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The Imports Outlook: Look for More Diversity From China Fallout

To avoid the Trump trap and associated risks, apparel importers are set to continue their sourcing diversification strategy in the year ahead.

This generally means less China production and more from a variety of supplier nations.

The trade war

Driving the plan is the conflict and turmoil that marked 2018 for apparel importers, with a trade war erupting between the U.S. and China over what President Trump saw as unfair trading practices by Beijing. Trump turned to tariffs as retribution and China retaliated with tariffs of its own.

For the most part, with the exception of leather goods, apparel was left out of it. But then Trump threatened a 25 percent tariff that would include apparel and was set to got into effect in January. That has since been postponed for 90 days, but the impact has set in and sourcing executives have made the move to diversify away from China, the top U.S. supplier, to limit risks and exposure of their supply chains.

“March 1 is going to come quickly,” said Nate Herman, senior vice president of supply chain at the American Apparel & Footwear Association (AAFA). The modus operandi for companies is even if the tariffs are not in place, this is a wake-up call and that they we really have to diversify.”

For the year-to-date through October, U.S. apparel imports from China rose a slight 1.61 percent to $32.53 billion. With several months of negative growth followed by gains in September and October during a “safe period” between tariff windows, China’s market share of U.S. apparel imports inched up 1.34 percent to 33.06 percent for the 12 months through October.

Cutting up the pie

Picking up much of the falloff from China were other major Asian countries, although a more diverse and global apparel sourcing strategy is clearly emerging. Number two supplier Vietnam’s shipments rose 7.35 percent for the year so far to $10.65 billion and the country’s market share gained 7.48 percent to garner a 14.82 percent share for the year ended Oct. 31.

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Bangladesh, the third largest supplier to the U.S. in this category, saw its shipments rise 6.7 percent in the period to $4.65 billion, with market share increasing 5.54 percent to 6.47 percent. Imports from India increased 4.11 percent in the 10 months to $3.22 billion, as its market share gained 2.98 percent to 4.6 percent. Cambodia’s shipments stepped up 13.49 percent to $2.07 billion, as its market share rose 13.62 percent to 2.89 percent.

The new guard

“Bangladesh has definitely embellished itself as a supplier, despite everything that goes on there,” Herman said. “Unless things really go south in Bangladesh, I expect those numbers to continue. Besides Vietnam, it makes the most sense if you’re trying to get out of China because it has the most vertical industry. They can do knits, they have yarn and the fabrics, not just cut and sew. Cambodia has been a big surprise. There has been a lot of concern about Cambodia with human and labor rights abuses, but Cambodia is a place companies know.”

Ebru Ozaydin, director of sales and marketing at Karachi-based Artistic Milliners, said, “Pakistan has benefitted as a supplier to denim because of the U.S. trade war with China. But companies for a long time have been shifting their denim sourcing out of China and into countries like Pakistan, Bangladesh, Vietnam and Cambodia.”

Many denim companies are “creating an exit plant to limit their exposure in China because of the trade wars and China’s commitment to supply its own domestic market,” Ozaydin said.

There were some swings among Western Hemisphere countries importers often choose for their proximity and free-trade status. Mexico, which was embroiled in contentious renegotiations for the North American Free Trade Agreement (NAFTA) that caused unease that it would lose its duty-free standing, saw its apparel imports to the U.S. drop 3.69 percent to $2.89 billion in the period, and its market share decline 2.95 percent to 4.19 percent. The three North American countries did renegotiate NAFTA and some feel if the new U.S.-Mexico-Canada Agreement is ratified, Mexico could get a lift as uncertainty is removed.

“There’s definitely a shift in sourcing, with companies looking outside of China to places like Bangladesh, Vietnam and Mexico for denim,” said Tricia Carey, director of global business development for denim at fiber maker Lenzing. “There are also more companies adapting strategies that use Mexico for quick response and make regular goods out of China.”

Central American Free Trade Agreement (CAFTA) nations saw some heightened interest, too. Imports from Nicaragua rose 8.36 percent year-to-date to $1.36 billion, while shipments from Honduras were up 2.9 percent to $2.23 billion and imports from El Salvador rose 1.82 percent to $1.61 billion. Overall, CAFTA imports were up 4.51 percent to $7 billion in the period, with a 2.84 percent market share gain to 9.96 percent.

Imports from Sub-Sahara Africa countries that are part of the Africa Growth & Opportunity Act trade preference program fared well this year, too. Shipments from the region rose 16.88 percent to $1.02 billion, as market share gained 15.5 percent to 1.44 percent. Ethiopia is a rising star here, with a 112.69 percent jump in imports to $90.51 million, while Kenya, Lesotho, Madagascar and Ghana also made their mark.

Jordan and Egypt, and along with Myanmar, according to Herman, are “putting up impressive numbers.”

Imports from Jordan, which also has a free-trade pact with the U.S., increased 10.43 percent for the 10 months to $1.29 billion, while the country’s market share grew 10.27 percent to 1.79 percent. Egypt’s shipments in the period were up 13.49 percent to $694.8 billion, as its market share rose 12.76 percent.

Myanmar, which only recently was allowed to ship goods to the U.S. after years of being on the banned list during a time it was run by a military dictatorship, has started attracting interest is basic apparel production, although Herman said he didn’t know of any AAFA members importing from the country. Imports from Myanmar increased 27.27 percent in the period to $141.22 million.