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Trade Changes Are Coming, Apparel Must Be Part of the Conversation

The apparel industry is in danger of becoming collateral damage. That’s what Rick Helfenbein, CEO and president of the American Apparel and Footwear Association, warns regarding the U.S. federal government’s trade and tax plans.

Helfenbein opened the 2017 AAFA Executive Summit in Washington, D.C. Wednesday by recounting a dinner he’d had with Paul Ryan during which it was decided that the garment industry is moving through the five stages of grief, as it relates to the “painful” process of tax reform in general, and dealing with the proposed border adjustment tax (BAT), in particular.

First comes denial, which the industry indulged in for a prolonged period from early summer when the “A Better Way” Republican plan was introduced all the way through most of the fall. Once we finally decided to pull our heads out of the sand, stage two set in in earnest: anger. Though the indignation may be warranted, he said, cooler heads must prevail if we’re to move to the next, most important stage: bargaining.

During the “Trade Transformers in the Trump Era” panel, which Helfenbein moderated, the focus was on actionable steps everyone can take to ensure the industry is insulated against any upcoming assaults.

But first, talk turned to how we got here.

Clearly the industry missed something during the presidential campaign season but we weren’t alone. Almost everyone else—from pundits to the papers—called the outcome wrong until the very end.

Tom Glaser, president of global supply chain and vice president of VF Corporation, said after the election, his first thought was that the industry was moving from offense, working with an incoming president who could be swayed on things like the Trans Pacific Partnership, to defense with a president-elect who had made no secret of his contempt for trade.

“The second thought I had was, How could we have missed the dissatisfaction around globalization and how many people have been left behind?” Glaser said. “We have a lot to learn about what that means about the populism and the level of anxiety. People are feeling like their jobs are insecure.”

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What can we do?

The causal link that some drew between trade and unemployment made Steve Lamar, executive vice president of the AAFA, realize the industry’s failure has been one of communication.

“We do a lot of things well, but talking about it is not one of them,” Lamar said. “We need to talk about how trade creates jobs and opportunities so when they go into the ballot booths [they’ll understand], and politicians will hear them.”

And we can’t wait till the midterms. The panel agreed that the industry must educate the public and Beltway insiders on how the proposed BAT and possible renegotiations of the North American Free Trade Agreement will affect the industry, consumers and the American workers.

“We have been reaching out to share the concerns on a whole host of issues including BAT, NAFTA and even the travel goods situation and the GSP program,” Lamar said. “Interestingly, they’re telling us they’re most interested in hearing from the members of Congress. They are very much reaching out to members of Congress, realizing they have to work with them.”

Since congressmen have their ear, the more companies and individuals protest to their representatives, the better. To simplify that process, the AAFA has a link on its site where anyone can generate a letter to Congress opposing the BAT.

Lamar says the AAFA also needs to know what questions businesses may have about the BAT so that it can alert U.S. representatives to the many issues surrounding this matter.

“We need to know what are the questions about how [BAT] works. We’re channeling those questions to folks on the hill who are writing and reacting to this,” Lamar said. “We need answers to access it, but [also] to illustrate how complicated it is. It’s not a simple thing.”

Then what?

Though much is unknown about how the new tax system may work, corporations must prepare.

“We’re going to assume the worst and work backward and make our business plan around that,” said Juan C. Zighelboim, cofounder and president of TexOps. “With the potential ramifications of TPP, we planned on it passing. It didn’t happen but Vietnam is still going gangbusters.”

Zighelboim credits TexOps’ doomsday planning with his company’s ability to go head to head with Vietnam today.

For VF Corporation, Glaser says it’s in “listening mode.” With so much up in the air, the company has to wait and watch for signs of what’s to come. VF is also trying not to become too fixated on one thing.

“From the point of view of a company with a global interest, we’re listening to the details. The details really matter,” Glaser said, adding the BAT is just one part of a larger tax overhaul. “What are the other components of it beyond the BAT? We’re going to have to analyze all of that.”

NAFTA next?

The panel was not enthusiastic about the idea of tinkering with NAFTA, an agreement, they say, works pretty well as is. Though they conceded it could do with a few updates, given that it is more than 20 years old.

“From everyone I’ve had conversations with, the general agreement is it is generally works,” Glaser said. “It’s a 25-year-old deal, and perhaps some things can be renegotiated, but generally it works for our industry.”

Better support for U.S., fiber spinning and manufacturing are areas that should be considered if NAFTA does go under the knife, Glaser said.

“We should be starting from the presumption that it’s working and how can we make it better.” Lamar said. “Several million jobs are dependent on NAFTA continuing. If that gets disrupted, it would be terrible.”

Zighelboim hopes the Central America Free Trade Agreement will continue to fly under the radar. “When you look at a globe and the pie chart, 80 percent of trade is westbound from China not eastbound,” he said. “With NAFTA, it’s a lot more balanced. [CAFTA is] net positive to the U.S. in terms of trade balance.”

As the government mulls its next steps, other countries have already become vocal about how they may react if the U.S. does enact tariffs, the BAT or other changes in trade that might conflict with World Trade Organization rules.

Lamar said, if we violate the same trade rules that we’ve been using to challenge trade barriers in the rest of the world, trade wars will almost certainly follow.

“That’s a problem in terms of retaliations, and agriculture and apparel usually end up on those lists,” he said. “I’m hoping we don’t go down that road.”