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What Chinese Manufacturers Are Doing to Mitigate Trade War Damages

This week’s Sourcing trade show at MAGIC in Las Vegas brought together an anxious collective of apparel manufacturers from all corners of the globe, many of whom have been waiting with bated breath to see who will extend an olive branch in the ongoing trade war between the U.S. and China.

A definitive resolution may not be in the cards anytime soon, and the details surrounding the impending tariffs become murkier by the day. On Tuesday morning, the Office of the United States Trade Representative (USTR) announced that “certain” new footwear and apparel items would be exempt from the forthcoming 10 percent tariff increase set to take effect on Sept. 1, and that some wouldn’t face the tariffs until Dec. 15. And by Tuesday afternoon when the lists for each wave of tariff implementation were released, it was clear manufacturers would be in much the same position they were in Monday, as many apparel and footwear items remain on the Sept. 1 list.

Reminiscent of a fashion United Nations, The Sourcing floor at Magic brought together manufacturing hopefuls from Bangladesh, India, Cambodia and Vietnam this week, all looking to pull market share from the group’s reigning MVP—China.

The crown has weighed heavy on China’s apparel manufacturing sector in recent months. Chinese exhibitors expressed fear, vexation, annoyance and resignation when asked about the future of their businesses’ relationships with U.S. brands in the wake of trade negotiations.

“The tariff increase will hurt us very much, because most of our businesses are low-profit. The 10 percent will be damaging, especially for the discount stores,” said Bob Zhang of BingBing, which produces men’s ready-to-wear button-down shirts.

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“They pay the duty, and they don’t want to continue to buy from us,” Zhang said of some of his U.S. customers. Many are calling for the company to offer discounts to offset the tariff increase—a burden BingBing can’t afford to take on after already offering a 5 percent discount to those same customers earlier this year.

Still, Zhang takes some comfort in knowing that his customers can’t pull away from Chinese manufacturing completely. No other country has the capacity to deliver the mass quantities that they require.

“Even if they want to move,” he said, “they still need some quantity made in China.”

Zhang is exploring other measures to mitigate the tariffs’ effects. He’s even considering opening up offices in other countries “to avoid the trade barrier.” That would just be the first step, he said. If things went well, he would consider moving his factory operations to another South Asian country, like India, Bangladesh or Indonesia.

Rajesh Kumar Sharma, a representative for Avees Exports in Hong Kong, explained that his company, which mass manufactures intimates and school uniforms, is sheltering in place, for now.

Though Sharma said orders have been decreasing over the past two to three years, he’s committed to China because his business depends on the ability to create large orders. He’s able to offer competitive prices to his customers because they purchase significant quantities, he said.

He admits that Avees has taken a hit, though, now that his long-term clients are incrementally pulling away from China. The only solution, he said, is to look for fresh prospects.

“I came here to find new buyers,” he said, looking out over the showroom floor. “We need new markets, new opportunities,” he said.

Other manufacturers have managed to rise above the fray, evading the tariffs for now because of the nature of their goods. William Ma and Justine Luo run Woolma, a high-end fabric, custom suiting and uniforms business, and their goods aren’t included in the list of products to be taxed.

“Because of the blend of our fabric and the fineness of the wool, the tariffs that are in place are kind of under our market,” Luo told Sourcing Journal. “We do wool, cashmere and silk blends, and the current tariffs actually don’t affect us at all.”

Ma develops the proprietary fabrics in the company’s line, blending fine materials with functional technologies like spill-repellant agents, and Woolma sells those fabrics as well as custom and ready-to-wear pieces to international brands.

Luo said mid-range and fast fashion goods will be disproportionately impacted by the new trade laws—and in fact, Woolma might have something to gain from the equation.

The tariffs could actually have a positive impact on Woolma’s business, the owners said, because the company won’t have to cut its prices to compete as so many other apparel brands have, or will. Instead of offering discounts to customers to offset the impact of the 10 percent tariffs, Woolma can go about business as usual.

Other suppliers, like WD Fashion, which manufactures specialty men’s outerwear, have already felt the tariffs’ impacts, but, they’re confident they will weather the storm through proactive positioning.

Huang Siyi, the company’s owner, said he started having discussions with his American customers as soon as the 10 percent tariff increase was announced. He was able to strike a deal with many of those partners in which WD Fashion and its factories would absorb 3 percent of the additional cost, and the customers would find a way to pay the other 7 percent—or, more likely, raise prices and pass that cost along to the end consumer.

WD’s product line, which includes finely detailed men’s outerwear garments, caters mostly to small specialty accounts, Siyi said, and those brands have a little more wiggle room on pricing.

Additionally, Siyi’s team is able to provide these small accounts with more tailored, personalized service and designs—a benefit he believes would be tough to replicate with another supplier outside of China. “Our product is not for the huge audience. It’s for more specialized customers,” he added.

Despite his cautious optimism, Siyi is testing the waters outside of China, too “We have a production area in Bangladesh—but that’s only for some very basic styles,” he said.

When asked whether he’s worried that his customers’ eyes will wander outside of the country as well, Siyi said not just yet.

“Everyone’s saying that one day, the trade war will finish,” Siyi said. “Nobody thinks that the trade war will take ten years to be over. If the trade war ends in two or three years, and you move to another market, then you’ll lose China’s manufacturing. And coming back would not be so easy.”