Sourcing at Magic: Mexican, Canadian Suppliers Brace for Trump Tariffs
Kate Nishimura
7 min read
While President Donald Trump’s duties on Mexico and Canada have been pushed to the back burner for several weeks, the topic of tariffs loomed large at the Sourcing at Magic trade show in Las Vegas.
Confusion and consternation were tempered by hope for a speedy resolution, with exhibitors from both countries agreeing that imposing 25-percent duties would cause seismic shifts in trade relations and the North American sourcing landscape.
For more than 30 years, Mexico, Canada and the U.S. have enjoyed a “very successful” trilateral trade partnership under the North American Free Trade Agreement (NAFTA), which evolved to become the U.S.-Mexico-Canada Agreement (USMCA) during Trump’s first term, said Fernando Villalever, director general of Mexico-based Dimeo Apparel Group. The firm, which manufactures T-shirts and sweats made with U.S. cotton, utilizes the trade agreement on a weekly basis, he added.
Implementing duties would negate the trade agreement’s benefits and ultimately raise prices for American fashion firms and their customers, he believes. “From my point of view, it would not help the economy overall—not Mexico, not the U.S. At the end, somebody is paying for it, and most of the time it’s the consumer, because as a manufacturer, we don’t have enough profit to absorb the tariff cost.”
“It’s a lose-lose situation,” he added. “Inflation would be unavoidable.”
Despite this view, Villalever said he doesn’t disagree with the president’s agenda when it comes to addressing problems at the border. “I understand the motives and what Donald Trump is trying to do with the tariffs. At some point we agree, because we have violence and drug cartels,” he said. But he hopes Trump’s tariff talk will remain just that. “To leverage and push is good—but not to go ahead and actually do it.”
While duties have dominated the news cycle since Trump’s inauguration, Villalever said from what he’s seen, buyers are largely undeterred from sourcing in Mexico. On the first day of the Sourcing show, he noted that the Dimeo booth was busier and generated more concrete leads than it did last August—before Trump won the election and before any rumblings of tariffs on Mexican goods.
Companies are continuing to lean into nearshoring in spite of the current trade tensions, and Villalever believes it’s because they’re holding fast to lessons learned during the pandemic. Shipping costs spiked, supply chains slowed, and even five years later, the global logistics infrastructure is still in turmoil due to port strikes, piracy, attacks in the Red Sea and myriad geopolitical factors.
There’s a cost to uncertainty and many firms aren’t willing to deal with it anymore, Villalever said—especially when they can find comparably priced labor and shorter lead times close to home.
But he’s still wary of the impact new duties could have. “For the sake of everyone, I hope [Trump] gets what he wants. If he does impose the tariffs, we will have to find a way to deal with it, but there’s no way to avoid [price] increases,” he said.
“Nobody knows what’s going to happen, because the U.S. historically, their strength is their stability. They are good people to make business with, because what they say is what they do,” said Simon Dabbah, commercial director for Mexico City-based Vestidos Pinky, a supplier of knits and wovens for women and children that manufactures about 500,000 pieces per month.
But the security of the relationship between Mexican exporters and American importers could see a shakeup in light of the impending tariffs. “Right now that things are fluctuating. I think for buyers, it will be hard to calculate retail prices and margins,” he explained. “That’s a big challenge for most buyers.”
Notably, though, Dabbah said the cost impact of the tariffs could be cushioned by a devaluation of the Mexican peso. If Trump does indeed impose the 25-percent duties, he believes the currency’s value could fall as much as 12 percent, “so half of the tariff gets paid up by the depreciation of the coin,” he explained. “What we’re trying to do to mitigate and to inspire more confidence in Mexico is to sell in pesos; it will be much better for the for the final customer.”
Dabbah also said he’s not particularly worried about the potential renegotiation of USMCA in 2026, because his business isn’t reliant on it. Most of Vesitidos Pinky’s fabrics are currently imported from China, meaning its finished products aren’t eligible for the free trade agreement’s benefits.
However, the commercial director said the business is working to develop a more regionalized, verticalized supply chain in Mexico, and is currently working with local fabric mills to develop the capabilities needed to source more inputs domestically—a goal he said will be realized sometime this year. Doing so will also drive down prices for customers, as the Mexican firm won’t be forced to pay steep duties on its textile imports and the products will be eligible for duty-free entry into the U.S. under USMCA.
Dabbah said the firm is moving forward with developing these efficiencies no matter the state of U.S.-Mexico trade. “Nobody knows what’s going to happen, but we are business people, and our clients are business people. If the rules of the game change, we’re going have to adapt, and we’re going to have to do whatever we have to do to keep our business going,” he added.
Neighbors to the North are feeling nonplussed about the prospect of an ongoing trade war with the U.S., and the uncertainty is already taking a toll, according to Louis Arsenault, a consultant for the Montreal Fashion Cluster (MMODE), which represents about 400 Canadian factories, suppliers, vendors, retailers and designers.
“I never thought we would be going through this,” he said. “It’s a challenging time.”
Arsenault said that for the past 35 years, Canadian fashion firms have counted on NAFTA or USMCA to facilitate free trade between the U.S. and Canada. “We were happy with the deal; it was fulfilling our needs and the flow of commerce between the countries,” he said.
Some 77,000 individuals make up the fashion sector in Montreal alone, and Arsenault said it’s not unusual to hear reports from firms that are selling well over 50 percent of their product into the U.S. market. “It was one of the advantages for companies or designers or brands to be producing here in North America, because of the proximity of the market, but also for the free trade advantage that we all have right now,” he said. “Knowing that maybe there will be tariffs, it’s obviously a very big disruption.”
The effects of that disruption are already coming to the fore. “What we hear is that maybe factories will be less interested in keeping a production plant in Montreal or in Quebec or in Canada,” he said. They’re already thinking about moving operations offshore, where labor costs are cheaper. “So what we’re worried about is that we’re going to lose the know how—the expertise we have, the quality of good workers we have in industry. They might lose their jobs and be replaced by overseas production, which is not what we want.”
MMODE has noted some loss in order volume from American brands and retailers already. “We already feel some of the after-effects of the tariffs, even though there’s no tariffs for the moment,” Arsenault added. “We were happy to have another 30 days, so hopefully things change, and the negotiation will be going favorable for Canadians and also American customers.”
Should more firms flee to offshore sourcing locales, Arsenault worries the art of apparel-making will be lost. “It’s not something that you can replace here in North America, I think. If you don’t keep it going, it’s going to die, and in a few years from now, we won’t have a next generation working in these companies. It’s a concern for the survival of the industry,” he said.
