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WASHINGTON — For the fashion and retail worlds, there was good news and bad in President Obama’s State of the Union address.
Within the industry, there was concern about Obama’s proposal to raise the minimum wage, but praise for his commitment to launch a trade deal with the European Union. Placing a strong emphasis on his domestic agenda to spur job growth and help the middle class in his second term, Obama unveiled new initiatives that could have wide-ranging implications for the industry, among them his pledge to raise the federal minimum wage to $9 an hour by the end of 2015 from the current $7.25.
“Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour,” Obama said Tuesday night. “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets. In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up while ceo pay has never been higher.”
In addition, Obama proposed linking the minimum wage to the Cost of Living Index, meaning it would rise as the cost of living increased.
The minimum wage plan caused a stir in some industry groups.
David French, senior vice president for government relations at the National Retail Federation, said, “A minimum wage hike right now would be one more factor driving up costs for employers and creating headwinds for job creation, especially among the small businesses that create most of our nation’s new jobs. Before we debate the federal minimum wage, we need a broad, comprehensive plan from Washington that encourages businesses to plan, invest and grow this economy.”
French said that while higher wages might boost discretionary spending for consumers, it was unlikely to lead to job growth.
“We were looking forward to a speech about jobs, and I’m not sure a minimum wage increase is a job-creation tactic,” French said. “We think other elements of the speech deserve a lot more attention. We would argue a real middle-class jobs agenda is based on comprehensive tax reform, a robust trade agenda that leverages America’s advantage in free trade [and a] sound fiscal policy that provides certainty and stability for the long term.”
Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association, said consumers will initially have more money to spend with an increase in the wage rate, but it could also cause some companies to downsize. Burke said a minimum wage increase would have a “ripple effect” across all wage levels in a company.
“In this environment where so many challenges are out there, including what might happen with the military and Obama [bringing home troops from Afghanistan] with no plans to increase services members, everything under the Berry Amendment will be reduced,” said Burke, referring to the law that requires military procurement to be Made in USA if possible. “That means U.S. companies will have to be looking for commercial work.”
On the other hand, Richard Trumka, president of the AFL-CIO, said, “We applaud the president for expressing support for raising the minimum wage and tying it to the cost of living, ensuring the right to vote and promoting early childhood education.…As the president said, creating good jobs requires a deep commitment to building our economy for the next generation, including investments in infrastructure, manufacturing, and high-quality education and public services.”
Obama’s other major policy initiative with implications for the fashion industry was on the trade front. His commitment to involve the U.S. in comprehensive trade negotiations with the EU signaled to some in the industry that the president is outlining a more aggressive trade agenda in his second term.
The trading relationship is already significant. The U.S. exported $329 billion worth of goods to Europe in 2012 and imported $454 billion, according to the U.S. Commerce Department. For apparel and footwear brands, a trans-Atlantic trade deal could reduce nontariff trade barriers and bring more market-opening opportunities for U.S. apparel and textile exports.
“There is such a healthy trade relationship between the U.S. and EU in the consumer products sector, especially in apparel, footwear, handbags and home furnishings,” said Julia Hughes, president of the U.S. Association of Importers of Textiles & Apparel. “Everyone sees this as a real opportunity to eliminate duties and also deal with some of the regulatory burdens holding back trade between the EU and U.S. The industries are very equivalent and that is part of the excitement, because companies think they will quickly have many levels of benefits in the supply chain.”
Although none of the EU member countries are top apparel suppliers to the U.S., there are well-established relationships. Apparel imports from Italy to the U.S. were $1.1 billion in 2012, while imports from France were $151 million, followed by the U.K. with $98 million, Hughes said. Textile imports to the U.S. from the EU are also important. For example, Italy is the third-largest supplier of wool inputs to the U.S., followed by the U.K. as the fifth-largest supplier and Germany, which is ranked 10th.
“The fact the administration recognizes the importance of trade relations between the U.S. and Europe, two of the largest economies in the world, is good for all of us,” said Burke. “Our key goal in any U.S.-EU FTA is to create regulatory harmonization so that it is as easy to sell clothes and shoes across the ocean as it is to sell clothes and shoes across the street at the mall.”
Burke and Hughes were also encouraged by Obama’s mention of the Trans-Pacific Partnership talks between the U.S. and 10 other countries, including Vietnam, the U.S.’ second-largest apparel supplier.