President Trump was swept into office on a promise to reset U.S. trade policy to promote U.S. manufacturing jobs. And while there seems no question that his rhetoric–whether it’s on the stump or by the tweet–supports this, many question whether his actions will in fact accomplish this goal.
After all, one of his first actions in office was to pull the U.S. out of the Trans Pacific Partnership (TPP), even though that agreement would have been a boon for U.S. manufacturers, such as domestic leather shoe companies who are effectively shut out of the Japanese market by huge tariff rate quotas.
Similarly, the president’s latest efforts in prosecuting the trade war with China have uncannily zeroed in on the very items (machinery, fabrics, components) that we use to make clothes, shoes and other finished textile products in the United States. The president’s tariff war, of course, has also triggered retaliation from top trading partners like Europe and China that would erect new barriers to U.S. products in foreign markets. Both developments harm U.S. manufacturing.
Although our industry supports many more U.S. jobs (about 4 million at last count) beyond those attributed to manufacturing, there is a definite interest on the part of the industry in growing its U.S. manufacturing footprint. Indeed, this is a trend that has been underway for about a decade, and we often hear from our members inquiring about what other steps can be taken to accelerate this process.
Here are four needle-ready ideas we are working on that Washington can embrace to create Made in USA jobs.
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Increase U.S. TPLs into Canada
Under the North American Free Trade Agreement (NAFTA), the United States can ship a certain amount of apparel duty-free into Canada, even though that apparel doesn’t meet the strict yarn forward rules of origin. This means that apparel made in the U.S. can enter Canada duty-free even if it doesn’t contain originating yarns and fabrics. But there is a catch. Cotton and synthetic apparel can only enter up to a limit of 9 million Square Meter Equivalents (SME) per year. Wool apparel is capped at just over 900,000 SMEs. Unchanged since NAFTA took effect 25 years ago, these levels now act as a constraint on U.S. apparel exports to one of our top markets. Lifting these limits–as part of the NAFTA renegotiation that is entering the home stretch–would give us the ability to export more U.S.-made apparel to Canada virtually overnight.
Incentivize U.S. exported content in U.S. imports
Every day, the U.S. exports cotton, wool, yarns, fabric and hides around the world. Every day, some of this exported U.S. content returns to the U.S. in the form of garments, handbags and shoes. A long-standing provision in U.S. law, known as Chapter 9802, allows importers to deduct the value of these components if they have not been advanced in value abroad, and only assembled into the final product.
By deducting the value of these U.S. components, importers can then pay tariffs on a lower value and achieve significant duty savings. Sadly, most of the stuff we export is advanced in value, making this provision largely useless. But Congress can change this outdated concept to allow importers to deduct any U.S. content, whether it is in the form of a finished component or not. This amendment would instantly incentivize the use of U.S. content in offshore production operations, stimulating U.S. exports of yarns, fabric, hides and more.
And it would give importers who use that U.S. content a duty benefit, enabling them to cut the outsized duty burdens our industry faces.
Reduce duties on U.S. textile imports
U.S. trade policy regularly recognizes when goods are not commercially available. U.S. free trade agreements often relax strict yarn forward rules of origin in cases of short supply. The Miscellaneous Tariff Bill (MTB) provides a periodic opportunity to temporarily reduce or eliminate duties on items that are not found domestically.
We can build on these ideas to create a permanent way to eliminate duties on textile inputs, provided those inputs are not produced in the U.S. in commercial quantities. Such a program, which exist in Canada and other developed countries, would give domestic apparel manufacturers a tax break on their most expensive input. It would also eliminate a duty inversion that exists in some FTAs, which allow duty-free access for finished goods made with non-available inputs, but charges full duty on those same fabrics that are imported by domestic manufacturers.
Rein in FPI
Likely the single biggest threat to Made in USA apparel comes from the Federal Government itself through its insistence on awarding preferential status to the government-run system of prison factories known as Federal Prison Industries (FPI).
FPI get first pick of all federal contracts and gets to compete as small businesses even though private factories can perform the job faster, better and cheaper. Working conditions are so bad that prisoners often go on strike–and are striking this month–but that doesn’t stop the Federal Government from featuring FPI in its slick Select USA marketing campaigns as a destination for foreign investment.
Although this is technically not a trade policy issue, our trade policy does magnify the absurdity of the problem. As the Trump administration has sought to expand opportunities for domestic prison factories, Congress has clamped down to make it illegal to import products into the U.S. if prison labor is used anywhere in that product’s supply chain. While U.S. companies aren’t interested in importing goods made with foreign prison labor, they don’t want to compete against subsidized domestic prison labor either. Reforming FPI should be a top priority of anybody who wants to earn their Made in USA cred.
So what’s next on these issues? Join us in Washington and find out.
Stephen Lamar is executive vice president at the American Apparel & Footwear Association (AAFA). Steve is responsible for the design and execution of AAFA lobbying strategies on a series of issues covering trade, supply chains, and brand protection. In these roles, Steve also advises AAFA member companies on legislation and regulatory policies affecting the clothing and footwear industries. Steve is also President of the Washington International Trade Association (WITA), a non-profit, non-partisan organization dedicated to providing a neutral forum for discussion of international trade policy and related issues.