Matthew Hertz’s phone has been ringing off the hook since December.

The CEO and co-founder of logistics agency Third Person has spent the last five months fielding calls from fashion brands scrambling to move their warehousing and logistics operations out of Mexico amid an ongoing trade war.

For years, brands large and small have shipped products to warehouses in Mexican border towns, where T-shirts, jeans and dresses could be stored cheaply and within rapid shipping distance of US consumers. But now, changes to both Mexican and American tariff regimes are upending the fragile economics of the trade.

“The week of Christmas, I got called by no fewer than a dozen brands asking how quickly they could get out of Mexico,” Hertz said. By early January, brands were frantically searching for US-based third-party logistics providers so they could be insulated from the new tariffs, he said.

The rush to move logistics operations out of Mexico is just one example of how an escalating trade war, fuelled by President Donald Trump’s “America-First” policy agenda, is forcing businesses to rewire entire segments of their supply chains.

Trade Tensions

Before Trump was even inaugurated, he began to threaten 25 percent tariffs on imports from Canada and Mexico. Soon after, Mexican President Claudia Sheinbaum raised tariffs on textile products in a protectionist move that also aimed to appease the US President.

Prior to the changes, brands looking to sell into America often imported goods manufactured overseas to Mexico first, where duties were minimal. When it was time to ship individual orders to customers, brands took advantage of the de minimis exemption, a US customs rule that permits goods valued under $800 to be shipped into the US duty-free.

But Mexico’s higher tariffs, combined with Trump’s chaotic approach to trade policy, has forced a radical shift, prompting many fashion companies to rapidly move their warehousing from Mexico to the US.

Even though the President has yet to follow through on his most severe threats to raise duties on imports from Mexico and close the de minimis loophole for the country, companies that made the switch have brought themselves some shielding from Trump’s increasingly quixotic trade policy.

“The ability to switch out of Mexico was a crucial move for our continued success,” said Harry Cederbaum, the chief operating officer of Twillory, a New York-based menswear brand that moved all its inventory from Mexico to Pennsylvania at the beginning of the year. “Although the cost of moving out of Mexico and Trump’s latest across-the-board tariffs severely impacted margins … [the] switch mitigated what could have been a near devastating blow to our bottom line.”

Rerouting Fashion

For many years, the combination of low duties to import apparel into Mexico and de minimis supported a real estate boom in Mexican border towns. At least 30 of the top 100 American brands on Shopify — the e-commerce software behind thousands of brands — fulfill orders from just across the Mexican border, mainly in Tijuana, according to Ryan Petersen, CEO of Flexport, a global supply chain platform.

“There are entire business models based on these two programmes,” said Darby Meegan, Flexport’s head of omnichannel and fulfillment sales. “They account for hundreds of millions in revenue each year.”

Unlike manufacturing, which requires labour, materials, and machinery that aren’t widely available in the US, finding warehouses is simpler. Onshoring is in part what President Trump hopes to achieve with his tariff regime, but even moving warehousing operations to the US comes with economic consequences.

Higher labor costs alone make warehousing in the US more expensive, but soaring demand will also give domestic third-party logistics companies more pricing power, likely adding to cost increases, according to Jarrett Stewart, senior vice president of commercial at GoBolt, a logistics provider that works with over 300 brands in the US and Canada.

 “Our US warehouses are seeing way more interest than they’ve ever seen following the policy changes,” Stewart said.

Until December, Ministry of Supply, a Boston-based business wear brand, housed the majority of its inventory in a warehouse run by third-party logistics provider ShipMonk in Tecate, Mexico. Within weeks of Mexico’s tariff changes, however, the company rerouted all of its new shipments and customer returns to a ShipMonk warehouse in Pennsylvania.

“We had the choice to pay a tariff of about 30 percent to ship new products to the United States, or 51 percent to ship it to Mexico,” said Gihan Amarasiriwardena, president and co-founder of the Ministry of Supply. “That’s how clear the decision was.”

Still, a large share of Ministry of Supply’s older inventory remains in Mexico. As a result, customers are receiving orders in “split shipments,” meaning one part of their order is sent from Mexico and the other part from Pennsylvania, adding costs and complication to the supply chain.

Whether brands move their warehousing operations to the United States or stay in Mexico, they’ll likely have to consider raising prices for shoppers as costs increase.

“This is a wake up call to brands to recognize that the good times are over,” said Hertz of Third Person. “I think most brands realize that it’s going to be harder to run a DTC business economically. You might have to charge more to offset the higher cost of fulfillment.”