Outerwear brands and retailers might soon feel like they’re caught in a storm without a coat.
While importers of most other apparel categories have diversified their sourcing elsewhere in Asia and around the world in the midst of the tariff-fueled U.S.-China trade war, China has continued to be the top supplier of outerwear with little falloff.
For the year-to-date through April, imports of women’s and girls’ outerwear from China increased 15.4 percent to $156.57 million in value, as men’s and boys’ rose 6.42 percent to $155.89 million. This came as overall apparel imports from China were basically flat in the same period.
“Performance outerwear requires specific machinery and fabrics, and that production can’t just be moved somewhere else,” said Nate Herman, senior vice president of supply chain at the American Apparel & Footwear Association. “Companies have also developed long-term relationships with factories there with expertise and they can’t just shift their manufacturing.”
Herman had just testified to a U.S. Trade Representative (USTR) hearing as part of the administration’s consideration of the Tranche 4 of retaliatory tariffs on U.S. imports from China, that could include 25 percent tariffs on apparel.
The U.S. Fashion Industry Association (USFIA) also submitted testimony to USTR in which it said, “Many types of outerwear are predominantly manufactured in China. Some of the factors that contribute to this are the technical expertise required for many of the performance outerwear products. There also are supply chain reasons these products are produced in China, ranging from fabric availability and access to key inputs such as down.”
Columbia Sportswear Company president and CEO Tim Boyle, also testifying at the hearing, said the outerwear maker has a global, diversified business that has been used to dealing with issues related to tariffs and trade for many years.
“While we have taken steps to mitigate the cost of these tariffs, the proposal for increased punitive taxes on all products manufactured in China would have a significant detrimental impact here in the U.S., acting as a tax on American consumers and employers and curtailing future investments,” Boyle said.
During her testimony, Katie Tangman, Columbia’s director of global customs and trade, noted that Columbia’s design, development and innovation processes take place in the U.S., but it has a diverse supply chain with manufacturing partners in 23 countries.
“The products that we continue to manufacture in China are highly specialized and tied to significant investments that we have made in tooling, machinery and personnel training,” Tangman said. “We also own and operate a wholly owned subsidiary in China, which is one of our largest foreign markets with more than 700 retail locations throughout the country. Having local production helps us remain competitive in the local China market, which in turn supports U.S.-based innovation jobs.”
The cost to move remaining production operations out of China, purchase new machinery and train a new workforce is likely to run a minimum of $3 million and would take at least one year to commercialize and begin production.
“During this transition we would also continue to pay the additional tariffs, as we cannot slow down our production and delay deliveries to our consumers while we wait for new factories to come online,” Tangman said.
The threat of additional tariffs would leave the company with two choices–either pass the cost onto consumers or be forced to curtail investment, Tangman said during her testimony, adding that 2019 is planned to be a record year of investment for Columbia Sportswear, with more than $130 million, primarily in the U.S.
“Reducing investment to pay millions of dollars in extra tariffs and to move production will seriously hinder our ability to continue to grow and create more U.S. jobs,” she said. “At a time of rapid retail change, we simply cannot afford to slow our investments due to these punitive tariffs.”
If there were ever a category that should be eligible for a tariff exclusion, Herman said it would be outerwear, “which isn’t and was never really made in the U.S.” Exclusions are generally given for products that aren’t readily available in the U.S. or, as called for by the National Council of Textile Organizations, would curtail domestic production.
If not, Herman said outerwear importers would either have their profits severely impacted or they would have to charge more for their products, which would likely lead to lost sales in the category or an overall decrease in apparel sales.
The National Retail Federation (NRF) released a study last week examining key product categories and the negative impact on American consumers of the 25 percent tariffs on $300 billion in Chinese goods the Trump administration has threatened to impose. The report projected U.S. consumers would pay $4.4 billion more each year for apparel.
NRF’s report said prices of apparel from China would increase 22 percent if the tariff are imposed, while overall U.S. prices from all sources combined would rise by 5 percent. As a result, it said U.S. consumers would be forced to reduce overall purchases by 11 percent.