Steve Lamar, president and CEO of the American Apparel & Footwear Association (AAFA), believes the U.S.-China relationship has become the world’s most important and complicated trade partnership.
“And yes, I use the term ‘partnership’ on purpose,” Lamar said, speaking at Tuesday’s Sourcing Journal Sourcing Summit. “Even though a quick glance at the headlines suggests our trade relations with China are anything but. Our leaders, of course, are often referring to China as a strategic adversary, and pundits are often referring to China using Cold War terminology.”
Lamar noted that China is the No. 1 supplier of apparel, footwear and travel goods, although the country’s market share has dropped in recent years and show signs of dipping even more as companies have diversified, but “is still unmistakably the top sourcing destination.”
“China is also a huge market, and I’m not just talking about its insatiable appetite for U.S. cotton,” he said. “China is also a huge market for finished apparel, much of which is made in China or nearby Asian countries.”
Earlier this month, the Biden administration laid out its policy with respect to China, Lamar noted, largely drawing on themes emphasized by every administration in the past 20 or so years–things like targeting unfair trade practices, enforcing agreements and working with like-minded allies.
“Unfortunately, it also retained, at least for the time being, the tariff-based structure that was put in place by the last administration to deal with some of these issues,” he said. “Though it signaled very limited tariff relief starting with an exclusion process that began on Oct. 12, the Biden administration has made clear that the bulk of the Section 301 tariffs and other tariffs that target China’s immense and subsidized steel and aluminum industries will remain in place for the foreseeable future.”
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“Simply put, the administration views these tariffs as leverage,” Lamar said, while the AAFA and many in the industry view the tariffs differently.
“Tariffs are paid by U.S. importers and are often passed along in the form of higher prices,” he said. “We often say that we aren’t going to change behavior in Beijing by making it more expensive for Americans to get dressed every day. But the prevailing political narrative is otherwise. While the administration is busy flexing its muscles with respect to China, the optics of removing these tariffs is going to be very difficult.”
Lamar noted that the administration is vigorously arguing the tariff situation in a court case that has been supported by thousands of importers.
“So, while the policy outlined last week is not terribly knew, it does mean that the administration is now prepared, finally, to engage with China–that’s good news because it could ultimately lead to a path forward for a more stable relationship and a more predictable trade policy,” he said. “It’s clear the administration wants to get to a better place with China. Not only do we want to access this important market, we also want their cooperation on a number of key global areas like tackling climate change, and many in China share this perspective, and plans are already underway for more engagement, both at [USTR Katherine] Tai’s level with her trade counterparts, but also between President Biden and President Xi.”
On the other hand, Lamar noted, it could pave the way for a more contentious relationship “if we descend more into a vicious cycle.”
“Let’s remember, we’re going to be asking China to change key fundamentals of its state-centric economic model,” he said. “We’ll be asking China to remove extensive subsidies, we’ll be asking the Chinese to tackle key human rights and worker rights issues like the forced labor situation… and we’ll be asking them to stop forced technology transfer and IP theft, which was several of the underlying issues that led for President Trump to impose the tariffs in the first place. None of these are easily accomplished, and the administration’s job is made more complicated by the many members of Congress from both sides of the aisle that push for ever tougher actions.”
Discussing the 15-year-old Central American Free Trade Agreement (CAFTA), Lamar said while it was intended to be a strong magnet for textile and apparel investment, that promise has yielded mixed results.
“Although it does attract U.S. textile exports, these inputs are increasingly directed at a region that itself has a shrinking share of the U.S. market,” he said. “U.S. apparel imports from the region hit their high watermark in 2004, and it be seen a flat line or dropped every year since. Most of the region is now overly dependent on a few categories.”
The good news is that there is renewed interest in region, Lamar said, with apparel companies taking a fresh look at new sourcing opportunities.
“Nearshoring, to be close to the U.S, consumers, to shrink supply lines or devote to sustainable value chains, [is] reinforcing that trend,” he said. “And there’s an opening, on the policy side, as well, as U.S. policymakers are looking for ways to stop illegal migration to the U.S. from the Central American region. Vice President Harris has taken the lead on this, and there’s a strong interest in Congress, as well.”
The question is whether players can seize the opportunity, Lamar noted. Many have long said that the current rules of origin only work in very limited circumstances and haven’t “unleashed the kind of investment that is needed.”
There are also problems in the quantity and variety of textiles produced in the region, and Lamar called for an update of the “short supply system” to allow more third-party inputs. In addition, “the region often squanders its proximity to the U.S. with customs and logistics processes that add days to shipments.”
“At AAFA, we’re launching a coalition made up of brands and organizations who want to take a fresh look at the region,” he said. “Our hope is that we can pull together all stakeholders–textile companies, regional apparel producers, brands and retailers, and more, so together we can make this region a bigger partner for our industry in the years to come.”
“I’ll end with the WTO, which continues to be a focus of reform efforts, as it’s intended to be the organization where countries agreed on fair enforceable and facilitated trade rules,” Lamar added. “It’s a good sign that this administration is clearly focused on working within the WTO system to secure reforms, resolve disputes and to open our eyes on areas of shared interest.”