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Footwear, Apparel Costs Surge as Inflationary Pressures Batter Brands

With inflation at its highest point in more than two decades, footwear and apparel prices have ballooned by 6.6 percent and 6.8 percent, respectively, year over year, according to March Consumer Price Index data.

The added strain on shoppers’ pocketbooks could have worrying effects on the fashion sector, according to American Apparel and Footwear Association (AAFA) president and CEO Steve Lamar. “For an industry that’s been in a deflationary cycle for a large part of the past decade, this is pretty stunning,” he said. “We’re actually reaching new highs, and it’s hitting consumers where it hurts.”

The economy is in the midst of a “very fragile recovery” following the Covid crisis, and inflationary headwinds caused by supply chain slowdowns and rising logistics costs are hindering a return to normalcy, he believes. But there is a release valve for some of this pressure.

The AAFA is continuing to lobby for relief from Section 301 tariffs on China-made goods for its members—the central tenet of an economic relief proposal that Lamar believes would have immediate positive impact. The group has pushed for a deferral or removal of the punitive duties, even suggesting more recently that President Joe Biden offer tariff holidays, paralleling a gas tax holiday strategy suggested by a number of governors to combat rising costs at the pump.

But since the Trump-era tariffs were enacted in 2018, there has been little movement to suggest that they will soon come to an end. In late March, the United States Trade Representative (USTR) reinstated 352 extended product exclusions through Dec. 31, including a smattering of home goods, apparel items and textiles, like select silks and polyesters, as well as cashmere. Just 44 of the 72 original exemptions that would impact the fashion industry were renewed, and “none of the footwear categories were eligible for the very, very limited exclusions that they provided,” Lamar said.

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However, he is buoyed by the recent U.S. Court of International Trade (CIT) ruling that will force the USTR to reexamine List 3 and List 4 of the Section 301 duties, which collectively impact $350 billion in China-made goods. The court has demanded that the agency review and provide an explanation for the duties, which were originally imposed in response to China’s anti-competitive trade practices. Many American companies have decried the effectiveness of the tariffs in curbing Beijing’s bad behavior, with 3,600 cases on the docket to contest them.

The CIT “has given the administration some homework,” prompting it to revisit and justify a strategy that has now been in place for over three years. “It’s kind of like a math test—you have to show your work,” he explained. His hope is that upon reflection and examination, USTR Katherine Tai’s office will find that the tariffs were unlawfully imposed and have had the opposite of their intended effect, placing undue strain on American enterprises and their customers.

“The logic behind the tariffs was that we were going to post them, and they were going to force China to change their behavior.” The record now shows that didn’t happen, he said. “The only behavior that affected was how much money Americans had to pay to get dressed every morning.”

Pressure on brands has been exacerbated by the lapse of the Generalized System of Preferences (GSP) and Miscellaneous Tariff Bill (MTB) 15 months ago. “There’s never a good time for these programs to expire—but this was absolutely the worst time,” Lamar said. Burdened by hefty tariffs on goods made in China, American companies should have been able to find some relief through these programs, which offer duty free exemptions on certain goods from certain places. But in their absence, companies have been presented with a confusing message about where to turn for sourcing, Lamar said.

“Policymakers are basically saying, ‘We want you to diversify out of China,’” he explained, “but then they allowed a program that was one of the main tools that companies use to diversify to expire.” The longstanding GSP, drafted in 1974 as a part of the Trade Act, is largely uncontroversial and enjoys bipartisan support, Lamar said. But when the program lapsed, Congress deferred its renewal in the belief that they would update it with “new conditionality” for preferred nations and a more modern economic perspective, he added. Predictably, a resolution has remained elusive. The reinstatement of a trade tool meant to strengthen American competitiveness and cooperation with ally nations has been stymied by partisan squabbling.

The administration has also been trepidatious about forging new partnerships or fortifying existing trade agreements. “There’s no question that trade policy, if done correctly, can have can have deflationary impacts,” he said. “It creates more opportunities, it creates more choices for consumer goods, it opens up supply chains again.”

There’s an absence of meaningful action on this front, Lamar said, and that could magnify the impacts of existing and impending industry troubles. “There’s a lot of warning signs out there about how supply chain disruptions could continue to create economic headwinds for us,” he said, adding that Russia’s war on Ukraine will have continue to disrupt the movement and price of commodities like fuel and food. The dock workers’ contract negotiation at the West Coast Ports of Los Angeles and Long Beach in early July has the potential to further compound congestion at the gateways. “In a normal year, this would be considered a highly disruptive event,” he said, “and this is hardly a normal year.”

Amid this confluence of challenges, Lamar said he is wary that the post-pandemic economic recovery rests on a flimsy foundation. “I’m always worried about recessionary pressures,” he added.