The American fashion industry will take a serious hit if the U.S., Chinese trade war results in the implementation of tariffs on garments and accessories. On the heels of a July announcement from the U.S. Trade Representative (“USTR”) that handbags have been added to the long list of potentially taxable imports from China, Donald Trump threatened a third round of tariffs on an additional $267 billion in goods last week, which, he says, could be “ready to go on short notice if I want.”
To date, the fashion industry has remained relatively unscathed by the growing trade war, but that may no longer be the case if the USTR implements the President’s proposed plan to tax essentially all Chinese-made imports. Given that about 40 percent of American textiles and apparel imports come from China, according to statistics from United States Fashion Industry Association (“USFIA”), a trade organization for American fashion brands, retailers, importers and wholesalers, the tariffs would impact the fashion industry in a significant way.
One of the key concerns for brands – and consumers – in connection with the proposed tariffs on Chinese-made imports, which have been characterized as “taxes on American consumers,” centers on the rise in prices that will almost certainly follow.
However, more than just standing to hurt consumers’ wallets, the tariffs are expected to result in “serious damage” to multinational firms that have boosted the value of their activities by relying on supply chains in East Asian. Many U.S.-based companies have opted to “focus on marketing, design, and innovation, while outsourcing stages of the physical production process,” according to the Peterson Institute for International Economics. As such, these companies – fashion ones, such as Phillip Lim, Alexander Wang, Calvin Klein, Coach, and Rag & Bone, among others, included – depend on imports to stay globally competitive.
As the Peterson Institute for International Economics’ Theodore H. Moran and Lindsay Oldenski set out in a 2016 policy brief, “Domestic production would not be as strong as it is without access to global supply chains, which reduce costs, raise productivity, expand the global market share of U.S. firms, and allow the United States to focus on what it does best: innovating, researching, and designing the cutting edge goods and services of the future.”
With that in mind, if American businesses “lose access to foreign parts, they will lose market share to companies operating abroad that can access them and therefore sustain lower prices and higher quality,” according to the Council on Foreign Relations. This is especially true when compared to New York fashion brands’ intentional counterparts, namely those in London, Milan, and Paris, which will have access to cheaper materials and manufacturing, and therefore, can offer domestic and foreign customers better prices in comparison, thereby, giving rise to an immediate competitive disadvantage for American brands.
While the Trump-imposed tariffs have been primarily aimed at products that can be manufactured outside of China, “the ability of fashion brands and retailers to respond to the tariffs is complicated since apparel and textile supply chains are complex, involving inputs from multiple countries, according to industrial analysts,” says Julie Hughes, president of the USFIA.
“It takes at least two to five years to identify and approve a new vendor, because we are a long way from the days when apparel could be made any place where there are workers and a sewing machine.” Moreover, even if brands can find non-Chinese manufacturers, many brands are locked into manufacturing contracts with their existing Chinese contractors, making any potential moves expensive from a legal perspective.
Hughes, for one, says she hopes that for the sake of American brands and retailers “that these tariffs never go into effect,” but in the meantime, the USFIA believes “that the best action is to work with our trading partners, and the Chinese government to negotiate solutions,” which is exactly what it is doing.