It’s not cost. It’s not market competition. It’s not even managing risks, which range from natural disasters and terrorist attacks to how to tackle forced labor and human trafficking in the shadowy lower tiers of the supply chain.
It’s trade protectionism that keeps us up at night.
At least, that’s what we found in our fifth-annual Fashion Industry Benchmarking Study, though it will hardly come as a surprise.
For the second year in a row, the “protectionist trade policy agenda in the United States” topped the list of fashion brands’ and retailers’ concerns, outweighing cost, competition, supply chain risks, consumer demand, protecting intellectual property…you name it, trade protectionism is scarier this year.
In 2018, more than one-third of survey respondents—sourcing and trade compliance executives at the most influential American brands and retailers—ranked trade protectionism the No. 1 or No. 2 business challenge, compared with 23 percent last year. What’s even more interesting is that, before 2017, trade protectionism was barely a blip on companies’ radars, ranking between No. 8 to No. 11 over the 2014-2016 period.
So far, fashion brands and retailers have gotten relatively lucky in President Trump’s trade war. (Although, we know tariffs on other products, including consumer goods, will have a ripple effect through the industry and wider economy, but that’s for another op-ed.) While the list of products subject to the 10 percent—which could climb up to 25 percent if Trump decides to continue with a recent proposal— retaliatory tariff announced on July 10 did indeed include a few leather, fur, rattan and textile products, as well as plastic hangers, the president has not yet ordered tariffs on any major apparel or footwear imported from China.
The industry is under attack, however, with the National Council of Textile Organizations (NCTO) urging the Administration to include apparel and other sewn products on future tariff lists. And, of course, now that Trump’s daughter, Ivanka Trump, is shutting down her eponymous clothing line, we have to wonder whether anything will hold him back from doing just that. After all, he recently told CNBC that he’s “ready to go to 500,” meaning he’s ready to place tariffs on every Chinese product imported into the United States, referencing the $505 billion in products imported from China in 2017.
It’s important to note, however, that cost hasn’t been entirely forgotten in the midst of the agony over trade policy.
In the first three years we conducted our study, cost was always companies’ No. 1 concern overall. Last year, however, cost pressure dropped significantly, with 34 percent ranking cost among their top five business challenges. This year, the number surged back up to 54 percent. It is possible that cost is rising in absolute terms, but we’d be willing to bet that the trade war is having a bigger impact on this ranking as companies prepare for possible new tariffs as well as the costs incurred by moving sourcing operations to new countries.
If you work in the industry, none of this data is likely to surprise you. But, you may nonetheless be wondering what you can do to prepare for the worst. I have good news for you: according to the Benchmarking survey, you’re already doing it.
This year, “finding a new sourcing base other than China” shot up from the No. 13 challenge for companies in 2017, to the No. 7 challenge in 2018. “China Plus Vietnam Plus Many” is the most popular sourcing strategy for companies of all sizes, and while China is still the dominant supplier of fashion and footwear to the United States, companies have been actively seeking alternatives for some time now.
China currently accounts for 11 percent to 30 percent of companies’ total sourcing value or volume, compared with 30 percent to 50 percent in past years. Diversification has always been an important way to tackle any risk to your supply chain, including compliance challenges, natural disasters and terrorism, and now, potential new tariffs.
In addition to helping members strategize how to diversify their sourcing, USFIA also counsels companies about how to continue the advocacy work against tariffs, and file requests for exclusions if needed.
On a more positive note, it’s not all gloom and doom for the fashion industry.
Despite concerns about trade policy and cost, companies are actually more confident about the five-year outlook for the industry this year than they were last year—and 100 percent say they plan to hire more staff, though the majority of these jobs are in areas like supply chain management and sustainability, not manufacturing.
Looking at the data, tariffs won’t do anything to create more jobs in manufacturing but will instead derail the expansion of jobs and growth that brands and retailers are already planning in the United States. When it comes to the fashion industry, President Trump’s trade war will do more to punish American companies and consumers than China. We encourage companies to join together—yes, even with your competitors—so we can work to win this front in the trade war.
Julia K. Hughes is president of the United States Fashion Industry Association (USFIA), which is dedicated to fashion made possible by global trade. The USFIA Fashion Industry Benchmarking Study is produced in conjunction with Dr. Sheng Lu, associate professor in the University of Delaware’s Department of Fashion & Apparel Studies.