh, Cambodia and Indonesia — a slow, expensive process that creates weaker supplier relationships, capacity gaps and quality disruptions, all of which feed back into rising consumer prices.
Are any parts of the fashion industry benefiting from tariffs?
Two groups are quietly advantaged. The resale and secondhand market benefits because existing inventory has already paid earlier duties, making it relatively cheaper as new prices climb. Independent designers manufacturing at smaller volumes closer to home benefit because their cost structure was never built around the cheap-container logic that tariffs have now broken. Both segments are forecast to take share from traditional retail through 2027.
What should consumers expect in the next twelve months?
Fast fashion prices are likely to rise fifteen to thirty percent as the de minimis exemption ends and full duties apply. Mid-market retail will continue contracting through bankruptcies and consolidation. Luxury price increases will moderate as the segment hits the ceiling of what consumers will pay. Independent and craft-based fashion will quietly gain ground as the price gap with mass retail narrows.
