If you want to understand our industry, you must first understand five numbers: 98, 95, 75, 51 and 6.
Here’s what they mean and how critical the awareness of them is to grasping how the proposed tariffs between China and the U.S. stand to impact the industry.
98 – This represents the percent of clothing and shoes purchased in the U.S. that are imported. While we still make clothes and shoes in this country, most of what we consume is physically produced offshore. China is the dominant source, but other top trading partners include Vietnam, Indonesia, India, among others.
95 – This represents the percentage of people on the planet who wear clothes and shoes and live outside of the United States. The power of these foreign consumers is growing, not only in number but in purchasing power. Another sobering fact? There are more middle-class consumers in China than there are people in the entire United States.
These first two numbers tell us that, to be successful in this industry, you need access to global markets and global suppliers. Gone are the days when you can make and sell only in the U.S. Most companies make and/or sell their product in multiple countries—sometimes that combination gives them a “local for local” model, but many times it gives them a supply chain that stretches through many countries and continents.
75 – This represents the percentage of an average imported garment’s retail value that is attributed to U.S. inputs.
This high value-added figure makes sense once you realize all the steps a garment goes through from concept to consumer, and that most of the value is added at the beginning and ending stages of the value chain. This high U.S. value-add also reconciles with the fact that 4 million U.S. workers are employed in the U.S. apparel and footwear industry, engaged in a wide array of skills including design, distribution, compliance, legal, manufacturing and retail. Of course, given the high import penetration noted above, that means these 4 million U.S. workers are almost entirely dependent upon imports.
51 – This is the percentage of duties collected by the United States Government on imports of apparel, footwear, travel goods and textiles.
6 – This is the percentage of imports into the U.S. that are represented by apparel, footwear, travel goods and textiles.
The last two figures go together and bear repeating–our industry accounts for just 6 percent of all imports but generates more than 51 percent of all duties collected.
This situation is a consequence of the very high duties (as high as 67 percent) still in place from the 1930s for our industry. They also shine a spotlight on the imbalance and regressive nature of U.S. tariff policy.
Most of the tariff burden is concentrated on apparel and footwear, items that literally touch everyone. If the good news is that we all wear clothes and shoes, the bad news is that we all pay this tax. And the poor pay the tax at a disproportionately higher rate than wealthier Americans since a much larger portion of their budget goes to these products. Such tariffs are levied and paid without most Americans’ knowledge, which means they constitute a massive hidden consumer tax.
Recent trade war talk suggests this tariff burden could become far worse if additional tariffs on U.S. imports from China are levied on our industry. While these products were excluded from the first list of items proposed earlier this month, it is unclear whether they will miss the second tranche that has also been proposed.
China remains a substantial supplier of these products to the U.S. market; accounting for 41 percent of all U.S. apparel imports, 72 percent of all U.S. footwear imports, and 84 percent of all U.S. travel goods imports. If these goods face an additional 25 percent tariff when they enter from China, a family of four could see their annual clothing and shoe bill increase by more than $500 per year.
Collectively, these five numbers–98, 95, 75, 51, and 6–tell a powerful story about our business. We are a global industry that supports many U.S. jobs. But we are an industry that is overtaxed–and that tax burden has consequences that hurt U.S. consumers and U.S. workers alike.
While many of us implicitly know this story and see it every day in our businesses, most Americans don’t.
But if each one of us can get others–customers, stakeholders, policy makers–to collectively understand these numbers and what they mean, we can affect real change in Washington that can benefit our industry and the communities they support.
Perhaps the most important number, therefore, is one.
Stephen Lamar is executive vice president at the American Apparel & Footwear Association (AAFA). Steve is responsible for the design and execution of AAFA lobbying strategies on a series of issues covering trade, supply chains, and brand protection. In these roles, Steve also advises AAFA member companies on legislation and regulatory policies affecting the clothing and footwear industries. Steve is also President of the Washington International Trade Association (WITA), a non-profit, non-partisan organization dedicated to providing a neutral forum for discussion of international trade policy and related issues.