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Is There an Upside to Adding Tariffs to Apparel?

The majority of business organizations, industry associations, economists and think tanks have come out against President Trump’s on-off-on again proposed tariffs, largely because of two things: tariffs have never achieved the intended results in the past; and the president’s tweets aside, there are no winners in a trade war.

In our industry, the American Apparel & Footwear Association (AAFA), the National Retail Association (NRA) and the Retail Industry Leaders Association (RILA) are leading the fight against the administration’s proposed tariffs noting that, in essence, tariffs are actually a tax on American consumers. That is not stopping one association, in our industry no less, from taking the contrarian tact and actually calling for new 25 percent tariffs, on top of onerous existing import duty rates, on apparel and textile products coming from China.

The National Council of Textile Organizations (NCTO), is lobbying the U.S. Trade Representative’s office on behalf of the U.S. textile industry to add apparel and textiles to the government’s initial proposed list of categories that will make up the first $50 billion in targeted China imports. The 25 percent proposed tariff on clothing would be on top of the duties currently leveled against clothing, which make up a significant portion of all the import duties collected by the government.

Apparel, footwear and travel goods represent only 6 percent of all U.S. imports but account for 51 percent of the duties the U.S. collects, Steve Lamar, AAFA executive vice president, said at a recent presentation at the Texprocess Educational Symposium in Atlanta.

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Those duties are already baked into the prices that consumers are paying for clothing, but any new tariffs would force almost instantaneous price hikes from Nordstrom to Walmart and every retailer in between.

We know that long before he became president, Donald Trump railed against U.S. policies that allowed cheap foreign imports and the countries producing those products. In his opinion, those imports caused a mass exodus of ‘good paying’ U.S. manufacturing jobs and swelled our trade deficits, most notably with China.

Trump has referred to American trade policies as dumb and blamed them for China’s ability to take advantage. So, it was no surprise when the administration announced a series of tariffs this year, first on steel and aluminum imports, citing national security concerns, then on a specific series of products from China (not including clothing, but including equipment used in textile and clothing manufacturing), citing unfair trade practices including the lack of intellectual property protections and forced technology transfer by U.S. companies doing business in China.

In the brewing of a potentially massive trade war, this was followed by another round of proposed tariffs, on a yet-to-be specified series of products from China totaling an additional $100 billion. We had, and may still have, all the makings of a full-blown trade war, which the president has boasted on Twitter that we would easily win, but which would devastate our economy, jobs and consumers.

In NCTO’s defense, they are citing the right reasons for wanting to punish China: the theft of proprietary technology and information from U.S. textile manufacturers; and, the AAFA has firmly agreed with the administration that action must be taken against China on the intellectual property front.

In recent testimony before the USTR, NCTO president and CEO, Auggie Tantillo, cited Chinese companies’ blatant copying of new textile designs from U.S. manufacturers as well as copying fiber, spinning and yarn innovations. His proposed remedy, to punish and prevent China from any more copying, however, is to effectively tax the U.S. consumer.

The supply chains of U.S. retailers and brands, that import 42 percent of all their apparel from China, are full of product for summer, back-to-school, and the holiday season that cannot be moved. In the same session as Steve Lamar at Texprocess last week, NCTO director of public affairs, Lloyd Wood claimed there were plenty of other places for retailers and brands to source their apparel, preferably in the U.S. or Western Hemisphere using U.S. textiles. The shift to more Americas sourcing is slowly happening and may be an admirable goal but with capacity and investment limitations, it cannot happen overnight.

So, what’s the potential impact? Take a $50 pair of jeans that has a 70 percent initial markup and is being imported for $15. The FOB is probably $12.75, so the extra 25 percent tariff would add $3.19 to the landed cost. For the retailer or brand to maintain their margin, they’d now have to sell those jeans for almost $61, a 21 percent increase in the retail price. Consumers cannot afford to spend 21 percent more for clothing so they’ll buy less and the ripple effects will be felt not only in our industry but throughout our economy.

While NCTO’s efforts to protect the intellectual property of the U.S. textile industry and punish China for its unfair trade policies are to be applauded, slapping tariffs on clothing will not only not work, it will harm every American, including the people they are trying to protect.