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Trade War Trauma Threading its Way Through Textile Sector

The tariffs the Trump administration has imposed on China, and the retaliatory import duties China has instituted in response, have hit a wide breadth of products and are starting to have an impact along the apparel and textile supply chain.

Lenzing Fibers last month said it was “mothballing” its planned $293 million Tencel production expansion in Mobile, Ala., blaming the “rising likelihood of increasing trade tariffs, paired with the potential surge in construction costs due to the buoyant U.S. labor market” for increasing the project’s risk profile.

Trump argues the tariffs are necessary, saying China’s “unfair” trade policies hurt American manufacturing. While groups such as the American Apparel & Footwear Association deride that theory, the National Council of Textile Organization agrees with the argument, and a new economic report said consequences could occur.

“In our view, the higher tariff rates will reduce demand for imports from China, introducing an opportunity for new domestic production to satisfy domestic demand,” IHS Markit chief U.S. economist Joel Prakken and executive directors Patrick Newport and Ben Herzon said in a new report.

“But two factors will mitigate this effect,” the market insight firm said. “Chinese exporters will temporarily reduce the pre-tariff price to preserve market share, and some imports will be re-sourced outside of China to avoid paying the tariff. We also expect higher post-tariff import prices to pass through to domestic prices and weigh on real income and wealth, reducing domestic demand.”

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Andy Zhong, marketing director of China’s Prosperity Textile, said the company’s core denim fabric hasn’t specifically been on the tariff list, although it could be on the next round, and in many cases the company’s Chinese-made fabrics are being shipped to Bangladesh, Vietnam, Cambodia and other countries for garment making and then exported to the United States.

“To me, it is more about the sentiment and, indeed, not a good thing in the long run,” Zhong said. “In this dynamic, brands and retailers are looking for a more diversified and safer supply chain for apparel sourcing, as you never know what would happen next.”

He said as the apparel import share from China to the United States declined in past years and worsened during the trade war, the company shifted its sourcing outside of China.

“Textile is a global business, so you have to operate in a global perspective, too,” Zhong added. “In 2016 we started to build a new denim mill in Vietnam, which is scheduled to start production by November, with 15 million yards annual capacity for phase one, and we are expecting to expand to 50 million yards in the next two years. We have welcomed a handful of visitors from key USA denim brands and retailers to the not-opened-yet mill. We are offering the same great quality fabrics as China and, more importantly, less exposure to the trade war.”

Omer Ahmed, managing director of Pakistan’s Artistic Milliners, said the issue of trade wars between the United States and China has served as a catalyst for customers seeking alternative mill options in Asia, but it isn’t the only reason.

China’s apparel shipments to the United States fell 2 percent in value, to $3.08 billion in August compared to a year earlier, according to the U.S. Commerce Department’s Office of Textiles & Apparel.

“U.S. companies have been finding alternatives to Chinese mills way before the trade wars,” Ahmed said. “The cost of producing textile goods in a sustainable way in China has been increasing year-on-year for the last decade or so. American textile importers have been wary of this for some time and have been actively moving production to other countries in Asia—India, Bangladesh and Vietnam being three of the main beneficiaries. Now Pakistan seems to be the latest sourcing option trending with small and large-scale brands alike.”

Pakistan’s apparel shipments to the U.S. rose 16.51%, to 52 million square meter equivalents in August against a year earlier. Year-to-date through August, denim imports from Pakistan rose 11.16% in value, to $155.52 million.