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The academic literature offers some insights about lagging progress on circular economy (CE) transition, including cultural, regulatory, market, and technical barriers. There is also an increasing body of knowledge about barriers to CE adoption that takes a macro‐level perspective across industries. However, such studies have largely neglected the industry scale. This study fills that gap by examining barriers to CE transition in the Dutch technical and interior textiles industries. Using data from 27 interviews with manufacturers and retailers, the study finds that high costs for production and marketing, along with lack of consumer interest, are among the most substantial barriers. To provide a system‐wide perspective, the study conceptualizes relationships among barriers as a chain reaction: limited knowledge of CE design options raises the difficulty and cost of delivering high‐quality circular products at the firm level, while limited availability of circular supply streams combined with the orientation of existing production systems toward linear supply chains constrain CE transition at the industry level. These findings highlight the need for intervention at levels beyond the scale of individual firms, a key implication for public policy. [ABSTRACT FROM AUTHOR]