The North American fashion supply chain, particularly in Mexico, has historically been viewed as an attractive alternative to China for US businesses, offering benefits like reduced lead times and favorable trade conditions. However, the recent lack of reaffirmation for the US-Mexico-Canada Agreement (USMCA) by the US, following its initial six-year review, has introduced significant uncertainty. This development threatens to destabilize sourcing strategies and impact investment decisions for many companies that have come to rely on the established trilateral framework. The ongoing negotiations and the possibility of individual agreements further complicate the landscape, making it challenging for brands to plan their future production and supply chains.

The USMCA, established in 2020, is crucial for the apparel sector because it provides the framework for a commercially viable regional supply chain. Its 'yarn-forward' rules of origin stipulate that the yarn, fabric, and final garment must originate within the USMCA region to qualify for duty-free treatment. While this promotes regional production, it also restricts flexibility for brands if necessary materials are unavailable locally. Despite Mexico's advantages in speed, proximity, and processing capabilities compared to Asian alternatives, the current policy instability is deterring further investment.

A recent study by the University of Delaware and the United States Fashion Industry Association (USFIA) revealed a notable decline in US fashion companies sourcing apparel from Mexico. In 2026, only 31.6% reported sourcing from Mexico, a decrease from 52.9% in 2025 and 60.7% in 2024. Furthermore, intentions to increase sourcing from Mexico have also fallen. This trend underscores the importance of a stable and predictable policy environment, as highlighted by Sheng Lu, director of fashion and apparel studies at the University of Delaware.

Kim Glas, President and CEO of the National Council of Textile Organizations (NCTO), expressed relief that the USMCA remains active but voiced concerns regarding the review process and the potential for the agreement to cease being trilateral. The integrated nature of the industry across the US, Mexico, and Canada means that any fragmentation of the agreement could be detrimental. The NCTO estimates that a significant portion of US textile exports goes to Mexico and Canada for processing, demonstrating the deeply interconnected supply chain.

The "yarn-forward" rule of origin is a significant point of contention. While textile producers advocate for its strict enforcement to support regional manufacturing, brands and importers seek greater flexibility, especially when specialized inputs are not available within North America. Andrea Herrera, founder of Lora Baby, a Canadian sleepwear brand, illustrates this challenge. Despite her desire to manufacture in Canada, the fabric she requires is exclusively produced in China, making it impossible to qualify for USMCA benefits under current rules. This highlights a fundamental disconnect between policy goals and practical realities for smaller businesses.

The situation presents a complex challenge for fashion businesses. While the regional economy is too interconnected to simply unravel, specific sectors and regulations are susceptible to political pressures. Experts anticipate targeted renegotiations rather than a complete abandonment of the agreement, with rules of origin likely to be a central focus. Stricter customs enforcement and measures to prevent non-regional content from receiving duty-free treatment are also expected. However, for many brands, the core issue remains: tariffs increase costs without necessarily facilitating the creation of robust alternative supply chains, especially for technical categories like intimates that rely on highly specialized infrastructure and expertise.