The Escalating Impact of U.S. Tariffs on Global Fashion Retailers

The Trump-era tariffs, now entering their eighth year, have morphed from a disruptive force into a structural drag on global fashion retailers. For brands like American Eagle Outfitters (AEO) and Adidas, the cumulative impact of these trade policies—coupled with retaliatory measures from China and the EU—has created a perfect storm of margin compression, supply chain fragility, and valuation uncertainty. Investors must now scrutinize not just quarterly earnings but the long-term strategic adaptability of these firms in a world where trade wars are no longer episodic but endemic.

Strategic Vulnerability: American Eagle and Adidas in the Crosshairs

American Eagle Outfitters, a bellwether for mid-tier U.S. fashion retailers, exemplifies the dual pressures of tariff-driven cost inflation and supply chain inflexibility. In Q2 2025, the company reported a net loss of $69.8 million, driven by a 3% decline in comparable sales and a 5% revenue drop, despite a 15% year-over-year increase in earnings per share . CEO Jay Schottenstein attributed the downward revision of full-year guidance to tariffs, which are projected to shave $20 million from Q3 operating income and $40–50 million in Q4 . The company's attempts to diversify manufacturing away from China have hit roadblocks, as reciprocal tariffs on Vietnam and India—where AEO now sources a significant portion of its inventory—threaten to negate cost savings.

Adidas, meanwhile, has adopted a more proactive but equally precarious strategy. The German sportswear giant has reduced U.S. product sourcing from China to near zero, shifting production to Cambodia and Vietnam . Yet, with 82 factories still operating in China and 46% of its production based in Vietnam, Adidas remains exposed to U.S. tariff escalations. In 2025, the company warned that new tariffs could cost it €200 million in the second half of the year, primarily due to duties on Vietnamese-made goods . While Adidas has invested in localized “speedfactories” and automation to mitigate risks, its reliance on low-cost Asian labor means even minor tariff adjustments could ripple through its profit margins.

Retaliatory Measures: China and the EU Turn the Screws

The U.S. tariffs have triggered a wave of countermeasures that compound the challenges for fashion retailers. China, which initially imposed retaliatory tariffs of up to 145% on U.S. imports, has forced brands like AEO and Adidas to accelerate their exit from Chinese manufacturing . However, this shift has not been seamless. Smaller brands, in particular, struggle to replicate the scale and infrastructure of Chinese suppliers in alternative markets like Vietnam or Turkey, leading to bottlenecks and quality control issues.

The EU's response has been equally consequential. In August 2025, the bloc announced a 15% tariff on U.S. goods—including apparel and footwear—as part of a negotiated but still punitive response to Trump-era steel and aluminum tariffs . While this rate is lower than the initially threatened 30%, it adds another layer of cost volatility for U.S. fashion brands exporting to Europe. For Adidas, which derives 20% of its revenue from the EU, this means navigating a dual tariff burden: higher production costs from U.S. duties on Asian imports and reduced competitiveness in European markets due to retaliatory levies.

Investor Scrutiny: Valuation Risks and Supply Chain Adaptability

The financial toll of these trade wars is now embedded in investor sentiment. American Eagle's stock has underperformed the S&P 500 for much of 2025, with analysts citing its inability to pass on costs to consumers amid a shift toward value-conscious shopping . Similarly, Adidas shares have slumped following its Q2 2025 sales miss and tariff warnings, despite maintaining full-year guidance . The key question for investors is whether these companies can offset margin pressures through operational efficiency or pricing power—a task complicated by the rise of secondhand markets and the erosion of brand loyalty among younger consumers.

Supply chain adaptability has become a critical differentiator. Adidas's pivot to nearshoring and automation offers a blueprint for resilience, but its reliance on Vietnam—a country now under U.S. tariff scrutiny—highlights the fragility of such strategies . Meanwhile, American Eagle's attempts to diversify into India and Turkey face logistical hurdles, including underdeveloped infrastructure and labor shortages. For smaller brands, the options are even more limited, with many forced to absorb costs or exit markets altogether.

Conclusion: A New Normal for Global Fashion Retail

The Trump-era tariffs have redefined the risk landscape for fashion retailers, transforming what was once a trade policy debate into a permanent feature of corporate strategy. For investors, the lesson is clear: valuations must account not just for current earnings but for the capacity to navigate a fragmented, high-cost global supply chain. Brands like American Eagle and Adidas, while demonstrating resilience, remain vulnerable to further tariff escalations and retaliatory measures. The winners in this new era will be those that can balance nearshoring, automation, and consumer affordability—while the rest risk being left in the crossfire of an unending trade war.