Tariffs, Landed Cost, and Why LA Sourcing Is Being Reconsidered in 2026

Summary

The average US apparel tariff increased from 14.7% in January 2025 to 35.1% in December 2025. This change frequently results in total landing costs that are 25–40% higher than the factory quote SME buyers budget against. Unit price, duty (determined by HTS Chapter 61 for knit items or 62 for woven goods), freight, and customs fees are all included in landed cost. Who handles this calculation depends on the Incoterm on your PO, FOB versus DDP. Separately, a “Made in USA” claim is not supported by a LA manufacturing address alone. The FTC standard mandates that all or nearly all content and processing be domestic, and imported fabric typically violates this requirement, making “Assembled in USA” the legally correct claim for the majority of domestically sewn, imported-fabric clothing. 

The $1,600 the Factory Quote Never Mentioned

A factory in Vietnam quotes $8.40 a unit. On a 500-unit order, that’s $4,200, a number that fits the budget, so the PO gets signed. Six weeks later, the actual invoice to clear customs and get the shipment to a warehouse runs closer to $5,800. Nothing went wrong. The factory delivered exactly what was quoted. The $1,600 gap is duty, freight, and fees that were never part of the factory’s number to begin with, and in 2026, that gap is wider than it has been in years.

This is the most frequent budgetary error in getting clothing from overseas, and it has grown more costly to create. In less than a year, average US textile tariffs more than doubled from 14.7% in January 2025 to 35.1% in December 2025. According to statistics from the United States Fashion Industry Association (USFIA) from 2026, brands are actively consolidating suppliers and giving priority to low-MOQ, flexible partners in response to McKinsey’s prediction of short-term sourcing price rises of nearly 35%. 

This article covers both sides of the decision that tariff environment forces. First: how to actually calculate landed cost, so a factory quote stops being the number you budget against. Second: the domestic alternative, specifically, LA manufacturing, and a labeling question that catches more small brands off guard than almost anything else in this industry: whether “Made in USA” is a claim they’re actually allowed to make.

What Landed Cost Actually Is

The actual overall cost of transporting a unit from the production to your warehouse, ready for sale, includes the unit price as well as duty, freight, insurance, and customs charges. This is known as the “landed cost.” When SME buyers consider the factory quote as the entire deal, they end up underbudgeting by 25–40%. The factory quote is only one line item in that total, not the total itself.

In its most basic form, the formula:

Landed cost = Unit price + Duty + Freight + Customs fees (apportioned per unit)

Each component below moves independently, and each one is worth understanding on its own before you build a budget around it.

HTS Chapter 61 vs. 62: The Code That Sets Your Duty Rate

Each imported garment has a Harmonized Tariff Schedule (HTS) code, and the duty rate that is levied depends on which chapter it belongs to. Knit or crocheted clothing, t-shirts, hoodies, and knit gowns are covered in Chapter 61. Woven clothing, structured outerwear, and woven shirts and pants are all covered in Chapter 62. Because duty rates vary by each product line within each chapter, two clothing items that appear comparable on a factory floor can have very different landing prices if they are properly classified.

More than just compliance, getting this classification correct is important because it directly affects the dollar amount in your landed cost formula. It’s also one of the first things to check with a customs broker before making a sourcing decision, rather than after the items are already in transit.

FOB vs. DDP: Who’s Actually Managing This Math

Incoterms: The standardized trade conditions on your purchase order, known as Incoterms, determine who is responsible for duty, freight, and customs clearance, which in turn determines who is vulnerable to the kind of surprise mentioned above.

FOB (Free on Board): Once the items are loaded aboard the ship at the port of origin, the factory is no longer liable. After that, the customer is responsible for arranging and paying for all ocean freight, duty, customs clearance, and associated expenses. FOB rates appear lower because they are actually lower; they just don’t account for the remainder of the trip. 

DDP (Delivered Duty Paid): The factory or their logistics partner handles the entire journey, including duty and customs clearance, and delivers to your named destination. DDP quotes are higher upfront, but they’re a far more honest number to budget against, since nearly everything is already folded in.

Here’s the decision that actually matters for a first-time SME buyer: FOB gives you more control and, in experienced hands, a lower total cost, but only if you or your customs broker genuinely understand HTS classification, current duty rates, and freight booking. DDP costs more per unit but removes nearly all of that risk, which is often the better trade for a brand placing its first few overseas orders.

Worked Example: A 500-Unit Order, Landed

Here’s how this plays out on an actual order: 500 knit hoodies, FOB-quoted at $8.40/unit from a factory in Vietnam, classified under HTS Chapter 61.

That’s a 38% gap between the factory’s quoted unit price and the true landed unit cost, squarely inside the 25-40% under-budgeting range SME buyers routinely hit when they price off the factory number alone. Duty rates vary by specific HTS classification and shift with trade policy, so treat the percentage here as illustrative rather than a number to drop directly into your own calculation, but the scale of the gap and the direction it’s moved in 2026 are the point.

Why LA Sourcing Is Back on the Table

Against that tariff environment, nearshoring, moving production closer to the end market, has gone from a niche preference to an active cost conversation. The LA Fashion District sits at the center of that conversation for US brands specifically, and it’s worth being honest about exactly where it wins and where it doesn’t.

