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A Review of Past Recessions Points to Problems for Apparel and Textiles as Another Downturn Looms

Once again, as the economic cycle seems to point to a recession on the horizon, the U.S. apparel and textile industries are at the heart of issues that have economists forecasting a downturn. The U.S.-China tariff-fueled trade war, echoing government actions that led to previous economic down cycles, has been a key factor impacting everything from global air freight to Chinese textile factories, not to mention it’s forcing nearly every apparel importer to consider shifting their sourcing strategies.

American industry, including and often notably the apparel and textile sectors, has been impacted and often changed by the cycles of economic downturns seen in the country and the world in the past 90 years. While there were several economic crises prior to that, like the Panic of 1893, the advent of the Industrial Revolution brought with it supply and demand, plus financial pressures on businesses that created the economic cycles that continue today.

The politics of competitiveness, or protectionism, also emerged as a foreign policy tool that has been used by presidents and prime ministers, kings and dictators to affect their own, as well as global commerce. This was true in the early 1990s’ recession that drove apparel and textile manufacturing offshore in search of cheaper labor and costs, and during the recent Great Recession a decade ago that spurred a resurgence of Made in America production in the sector as brands sought to better control inventories and use U.S.-made goods as a marketing tool.

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Though tariffs have had varying effects on economic conditions over the last 90 years, their effectiveness remains questionable.

The Great Depression

The crash of 1929 that brought about the Great Depression affected every aspect of American society and shaped the political nature of federal government and the political debate for years to come.

The punitive Smoot-Hawley tariff of 1930, which sharply increased import duties, helped spread the Depression to Europe and deepened the crisis in the U.S., historian Eric Foner wrote in “Give Me Liberty: An American History.” Throughout Europe, banks failed and nobody could buy American goods or repay American debt.

Hoover’s attempts to manage the Depression included supporting organized labor and raising worker’s wages, while favoring U.S. interests over foreign ones. But under Hoover’s watch, unemployment rose to 24.9 percent from 3.2 percent.

The fiscal policies of Republican Presidents Harding, Coolidge and Hoover, according to Foner, rejected foreign trade and favored protectionism of domestic industry and high tariffs, similar to President Trump’s policies. As a result, consumer prices were high and interest rates were kept low.

Wall Street benefited in the short term because higher prices raised corporate profits and low interest rates let these companies borrow from banks at little cost. However, in the long term, consumer purchasing power and wages shrank, and banks became precariously unprofitable.

The election of 1932 brought in Franklin Roosevelt and the New Deal, which included actions to get banks back on their feet, and add government-sponsored jobs programs. But by 1934, the New Deal had done what it could to get the country back on its feet, and unemployment was still high and labor unrest was boiling. That same year, a series of violent strikes, led by radical socialists, shook the country. On Labor Day, textile workers began the largest strike ever in the country. From the silk mills of Paterson to the weaving mills in Rhode Island, factories were shut down in 20 states.

FDR and his brain trust felt a second New Deal was in order to quell unrest and give further impetus to the recovery. The National Labor Relations Act of 1935 made it easier for labor unions, including apparel and textile unions, like the International Ladies Garment Workers Union and the Amalgamated Clothing and Textile Workers Union, to organize.

World War II and the Korean and Vietnam Wars served a secondary benefit of general economic prosperity and were quickly followed by peacetime economic problems, despite the boost to manufacturing created by the Cold War.

Recession of 1974-75

Similar to actions in the news today—notably the bombing of the Saudi Arabian oil fields that has already caused spikes in oil prices and concerns of longer-term impacts—oil prices rose after the overthrow of the Shah of Iran and Middle East unrest caused an Arab Oil embargo against the U.S. in 1973-1974.

President Jimmy Carter deregulated the trucking and airline industries in hopes of reducing prices as inflation increased. Federal Reserve policies were controversial, as Carter supported the Fed’s decision to raise interest rates. Trump on the other hand, has railed against an interest rate hike, and has done little to curb rising prices.

Recession of 1982

President Ronald Reagan inherited a high trade deficit but generally solid economy—similar to conditions today—although he had to deal with the Arab Oil Embargo and high energy prices. He convinced a Democratic-controlled Congress to pass his tax and spending cut budget in 1981, which led to a deep recession a year later. Reagan urged the Congress and the American people, however, to “stay the course” and by 1983, the economy rebounded.

Recession of 1991

The early ’90s have been seen as turning point for the apparel and textile sector, with the passing of the General Agreement on Tariffs and Trade, or GATT, resulting in the formation of the World Trade Organization and a 10-year phaseout on quotas on Chinese exports that began in 1995. The result was China’s emergence as an apparel and textile manufacturing powerhouse and the decline of such production in the U.S.

Otherwise considered a hangover from the speculative excess of the Reagan years, unemployment rose and income stagnated. President Bill Clinton argued in his presidential campaign that deindustrialization caused rising income inequality and the loss of good jobs, Foner noted in his work.

Recession of 2001-2002

Roughly 90 percent of jobs lost during the recession of 2001-2002 were in manufacturing. Textile firms closed plants in the southern United States and the continued shift of production to cheap labor factories in places like China, India, Pakistan and Bangladesh increased.

The U.S. recession was preceded by a stock market boom led by the new “dot-coms”–companies that conducted business on the internet and symbolized the promise of a new economy. By 2000, a majority of Americans owned stocks either directly or through investments, such as pensions funds or retirement accounts.

But that bubble burst on April 14, 2000, when stocks suffered their worst one-day drop in history. For the first time since the Great Depression, stock prices fell for three straight years from 2000 to 2002, wiping out or reducing billions of dollars in net worth and pension funds. By 2001, the economy had fallen into recession, exacerbated by the terrorist attacks of Sept. 11 that year.

The Great Recession

The roots of the crisis of 2008 lay in a combination of public and private policies that favored economic speculation and easy spending over traditional paths of economic growth and personal advancement. Banks found themselves with billions of dollars of worthless investments, so they stopped making loans to businesses and the stock market collapsed. Americans cut back on spending, leading to bankruptcies and high unemployment. By the end of 2008, 2.5 million jobs were lost and the gross domestic product (GDP) decreased 6 percent.

At the same time, a cotton crisis gripped the apparel industry. An oversupply combined with demand bottoming out led to cotton prices exceeding $2 a pound for the fist time. This led to a trend of textile firms and apparel brands shifting to cotton blends and other natural and synthetic fabrics.

Now, the country and the textile and apparel industry could be facing another recession on the horizon.

Executives at this week’s National Council of Textile Organizations Fiber meeting in Charleston, S.C. feel a downturn is likely, but that it won’t be as deep as the Great Recession. They are also confident that the domestic textile sector is positioned to withstand it, and possibly emerge even stronger.