Tensions have been high for trade, and there’s no sign of the trade war talk abating just yet.
Describing the goings on between the U.S. and China on tariffs as a “schoolyard fight,” Rick Helfenbein, president and CEO of the American Apparel & Footwear Association, said that trade wars don’t work.
President Trump has been set on improving U.S. trade agreements by any means he deems necessary, including, but not limited to, a trade war if it came to that. And according to Trump, it would be an easy war to win.
“Do you know how hard it is to win a trade war? Do you know that nobody wins a trade war? Do you know that you can look at our American history and see that we’ve never won a trade war?” Helfenbein asked during opening remarks at the AAFA’s Sourcing Conference in Washington, D.C. Wednesday.
Helfenbein drew reference to the Smoot—Hawley Tariff Act of 1930, an act that implemented protectionist trade policies in the U.S. and raised U.S. tariffs on more than 20,000 imported goods to encourage domestic industries and protect American jobs.
Those tariffs, it is widely believed, helped exacerbate The Great Depression.
Fast forward 88 years and things aren’t looking entirely dissimilar.
In his own effort to right things using tariffs as the ticket, President Obama hit China with a 35 percent tariff on tires in 2009, and in Helfenbein’s words, “it was a disaster.”
Obama made the move after fielding complaints from American tire makers about unfair competition caused by China’s oversupply of low-priced tires. Though the tariffs did save upward of 1,000 jobs and raise U.S. tire production at the outset, the move meant consumers paid more for tires, with Chinese-made tires priced higher owed to the tariffs and U.S.-made tires also priced higher thanks to lessened competition. Apart from that, China’s retaliations cost the U.S. billions of dollars in other areas.
“Trade wars don’t work,” Helfenbein said. “We will all lose.”
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As of now, the U.S. is set to imposed tariffs as high as 25 percent on much of the machinery used to make textiles and apparel in the U.S., threats of another $100 billion in yet-untargeted tariffs are looming, and there are efforts on the Hill to get apparel and textiles added to the tariff target list.
“We [the apparel and footwear industries] pay 51 percent of tariffs…and you want to add 25 percent on top of that? Are you crazy? Are you absolutely crazy? It’s a no go,” Helfenbein said.
The U.S. tariffs targeted at textile and apparel machinery are aimed at things like knitting machines used to make socks in America, which means that knitting manufacturer who would have to pay 25 percent more for the machinery he uses, might give any expansion plans a second thought.
“Isn’t this the same president that said ‘make more in America’ and now you’re going to tax the tools that we use to make more in America?” Helfenbein posed.
What’s more, if the proposed additional $100 billion in tariffs on Chinese goods does come to pass, the industry could be dealt yet another blow.
This week, according to Helfenbein, U.S. Trade Representative Robert Lighthizer was tasked with making a list of potential products to be targeted for the additional tariffs, which means a list is expected to be forthcoming. Trump also said on Tuesday that Treasury Secretary Steven Mnuchin will head to China for trade talks in a few days, which the industry hopes will translate to more civilized talks rather than using tariffs as ammo.
“If we get that second $100 billion you will all be upset about doing business in China because it’s going to hit every single one of you,” Helfenbein said to a room full of brands, retailers, manufacturers and agents. “All of you are going to be looking at your supply chains and where you were this big in China, maybe you’ll be less big.”
From there, he went on, companies may flee into the arms of Vietnam for a relationship that’s less complicated, but that will likely mean higher prices in Vietnam and a consumer who still gets squeezed.
More than 71 percent of the footwear the U.S. imports comes from China, and for apparel, it’s 42 percent. As such, Helfenbein said, “We feel particularly vulnerable.” And adding tariffs on China will only send costs up at a time when consumers are increasingly price conscious.
Whether waged or not, the trade war has already begun to have its impact on the industry, with uncertainty alone driving businesses to reconsider their sourcing strategies.
“Every single one of our top six trading partners has been on the hot seat with this administration,” Helfenbein noted. “So either the guy [Trump] is a genius and everything is going to work out, or it’s going to disrupt the supply chain of every single one of us.”