Global textile and clothing value chains are undergoing a structural break. From January 2025 the last remaining preferential tariff
schemes—most notably the EU’s Everything But Arms and the U.S. African Growth and Opportunity Act—expire or are phased out,
removing the final layer of trade preferences that small, low-income suppliers have relied on for two decades. This paper quantifies
the impact of preference erosion on export earnings, employment and investment in the sector and explores how firms and
governments are already adapting. Combining newly-constructed transaction-level customs data for 34 beneficiary countries with
partial-equilibrium and dynamic CGE simulations, we find that aggregate textile and clothing exports from preference-dependent
economies could fall by 12–18 % in the short run, with employment losses concentrated among women in low-skill sewing
operations. Yet the same data reveal a rapid diversification response: within three years of losing preferences, one-third of previously
constrained firms enter new product lines (e.g., technical textiles, circular fashion services) and non-traditional markets (intra-African,
Middle-Eastern and domestic sales). Case studies from Bangladesh, Ethiopia, Madagascar and Nicaragua show that successful
adjustment hinges on three policy vectors—digital customs systems that cut non-preference trade costs by at least 6 %, targeted
skills programmes that redeploy sewing-machine operators into higher-value niches, and sustainability-linked finance that rewards
compliance with emerging EU and U.S. due-diligence rules. Our results imply that the end of preferences, while contractionary for
legacy suppliers, is accelerating the sector’s transition toward higher productivity, lower carbon intensity and more diversified market
structures. The paper concludes with a menu of second-generation reforms that can convert the preference cliff into a springboard
for long-run competitiveness.