Spent a half day before I was able to find a solution.
At first I thought it was caused from using Unreal’s substrate materials. But then I noticed that YouTube tutorials with no issues seemed a few months old. So I tried reverting to an old version of Marvelous Designer - v 2024.0.191.48532 to be exact - and it fixed the issue!
Diving deeper it looks like the older version sets the parent material for my garment as USDImportMaterial instead of USDImportTranslucentMaterial.
Hope this saves someone from wasting half a day