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A Closer Look at How Tariffs Will Actually Impact Apparel

The threat of a total $250 billion in tariffs against China may have thrust the apparel industry into a bit of a tailspin, but the omission of apparel end products from the target list could mean the impact may be more moderate than major.

When President Trump prompted the United States Trade Representative to assess another round of tariffs on China last week—this time to the tune of $200 billion—he released a list of more than 1,100 tariff lines that would face an additional 10 percent tariff. That list covered a swath of textiles and other apparel inputs, but largely left apparel products and clothing accessories (the majority of which are covered under chapters 61 and 62 of the Harmonized Tariff Schedule) off the list.

Goods that did make the list of to-be-tariffed products include nearly all raw materials used to make textiles, from cotton to cellulosics, polyester and even vegetable fibers. Woven and nonwoven fabrics, handbags, hats, travel goods and shoelaces will face the new tariffs, too. When it comes to finished goods, just apparel and clothing accessories of plastic, vulcanized rubber, furskins and cellulose fiber, could face the duty changes.

While some experts in the industry believe the overwhelming omission of apparel could be cause for at least tempered celebration, others warn companies shouldn’t be too quick to count themselves lucky.

“The U.S. Trade Representative has been careful to minimize impact on the consumer and there has been a purposeful effort to exclude product categories that will either have a major impact on the consumer or have few alternatives to China production,” said Rick Darling, executive director of Li & Fung’s LF Americas. “So, the impact on the apparel industry at this stage is minimal. However, if the USTR and the administration increase tariffs on an additional $200 billion of Chinese product, we have to assume that apparel, footwear and many other consumer products will be included and that will have a significant impact on our industry.”

Considering apparel alone, and looking only at the immediate present, the industry emerged somewhat unscathed.

“Apparel importers, brands and retailers can absolutely—at least for now—breathe a sigh of relief as nothing from chapters 61 through 64 was included in retaliations,” said Gail W. Strickler, president of Global Trade for Brookfield Associates, LLC., a consulting group that helps organizations, governments and businesses develop and coordinate their global trade policy. “Out of 195 pages, they completely eliminated chapters 61 through 64. That did not happen by accident.”

Taking things strategically rather than politically, adding apparel to the tariffs levied against China for its so-deemed intellectual property infringements, could prove to plague an already ailing retail industry. With 97 percent of all clothing sold in the United States being made overseas—more than 36 percent of which came from China last year, according to data from the Office of Textiles and Apparel—the U.S. isn’t in a position to account for what would surely be reduced apparel imports from China with domestic production. Or to even source it from other countries. Looking at sweaters, for one, where as much as 82 percent of what’s imported comes from China, there are few, if any, other sourcing options to supplement, in short order, what would have come from China.

The likely scenario here, is that product would simply be available at an increased cost, retail sales would suffer, and so would jobs if consumers aren’t shopping.

Though apparel isn’t yet taking a hit, it’s the big picture companies need to consider, according to Sandler, Travis & Rosenberg president of international trade and government relations, Nicole Bivens Collinson.

“Once you look at the overall impact, it’s going to be more than people think it is,” Bivens Collinson said, explaining that peripheral items on the tariff target list, like poly bags and hangers, will cost companies that are importing the goods from China. “There are hidden items in there that [companies] don’t realize they’re importing because they’re focused on chapter 61 and 62.”

In reviewing their own Automated Commercial Environment (ACE) customs data, which reports all imports and exports, Bivens Collinson said some companies have already found that a 10 percent duty on China-origin poly bag, hanger and like imports could cost them into the millions.

With shipping containers also on the tariff list, major shippers that may be paying more for containers could send those cost increases down to apparel brands and retailers bringing goods in, too.

For Strickler, however, neither scenario poses cause for alarm.

“The cost that the average retailer assess for boxes and plastics bags per garment is 3 cents. It’s a 10 percent duty, so you’re talking about three-tenths of a percent,” Strickler said. And because shipping companies aren’t likely to bring many containers in as products to the U.S., leaving them in-process or in bond at the ports, they wouldn’t be paying much in the way of additional duties which means, according to Strickler, that impact would be “miniscule.”

The cons ahead

With near-daily developments in the trade war and resulting tariffs, the apparel industry still can’t consider itself out of the dark.

Trump’s steady aim has been to rebalance trade with China, and the tariffs could continue until he gets there.

“I think it’s going to get worse,” Bivens Collinson said. “I think the Chinese are going to retaliate…and then Trump is going to say ‘I want another $200 billion.’”

There’s only $500 billion worth of U.S. imports from China for Trump to target, and he’s already tackled a first $50 billion and started the process on another $200 billion, calling out the bulk of China’s U.S.-bound exports.

“There’s not a whole lot of chapters left with respect to goods that we’re getting from China. I think apparel and footwear is a logical next tranche,” Bivens Collinson said. “If the goal is to raise $200 billion in tariffs and you look at the tariffs that are already applicable to footwear and clothing, they’re higher. You could get to that number faster if you’re targeting the higher tariff items.”

If the Trump administration opts for targeting more products with lower tariffs rather than fewer products at higher tariffs, it could mean new duties could climb from the current 10 percent to 20 percent or 25 percent.

Either way, little is expected to happen on tariffs before the midterm elections on Nov. 6, according to Bivens Collinson, as members of Congress may be concerned contesting Trump on trade could cost them their seats.

As such, the impact this trade war will have on the apparel industry remains uncertain and preparation will be the best move forward.

“I would be cautiously optimistic,” Strickler said. “It’s a really good time to assess your China plus one, China plus two, China plus four strategy and start to leave yourself less vulnerable.”

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