Impact of US tariffs & eastern europe conflict on EU fashion amid recession

The European Union is currently facing an economic recession marked by slow growth, elevated uncertainty, and external shocks. This recession is heavily influenced by recent developments, including increased US tariffs, the ongoing war between Ukraine and Russia, and their cumulative effects on key industries, such as the European fashion sector.

EU Economic Recession: Current Outlook and Contributing Factors

In 2025, the EU economy is projected to grow modestly by around 1.1%, with the euro area growing slightly less at 0.9%. This represents only a slight improvement from 2024’s growth of approximately 0.9%, signaling a period of economic stagnation rather than robust recovery. Growth forecasts have been downgraded compared to previous years, due in large part to elevated global uncertainties, including trade tensions and geopolitical conflicts.

Key economic indicators such as inflation and unemployment are expected to decline gradually but remain close to current levels: inflation is forecast to hover near the European Central Bank’s target of 2%, while unemployment rates are expected to marginally fall to around 5.4-5.7% through 2026. Investment levels are forecasted to cautiously recover but remain subdued.

Impact of US Tariffs

A significant headwind to EU growth in 2025 arises from elevated US tariffs on European goods. Since early 2025, the US has raised tariffs on imports from the EU, impacting key European export sectors. Although the tariffs were later reduced from an initially proposed 30% to about 15%, they remain substantially higher than pre-2017 levels, resulting in an uncertain trade environment.

The direct macroeconomic impact of these tariffs on the EU’s GDP is estimated to be moderate, reducing GDP growth by about 0.2-0.5%. The tariffs primarily depress EU exports to the US by an estimated 1.1-1.5%, considering the US market’s shrinking demand and tariff-related costs. However, EU exporters may regain some ground in third markets as US exporters face higher costs elsewhere. The tariffs also disadvantage Chinese exporters more steeply, adding complexity to global trade dynamics.

The automotive sector and fashion/textile industries are particularly exposed. The EU’s textile and fashion exports to the US, valued around €7.4 billion, face tariff costs that disrupt pricing and competitiveness. This has led to urgent calls from industry bodies like EURATEX for EU-US dialogue to resolve trade tensions before further damage occurs.

Ukraine-Russia War’s Economic Fallout

The war in Ukraine further compounds the EU’s economic difficulties. This conflict has disrupted trade flows, elevated energy and commodity prices, and heightened overall geopolitical uncertainty. Ukraine and Russia are major suppliers of energy and agricultural products vital to the EU; the war has caused supply shocks driving higher costs, contributing to inflationary pressures and dampening consumer spending across the bloc.

Economic growth in countries geographically closer to Ukraine or particularly reliant on Russian gas has been hit hardest. The war has also prompted increased defense spending and humanitarian costs within the EU, further stretching public finances. Projections show that the conflict could reduce European GDP growth by a significant margin compared to pre-war forecasts, with a slowdown expected to persist into 2025 and beyond.

Impact on the European Fashion Industry

The fashion and apparel sector in Europe has been severely affected by the combined effects of US tariffs and the war. The conflict has exacerbated existing inflation and supply chain issues originating from the pandemic, with rising commodity prices inflating the cost of raw materials and production.

Leading fashion markets in Europe—Germany, Italy, and the UK—have experienced a sizeable downturn in sales growth affected partly by reduced consumer confidence linked to energy costs and economic uncertainty. Additionally, many brands have exited Russia, losing a fast-growth, high-margin market. Major players such as Inditex, H&M, and LPP have reported significant negative impacts.

Fashion brands are also wrestling with supply chain disruptions, higher energy prices, and changes in consumer behavior driven by cautious spending. Consumers are increasingly prioritizing value, durability, and affordability over fast fashion or luxury splurges, contributing to growth in resale, off-price retailers, and alternative affordable products.

Steps European Fashion Brands Might Take

In response to the challenging landscape, European fashion brands are adopting several strategic measures:

• Supply Chain Reshaping: Tariff-driven shifts encourage brands to diversify and near-shore production to reduce costs and avoid tariffs, leading to strategic sourcing closer to home or within tariff-friendly regions.
• Adoption of Customs Strategies: Some companies are exploring little-known US customs mechanisms like the “First Sale” rule, which allows tariffs to be applied on production costs rather than retail prices, thereby mitigating the tariff burden.
• Sustainability and Transparency: New EU regulations around sustainability reporting and supply chain transparency (e.g., the Omnibus Package) are steering brands to become more sustainable, enhancing brand value and appeasing increasingly conscious consumers.
• Value-Driven Fashion Focus: As consumers demand more affordability and practicality, brands are emphasizing quality, timeless design, durability, and sustainable production to justify pricing and maintain relevance.
• Expansion into New Markets: With the loss of the Russian market and challenges in the US, many brands are pivoting toward growth regions such as the Middle East and Latin America.
• Flexible Pricing and Loyalty Programs: To retain customers in a cautious spending environment, brands may introduce more flexible pricing strategies, loyalty incentives, and initiatives promoting resale and circular fashion models.

Conclusion

The EU’s 2025 recession scenario is shaped by the dual external shocks of US tariff policies and the Ukraine-Russia war, each contributing to economic uncertainty, slower growth, and inflationary pressures. The fashion industry exemplifies the broader economic struggles, confronted with rising costs, supply chain volatility, tariff barriers, and shifting consumer priorities.

European fashion brands must navigate these challenges with a multi-faceted approach that includes supply chain optimization, strategic tariff management, increased sustainability, and an acute focus on consumer value. While the economic horizon remains uncertain, agility and innovation will be critical for survival and eventual recovery in the fashion sector and beyond.