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Can the US and China Agree on Trade Before the 90-Day Tariff Truce is Over?

The last 12 months have been a roller coaster for global trade where the U.S. is concerned, and strained relations between the U.S. and China in particular, have roiled sourcing markets and strategies.

Speaking at a seminar at Texworld USA Tuesday, Gail Strickler, president of global trade for Brookfield Associates, LLC, said the U.S. has essentially gone from being the leaders on trade to “taking a backseat to the world.”

When sourcing comes at the whim of what President Trump tweets on a daily basis, it’s challenging to plan accordingly. While many companies are trying to wait out the storm before making too many major decisions, others are looking to minimize their reliance on China—and either way, the general unease hovering over the industry has been enough to upset things already.

The president, Strickler said, “has created such an environment of uncertainty and fear that, in fact, we’re already seeing price increases.” What’s more, she added, as countries put more efforts behind their ‘China plus one’ diversification strategies, companies in those other option countries are catching onto the opportunity. “China plus factories are raising prices in anticipation and because people are rushing to put production in places like Bangladesh and Vietnam.”

With more recent trade data held up as a result of the government shutdown, Strickler said total U.S. imports of textiles and apparel in 2017 were $114.08 billion. China, “for many, many years,” according to Strickler, accounted for roughly a 42 percent share of that market, though in 2017 that number was closer to 34 percent. For 2018, however, China’s share may show a slight uptick once final numbers come in, as the tail end of the year saw companies “shipping in anything they could get their hands on,” in advance of any new tariffs or tariff threats arising.

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The U.S. has already levied $250 billion worth of tariffs on China—though finished apparel products have largely gone unscathed—and threats of an increase of those tariffs from 10 percent to 25 percent, plus a potential 267 billion worth on the remaining goods the U.S. brings in from China, have only been on hold until March while the U.S. and China negotiate on trade.

So far, however, those negotiations have turned up little in the way of positive progress, which may not bode well for agreeing to a deal ahead of what could easily become additional punitive tariffs.

“They are talking across each other,” Strickler said of the U.S. and China in their trade talks. “They don’t understand each other and there’s a real problem there, and I think that’s the biggest threat.”

Trump’s logic is of the flawed kind if you ask Strickler, however.

“We put tariffs on China, China puts tariffs on us. Trump likes to say we’re taking all this revenue from China on tariffs but then we’re handing it back to farmers [in the form of subsidies] that can’t ship their goods to China anymore. So talk about a zero sum game,” she said. “We also talk about wanting to boost U.S. manufacturing…well now [U.S. apparel manufacturers] can’t get a lot of fabrics they want [as the bulk still comes from China], so now we’re paying 10 percent duty on making our apparel and that is making Made in the U.S. less competitive again.”

While many agree that China needed to address its intellectual property infringement and forced technology transfer issues—which have been two of Trump’s major sticking points in his battle with China—and that the U.S. needed to get tougher on enforcing more upstanding trade practices from China, the method for addressing the issues may be less than effective.

“Rather than a cohesive policy that would have really hit them in the technology transfer or other IP infringement areas, I think we’re in a place right now were Trump’s going to need a win because we can’t keep putting tariffs on Chinese goods without it hurting our economy,” Strickler said.

Worse, things haven’t even improved with the U.S.-China trade deficit, another key sticking point for the president.

“With all his tariffs and all his bluster, we’ve actually seen the trade deficit hit a new level. We’ve never had a larger trade deficit with China than we did at the end of December,” Strickler said.

It remains to be seen how upcoming negotiations between the U.S. and China will go and what the result will mean for the sector, but the 90-day deadline from the truce established from the last round of talks, is nearing its end.

“Both sides—I think—do want a solution,” Strickler said, “but the question is can they actually talk to each other?”