Ahead of the much-anticipated meeting between President Trump and Chinese President Xi Jinping this Saturday, the apparel industry is waiting with bated breath to find out what’s to become of the tariffs.
As it stands, the current 10 percent tariff on $200 billion worth of goods could climb to 25 percent in January, and beyond that, Trump could slap tariffs on another $267 billion worth of China-made goods, hitting apparel and footwear with the blow. Both scenarios would come in addition to the already in place $50 billion worth of tariffs aimed at China, though that tranche largely left apparel unscathed.
For now, China-originating items including some apparel products, some leather, nearly all raw materials used to make textiles, from cotton to cellulosics, polyester and even vegetable fibers, woven and nonwoven fabrics, certain textile machinery, hats and handbags, are subject to 10 percent tariffs, and escalating the tariff threat could see some of those products facing higher 25 percent tariffs.
In a letter to the president Tuesday, Americans for Free Trade, urged the president to rethink his strategy on tariffs at this week’s meeting.
“For U.S. companies importing manufacturing inputs or finished products, these significant costs will result in higher prices, fewer jobs, slower wage growth and reduced investment. We will continue to see the cost of the trade war ripple through the U.S. economy and reverse this year’s economic progress,” the letter noted.
Here’s a look at how apparel industry experts think the sector will fare in either scenario.
What 25 percent tariffs will mean
“The current 10 percent is bad and already hurting U.S. companies. A 25 percent tariff is a non-starter. There is no way American businesses operating on tight margins can absorb such an increase, meaning prices will rise for American consumers across the board.”
–American Apparel & Footwear Association (AAFA) president and CEO, Rick Helfenbein
“More actions by the Trump Administration to impose penalty tariffs will have a negative impact on fashion brands and retailers, as well as a negative impact on our customers. We are seeing this every day. The tariffs in place, and the daily uncertainty about what the Administration might do next, has taken a toll on the industry. My sense is that most companies are ready with a contingency plan—shipping some product earlier than usual and changing some production to outside China. However, there are ripple effects from even those actions: prices are rising in many countries and there is very little unused capacity at the most sophisticated production facilities.
In the short-term there are strategies companies can take to try to minimize the price pressure. However, if the duties do increase to 25 percent on the tranche three products, then we are going to see substantial price increases by mid-2019.
–United States Fashion Industry Association (USFIA) president, Julia K. Hughes
“We’ve been preparing to the best of our abilities to mitigate these damages since this threat has been thrown out there, so for a lot of my clients it’s meant moving a lot of high-end production to Vietnam and elsewhere.
First of all, we don’t know on the additional $267 billion…whether it’s 10 percent or 25 percent. Now, I’m taking the slightly optimistic attitude about that, which is the reason he’s hesitated on this $267 billion on additional product is because I think he’s definitely aware—or certainly people are making him aware—of the kind of push back he could get when consumers really start to feel these duties directly.
The 10 percent people could probably eat. I think the 25 percent, consumers are going to start to feel it on apparel. Maybe they won’t feel it on manufacturer’s suggested retail prices, the first price on a label, but instead of seeing 50 percent off all the time or special coupons for things, maybe brands and retailers will have to get much closer to that manufacturer’s suggested retail price that consumers have come to believe is never what they’re going to pay for it anyway.”
– Brookfield Associates, LLC president of global trade, Gail W. Strickler
“First, I want to be clear that we strongly support the president’s decision to finally address China’s rampant unfair trading practices that have damaged the U.S. textile and apparel production chain for decades. With that said, we do have some concerns with the current strategy of imposing tariffs only on textile inputs as opposed to finished apparel and home furnishings from China. This has increased costs for many U.S. textile manufacturers in instances where China is the only source for a particular input.”
–National Council of Textile Organizations (NCTO) president and CEO, Auggie Tantillo
What tariffs on everything will mean
“If President Trump follows through on the threat to cover all products…we are going to see rising prices across the board.
We have seen from the impact of the other retaliatory tariffs that there is a time lag before companies must increase prices and there is an impact on customers. For example, the duties on steel and aluminum are having a growing effect on the economy. What is different for fashion brands and retailers—and one reason why I think our key products have not yet been included in the retaliation against China—is that we already pay high tariffs. Other sectors are extremely concerned about 25 percent duties. But, of course, we pay that level of duty every day. Increasing the tariffs on clothing and footwear would hurt the economy as well as brands and retailers.”
“Imposing tariffs on apparel and other textile end items would reshore jobs throughout the domestic supply chain. Further, it would bolster production throughout the entire western hemisphere where there is ample supply from multiple countries. Shifting sourcing away from China to suppliers in the USMCA/CAFTA region would also alleviate any impact to consumers, since producers in this hemisphere enjoy duty-free access to the United States.”
“If the worst-case scenario [occurs] and we actually do see 25 percent tariffs on over $200 billion of additional goods, you are definitely going to see increased costs in the apparel sector, but the smart brands and retailers will find ways to mitigate it to where it’s much less perceptible and is felt much less by consumers.”
“With 41 percent of apparel, 72 percent of footwear, and 84 percent of accessories currently coming from China—an abrupt shift to a non-China sourcing strategy would ripple through our already fragile sourcing eco-system with catastrophic effect. This will not be good for American businesses, American workers, or American consumers.
Prices will rise. Sales will drop. Jobs will be lost.”