For Myanmar’s Garment Sector, Tariffs are a Setback, not a Knockout Blow

In late July, the Trump administration announced revised “reciprocal” tariffs, including a rate of 40 per cent for Myanmar, among the highest in the world. This is yet another challenge for Myanmar’s garment sector, which accounts for most of the country’s exports to the US. In the near-term, tariffs will lead to some order cancellations and factory closures, while knock-on effects – like declining demand, uncertainty, and supply chain reorientation – also carry risks. However, if Myanmar remains competitive in the EU market due to duty-free preferences, the country’s low-cost labour, and its unused industrial capacity, the new US tariffs may be more of a setback than a knockout blow for the garment industry.

When Trump’s first round of tariffs was announced in April, Myanmar’s rate (44 per cent) was similar to those of other garment manufacturing hubs, including Cambodia (49 per cent), Bangladesh (37 per cent), Indonesia (32 per cent), and Vietnam (46 per cent). However, while its competitors saw rates cut significantly in July, Myanmar’s were down only modestly, putting it at a major disadvantage. This was somewhat mitigated by the increased tariff of 50 per cent on India, another major producer, and continued high tariffs on China. While China’s reciprocal tariff is delayed until November, it still faces the 10 per cent baseline tariff and, for many products, the 20 per cent “fentanyl” tariff and a 7.5 per cent tariff imposed during the first Trump administration.

The biggest saving grace for Myanmar’s garment sector is that it has long focused on EU and Asian markets; exports to the US have declined in recent years, from US$820 million in 2022 to just US$488 million in 2024 of a US$7 billion sector (Figure 1). The decline was partly a global trend, as the industry hit a pandemic-driven peak in 2022 and fell afterwards. But Myanmar’s US-bound exports dropped more quickly than its global average – especially in footwear, which fell by two-thirds in two years.

Figure 1: Myanmar’s garment sector exports to the US, by category

US tariffs will still hurt Myanmar’s garment sector despite its EU and Asian focus. Some orders have been cancelled or delayed. Some buyers looking to enter or re-enter Myanmar are reconsidering. Bangladeshi factories have received inquiries from buyers looking to shift orders there and away from high-tariff countries, including Myanmar. The high tariff on Myanmar could also discourage future foreign direct investment. Tariffs will probably hit Myanmar’s bags and travel goods subsector the hardest. One bag factory reportedly closed at the end of August. This is a stark turnaround from a few years ago, when Myanmar was pitched as an ideal destination for this subsector, thanks to duty-free access to the EU and the US. However, the sector has declined steadily since the US chose in 2020  not to renew its Generalised System of Preferences, which had provided duty-free access. Despite this, the scale of near-term pain for Myanmar’s garment sector will probably be limited. Increases from 2024 have been noted in Myanmar’s imports of raw materials like filaments, staple fibres, and textile fabrics from China, the primary country of origin (Figure 2). In July, an association of Korean garment manufacturers operating in Myanmar called the situation relatively stable, while Japanese and Hong Kong manufacturers in the country reported that orders were flat. There were reports of higher labour demand and new orders in April, perhaps due to seasonal trends from the European market or US buyers who expedited orders to beat tariffs. However, the situation remains fluid.  

Figure 2. Key inputs for the apparel sector

In the longer run, tariffs – if they last – will reshape buyer behaviour and supply chains, presenting both opportunities and risks for Myanmar. One risk is that garment businesses elsewhere that depend on the US market will diversify. Cambodian factories have talked about pivoting to the EU, which could increase competition with Myanmar factories. However, this reshuffling could also present opportunities. According to an industry source, some European retailers have looked at expanding in Myanmar because their suppliers in other countries are receiving more US orders. Another risk is that tariffs undermine the China +1 strategy, in which companies diversify production locations to reduce the geopolitical risk of relying solely on China. Myanmar has benefitted from this strategy in recent years, but changes in tariffs may hurt the business case for China+1 approaches.

The biggest saving grace for Myanmar’s garment sector is that it has long focused on EU and Asian markets.

However, there are constraints on how much and how quickly supply chains can change. One constraint is capacity. Some sourcing hubs like Cambodia and Vietnam are unable to increase production significantly due to constraints on facilities and labour. Bangladesh, on the other hand, had nearly 200 factories close in recent years, so it has room to scale up to meet tariff-driven demand. Myanmar also has room to grow, though it faces higher tariffs.

Apart from US tariffs, many other challenges exist for Myanmar’s garment sector – political instability, financial risks, complex logistics, and poor infrastructure. Myanmar also faces questions about labour rights, with industry sources noting a “clear movement to exclude Myanmar products” for ESG (environmental, social, and governance) reasons in European markets like Germany and the UK. These efforts are further complicated by the ILO’s recent invocation of Article 33, its most serious measure for non-compliance with the ILO’s labour obligations. Together, these challenges have limited Myanmar’s ability to attract new customers. Despite this, Myanmar’s garment sector should remain competitive in some markets, due to ultra-low wages, available industrial capacity, and duty-free access. If US tariffs prove temporary or China’s reciprocal rates skyrocket, Myanmar’s tariff challenges may prove to be just temporary.

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