Trade groups serving the retail and apparel industries have banded together to voice their concerns about the continued impact of Section 301 tariffs on their members—and U.S. consumers.
The American Apparel and Footwear Association (AAFA), the Footwear Retailers and Distributors of America (FDRA), the National Retail Federation (NRF), the Retail Industry Leaders Association (RILA), and the United States Fashion Industry Association (USFIA) on Tuesday released a joint study outlining how tariffs on China-made goods affected the American economy.
The report is based on government data and a December survey of U.S. companies that source products from China. The coalition said that the data shows that U.S companies and consumers have been forced to pay more for apparel, footwear, travel goods and furniture since the tariffs were initially imposed by former President Donald Trump in 2018.
What’s more, the additional duties have created a number of indirect costs to brands that tried to bifurcate their supply chains in response to the tariff actions. Chinese suppliers ultimately lost little revenue from U.S. brands, which “scrambled to deal with the sudden added costs” of tariffs in 2018 and 2019. “In most cases, it was not possible for buyers to demand their Chinese suppliers absorb the additional tariff costs, especially since contracts and prices were set months before the tariffs took effect,” the coalition wrote. Believing the Section 301 investigation represented a temporary hurdle, many importers, retailers and wholesalers absorbed the cost of duties instead of passing along costs to the public or attempting to negotiate with supply chain partners.
Over time, however, “this absorption became unsustainable,” leading to higher prices at retail. The beginning of the pandemic in 2020 represented “a phenomenal boost in demand” for products across categories, and even as companies attempted to diversify sourcing, many continued to rely on China because of capacity constraints elsewhere. Global imports have increased substantially, and as a result, tariff costs are at their highest levels to-date. U.S. Customs and Border Protection (CBP) has collected more than $166.6 billion from U.S. importers for all products covered by the tariffs.
Apparel and footwear have been especially hard hit, the groups wrote. List 4A, which took effect on Sept. 1, 2019, imposed 15-percent tariffs on fashion goods sourced from China. Months later on Feb. 14, 2020, the tariffs were reduced to 7.5 percent. These taxes affected about 90 percent of China-made apparel imports, amounting to an annual direct cost of more than $1 billion to U.S. importers, which continues to escalate. Importers of footwear saw annual direct costs increase by more than $250 million, reaching more than $450 million in 2022. Almost all requests for tariff exclusions for products within these categories have been denied.
A July 2021 study conducted by University of Delaware fashion and apparel associate professor Dr. Sheng Lu on behalf of the U.S. Fashion Industry Association revealed that 90 percent of 30 surveyed American fashion retailers, brands, wholesalers and importers saw increased sourcing costs as a result of the Section 301 tariffs. More than 70 percent said the tariffs “hurt their company’s financials.”
The tariffs have indeed spurred movement away from China, but diversification has come at a cost, the trade groups wrote. China’s share of total apparel imports to the U.S. amounted to 22 percent in 2022, down from about one-third before the tariffs were imposed. Some of this business was on its way out of China for other reasons, like rising labor costs, but the imposition of Section 301 duties dramatically accelerated the exodus. Imports from China dropped by $5.8 billion between pre-tariff 2018 and 2022, while imports of apparel products from other countries increased by $21 billion. Rivals quickly pounced on the opportunity to grow their share of U.S. apparel sourcing, with Vietnam ($5.4 billion), Bangladesh ($4.0 billion), Cambodia ($1.9 billion) and India ($1.8 billion) the biggest beneficiaries.
China lost $1.1 billion in footwear sourcing between 2018 and 2022, with its share shrinking from 53 percent to 40 percent. Other countries scooped up $7.7 billion-worth of business, including Vietnam ($3.9 billion), Indonesia ($1.4 billion) and Italy ($836 million).
Relocating sourcing for certain apparel items is difficult for U.S. importers figuring out order size requirements, flexibility, lead times and product assortment, the coalition said. That certain products contain inputs primarily sourced from China adds another layer of complexity to trying to manufacture elsewhere.
“This diversification has come at great expense to the companies but it has the benefit of reducing supply chain risks in the future,” including more government trade actions or Covid lockdowns, according to the report. Today, China’s share of U.S. sourcing is starting to stabilize. Apparel production that shifted to other countries is unlikely to return to China, even if the Section 301 duties are removed. “Having undertaken these expensive diversification efforts, concern that lifting the tariffs will lead to wholesale shift in sourcing back to China is unfounded,” the coalition said.
Future trade concerns aside, the coalition said that tariffs have a tangible impact on the U.S. economy and its consumers. “Tariffs on imports of apparel (16.6 percent), footwear (11.8 percent) and travel goods (13.9 percent), in particular, are among the highest in the U.S. tariff code, even absent the Section 301 duties on imports from China, compared to an average for all goods of just 1.4 percent,” it wrote.
Shoppers with the least spending power are the hardest hit. “It is well-documented that lower-income households spend greater shares of their incomes on apparel, footwear and other consumer goods than higher income households,” the coalition added, pointing to the Bureau of Labor Statistics Consumer Expenditure Survey for 2021. U.S. consumers within the lowest 20 percent of earners spent an average of 5.93 percent of their incomes on apparel and footwear, while those in the highest income quintile spent just 1.79 percent.
On the other side of the tariff debate, the National Council of Textile Organizations (NCTO) and United States Industrial and Narrow Fabrics Institute (USINFI) believe Section 301 duties on China-made goods have given U.S. producers “a chance to compete.”
In a public submission to the U.S. Trade Representative’s (USTR) office on Tuesday, the two reiterated their stance that China’s IP abuses and unfair trade practices have “contributed to the direct loss of over one million U.S. jobs in our sector.” NCTO and USINFI have in the past communicated through written and oral testimony their belief that finished textile and apparel goods “should be assessed penalty tariffs at the maximum rate.”
While they admit that the trade action has not forced China into compliance, they said that taxing “a pillar industry in China’s economy” has created necessary leverage for the U.S., while encouraging investment in onshoring or nearshoring. “We are seeing encouraging investment and growth in moving some production and sourcing from China back to the Western Hemisphere,” they wrote. “The CAFTA-DR region has seen more than $1 billion in new textile and apparel investment this year… [which] is attributable in part to the 301 tariffs on finished apparel.”
“Just because the work is unfinished does not mean that the U.S. should cancel the tariffs,” they continued, noting that they submitted formal continuation requests at the beginning of the formal four-year review process last year. “If the U.S. concedes, we seal our fate to be fully dependent on Chinese supply chains, and any later re-addressing of Chinese systematic trade abuses will be met with the understanding that the United States is not resolute.”