SOURCING, TARIFFS, AND A CHANGING WORLD
Sourcing issues are rapidly becoming one of the biggest challenges facing US fashion retailers. According to a 2019 report by the United States Fashion Industry Association (USFIA), a majority of companies cite sourcing costs, supply chain risks, and diversifying the geographic locations of their supplier base as increasing concerns. The ongoing trade war between the US and China has become one of the biggest factors in this growth of uncertainty around sourcing. China is the top import partner for textiles and clothing in the US - in 2017, 35.8% (US$40.8 billion) of all textile/clothing imports into the US came from China. Today, that number is even higher.
The latest tariffs on Chinese imports seem set to have a major impact on the industry both in the US and around the world. Who will most likely be affected by these changes the most, what can we potentially expect going forward, and what can businesses consider in order to overcome the resulting challenges?
U.S. Tariffs on Textiles and Clothing Products from China
15% tariffs covering $300 billion of U.S. imports from China came into effect on September 1, 2019 as part of ‘tranche four’ of the US government’s ongoing program of tariffs. Previously set at a rate of 10%, the United States Trade Representative (USTR) was instructed to increase these tariffs by an additional 5% after China announced increased tariffs on certain U.S. goods from 5% to 10% in late August. Tariffs on certain items have been delayed in an effort to minimize impact during the holiday season and will be implemented on December 15.
Tranche four tariffs affect a wide swathe of textiles and clothing products: shirts, trousers, dresses, outerwear, underwear, swimwear, and many others – including many plant-based and synthetic fabrics used in US-based manufacturing. The full list of products affected can be found here.
Impacts Expected to be Felt Globally
These new policies are expected to have global impacts across countries, industries, markets, and among brands. Many companies in the industries affected by the tariffs are already diversifying their sourcing, shifting some procurement out of China to countries such as Vietnam, Indonesia, and Bangladesh — and in some cases, procurement is moving to Europe, Central, or South America. The results of these moves will be a crucial factor in determining how well brands can adapt to the current tariff situation, but even companies that diversify could see their production costs increase and, if that it is case, must decide whether to pass these increases onto clients and customers. These changes could also have potentially detrimental effects on other areas of their operations, such as logistics and transportation.
We should not be surprised if the impacts within the fashion and textile industries are significant and far-reaching. For example, companies that manufacture their products in the U.S. may likely see cost increases, particularly if they source raw materials from China. Likewise, companies that rely on specialized manufacturing techniques and have made large investments in China-based facilities with brand-specific machinery, training, and processes may find it difficult and costly to diversify procurement into other countries. Others may see higher costs as a result of contingencies around the goods they manufacture. For example, around 42% of women’s and girls’ clothing imported to the US in 2018 came from China, compared to 26% of men’s and boys’, so brands targeting women—and consequently their customers—may expect to face higher costs.
Industry Changes in 2019
The U.S.-China trade discussions have continued for over a year with retaliatory action coming from both sides, even though testimonies and reports demonstrating the impact increased tariffs will have on costs for brands, consumers, and the economy as a whole. For the apparel and footwear industries, effects from the tariffs for the foreseeable future seem to be inevitable, with long-term impacts on supply chains and pressure to shift procurement elsewhere. The industry can expect to see changes across the board, from manufacturing, to transportation, to consumer spending—and it seems that will continue to navigate at the same time as the peak holiday shopping season.
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