[MUSIC PLAYING]

REPORTER: This is Soreco, Rwanda's largest importer of secondhand clothes. Workers here sort through 400 tons a day of t-shirts and pants from American and European NGOs and repackage them for sale.

- This is from Canada, Quebec. Clippers, 21. The city that never sleep.

REPORTER: They may not look like much, but these shirts have sparked a trade war between one of the world's poorest countries and its richest.

- Rwanda. We have to grow our economies. We have to grow and establish our industries.

REPORTER: In 2016, as part of an effort to encourage domestic industry, President Paul Kagame and several other East African leaders decided to raise the tariff on these hand-me-downs from $0.20 to $2.50.

- Africa does not need to be a dumping ground for second-hand anything.

[APPLAUSE]

REPORTER: The Trump administration started taxing Rwandan exports to the US in May to retaliate. The Made in Rwanda policy is forcing some shops to close.

- In one year, I have lost, like, 1/2 of my business.

REPORTER: Kareem Abdul Mushumba has sold used clothes for 15 years.

- You see, even this bag. This bag last time was 8,000, but now it's like 15,000. It is like double. So to tell my customer you should pay double, it's need more explain.

REPORTER: Tariffs have raised prices at the markets where Mushumba buys his stock, and he's forced to pass the cost on to his customers.

- In the past, we used to come and we buy like 50 pairs shirts. But today you can come, then you buy like 3 pairs, or sometimes you don't get anything. So the customers, they don't come. They don't come. That is the challenges we have.

REPORTER: More than 20,000 Rwandans who work in the industry could lose their jobs if these policies don't change. Kagame promises that long-term gains will outweigh today's losses.

- We're really, really fortunate that the government supports so strongly made in Rwanda that there's so many incentives to help us build this industry. So it actually is very encouraging for businesses like ours. This is called an [INAUDIBLE]

REPORTER: Pierra Ntayombya was born in Canada, but returns to her parents' home country to take over a local high fashion business.

- These are traditional, like, milk jugs. These baskets are all hand-woven baskets. This is like taking elements off of, like, kente print.

Second-hand, it doesn't allow for the industry to build. Brands like ours, there's so much opportunity now as they phase out second-hand for us to scale our businesses. That's a gap in the market. That's how the best businesses are started is when you have a gap and you have somebody who can fill that gap.

REPORTER: But Pierra's store isn't filling the gap for affordable clothes. According to a 2017 analysis, 40% of Rwandans can only afford used ones.

- Attention.

REPORTER: Other producers benefiting from Made in Rwanda are only making clothes for export, and aren't Rwandan at all.

- [SPEAKING CHINESE]

REPORTER: China is Rwanda's fifth largest trading partner, and has invested $400 million here over the last 12 years. In July, President Xi Jinping became the first Chinese leader ever to visit the country, and pledged to invest even more.

[NON-ENGLISH SINGING]

It means Chinese companies like CNH, which opened its first exports-focused factory here in 2015, are well-positioned to take advantage of the Made in Rwanda tax break.

- I think the Chinese and Rwanda government has been in good cooperation long time ago. You go from here, you see.

REPORTER: Malou Jontilano is its general manager.

- Without the government, C&H is not there. Later on, we're going to have another project that will house 3,000. In about 5 years more, it will be about 10,000.

REPORTER: Workers here earn about 30% more than the national minimum wage.

- [NON-ENGLISH SPEECH]