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.

Methodology and findings:

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.

Diversification response:

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 and policy vectors:

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.

Implications:

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.

Conclusion:

The paper concludes with a menu of second-generation reforms that can convert the preference cliff into a springboard for long-run competitiveness.