Create a new layer (Ctrl+Shift+N or Layer > New > Layer)

Fill the selected area with white.
Select the layer with the t-shirt artwork.

Use the Eraser tool to erase the excess white areas.

Change the opacity of the white fill layer to 30%.

Choose Filter > Blur > Gaussian Blur. Apply the settings shown below then click OK.

Here’s what the t-shirt looks like so far.

Select the Rounded Rectangle tool.
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Create a rectangle then choose Edit > Transform > Rotate to rotate the rectangle.