Where LA genuinely wins:

• Speed. Domestic production cuts weeks off a timeline that overseas sourcing spends on ocean freight alone, which matters directly for fast reorders and trend-responsive drops.
• Sampling iteration. Multiple sample rounds with a domestic factory can happen in days, not the multi-week cycle each round costs when a sample has to cross an ocean and clear customs twice.
• QC visibility. An LA-based brand can physically visit the factory floor, inspect production in person, and catch problems in real time, a level of access that’s logistically difficult to replicate with an overseas partner.
• Reorder agility. No new tariff exposure, no new freight booking, no new customs clearance on every reorder, just a new production run.

Where it doesn’t win outright: unit cost. Domestic labor costs more than offshore labor, full stop, and for very large orders where unit price dominates the total calculation, overseas sourcing, even with 2026 tariffs factored in, can still land cheaper at scale. The honest comparison isn’t “LA is always cheaper” or “LA is always more expensive.” It’s that the gap has narrowed sharply in 2026, and for the sub-5,000-unit orders most SME brands are actually placing, the speed and agility advantages increasingly offset a unit-cost difference that’s smaller than it used to be. This is exactly the calculation behind the sourcing consolidation trend. USFIA’s 2026 data describes brands moving toward fewer, more flexible, lower-MOQ partners rather than chasing the lowest possible unit price across a complex multi-country supply chain.

The Question Nobody Warns You About: Can You Actually Say “Made in USA”?

Here’s where this gets genuinely important for any clothing manufacturer for startups in LA, and where almost nobody has connected the dots clearly: having a Los Angeles production address does not, by itself, entitle you to put “Made in USA” on a label.

The FTC Made in USA standard is specific and strict: a product must be “all or virtually all” made in the United States to carry an unqualified Made in USA claim. That means final assembly happens domestically, and virtually all significant parts, materials, and processing are domestic too. Import your fabric, which the overwhelming majority of US-based apparel brands do, since large-scale domestic textile milling is limited, and an unqualified “Made in USA” claim generally no longer holds up under that standard, even with every stitch sewn in LA.

This is live enforcement exposure, not a technicality. The FTC actively pursues Made in USA labeling violations, and the penalty exposure applies to small brands exactly as it applies to large ones; there’s no size exemption in the standard itself.

The accurate claim, in most cases, is “Assembled in USA,” or another qualified claim that specifies exactly what’s domestic (e.g., “Sewn in USA from imported fabric”). This isn’t a weaker claim from a marketing standpoint so much as an accurate one, and accuracy is the entire point once labeling enforcement is on the table. A domestically produced garment with a precisely worded label is both legally sound and, increasingly, a claim consumers trust more than a vague one.

Before putting any origin claim on a label, get it reviewed by someone with FTC labeling expertise specifically. This is a narrow, technical standard, and the cost of getting a quick legal review is trivial next to the cost of an enforcement action after a run of labels has already shipped.

What This Means for Brand Sourcing in 2026

Put together, the 2026 picture looks like this: overseas sourcing still makes sense for large-volume orders where unit cost dominates, but the tariff gap that used to make it an easy default has narrowed meaningfully, and the hidden landed-cost math behind a low factory quote is more punishing than it was even a year ago. Domestic sourcing, through a hub like the LA Fashion District increasingly makes sense for SME brands placing sub-5,000-unit orders who value speed, sampling iteration, and reorder agility over the lowest possible unit price. And regardless of which path a brand takes, the Made in USA labeling question deserves a direct, accurate answer before anything ships with a claim on the tag.

If you’re evaluating whether domestic production fits your next run, Affix works specifically with startup-size orders where this exact calculation applies, and our cut-and-sew process is built around the speed and QC visibility that make LA sourcing worth considering in the first place.

Frequently Asked Questions

How much are US apparel tariffs in 2026? 

Average US apparel tariffs reached 35.1% in December 2025, up from 14.7% in January 2025. The exact rate on any individual order depends on the specific HTS classification of the garment, so treat this as a directional figure and confirm the applicable rate for your product line with a customs broker.

How do I calculate landed cost? 

Landed cost equals unit price plus duty, freight, and customs fees, apportioned per unit. Duty is set by HTS classification (Chapter 61 for knit goods, 62 for woven), freight depends on shipment size and method, and customs broker fees cover clearance. Budget against this total, not the factory’s quoted unit price alone.

Can I say “Made in USA” if my fabric is imported? 

Generally, no, not as an unqualified claim. The FTC Made in USA standard requires all or virtually all content and processing to be domestic, and imported fabric typically breaks that standard even when every other step happens in the US. “Assembled in the USA” or another qualified, specific claim is usually the legally accurate option, and it’s worth a legal review before it goes on a label.

Is LA manufacturing worth the higher cost? 

It depends on order size and priorities. For sub-5,000-unit orders, the speed, sampling iteration, and QC visibility advantages of domestic production increasingly offset a unit-cost gap that’s narrowed as 2026 tariffs have raised the true landed cost of overseas sourcing. For very large orders where unit price dominates, overseas sourcing can still come out cheaper even after tariffs.

What is the FTC Made in USA standard? 

It requires that a product be “all or virtually all” made in the United States, with final assembly domestic and virtually all significant parts, materials, and processing domestic as well, before it can carry an unqualified “Made in USA” claim. It’s actively enforced, with no exemption based on brand size, which makes it worth a direct legal check before any origin claim ships on a label.