The escalating trade dispute between the U.S. and China has dominated the headlines over the past year and grabbed the rapt attention of fashion firms. That’s because many apparel and footwear items are about to get slapped with 10 percent tariffs in the next few days.
But China isn’t the only country getting caught up in a trade dispute with the U.S. as President Donald Trump, who has referred to himself as a tariff man, increasingly resorts to using levies as a weapon to assert the U.S.’ power on the world stage.
Over the past few months alone, the president threatened to unleash tariffs on the likes of Mexico, Guatemala, the European Union and Vietnam.
All of those motions would impact the apparel industry and while he has stepped back from his plan for Mexico since the two sides came to a deal, experts have raised concerns over that agreement’s fragility if the Mexican government cannot follow through on all its pledges to curb illegal immigration at the southern border.
Elsewhere, the administration has stripped India and Turkey of their so-called Generalized System of Preferences program status, meaning that they will no longer be able to ship a plethora of products — including many travel goods — to the U.S. duty-free.
The list goes on.
Here, we take a look at the countries the U.S. has been picking trade fights with and their importance to the American fashion industry in terms of imports.
China is fashion’s biggest friend when it comes to sourcing. At $28 billion, apparel imports from the world’s second largest economy into the U.S. dwarfed its closest competitor, Vietnam. That’s why the ongoing dispute between the two countries is extremely concerning for the industry and has resulted in a copious amount of lobbying.
Recently, it appeared that some of that work had paid off when the U.S. government unexpectedly announced that it would delay imposing 10 percent tariffs on some products until Dec. 15, instead of Sept. 1. However, while the government said this gives retailers a few months of extra breathing room to stock up for the crucial back-to-school and holiday shopping periods, the industry’s analysis showed that was not the case.
The American Apparel & Footwear Association found that more than three-quarters of apparel, footwear and home textile products imported to the U.S. from China will still be hit with an additional 10 percent tariff next week.
For now, the fashion industry will be watching U.S.-China relations closely (as will the stock market). The two sides were meant to meet in Washington, D.C., next month, but it is unclear if that it still happening.
According to most experts, when looking to de-risk from China, top of retailers’ lists will be Vietnam, currently second to China for apparel imports. However, it may also soon be feeling the heat from the U.S.
Adding to retailers’ woes in June, President Trump indicated that he may also consider unleashing tariffs on Vietnam. “A lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China. So there’s a very interesting situation going on there,” Trump said in an interview with Fox. When probed on whether he would consider tariffs, he responded: “We’re in discussions with Vietnam,” adding that the country was “the single worst abuser of everybody.”
India was also in the firing line of the Trump administration in June. The U.S. terminated its designation as a beneficiary developing country under the so-called Generalized System of Preferences program following its failure to provide equitable and reasonable access to its markets in numerous sectors. This means that India is no longer able to ship almost 2,000 products, including travel goods, to the U.S. duty-free.
It further explained that India has implemented a wide array of trade barriers that create serious negative effects on U.S. commerce. Apparel has not yet been dragged into the fray, but deteriorating trade relations means it is a concern.
Earlier this year, Trump abruptly announced plans to unleash tariffs on all Mexican imports in a bid to curb illegal immigration at the southern border. The two sides subsequently came to an agreement, but Trump’s topsy-turvy approach on China shows that nothing is certain and his policies can change in the blink of an eye — or a tweet as is often the case.
Kontoor Brands Inc., the parent company of Lee and Wrangler, has the most exposure. More than a third of its total production is located in Mexico and Nicaragua. It told WWD earlier this month that it has been quietly developing a backup plan in the event that relations between the U.S. and Mexico deteriorate again.
The European Union has not emerged unscathed from the trade spat. It’s currently at loggerheads with the U.S. over government aid for aviation companies. While most of the attention has been on steel, aluminum and auto tariffs, the fashion industry got pulled into the fight earlier this year when both sides unveiled new tariff lists that included items related to the sector.
The U.S. preliminary list of targeted products included yarns and some clothing items, while the EU list includes raw cotton, among others.
After successfully using tariffs as a pressure point to force Mexico to take steps to curb illegal immigration, Trump turned his sights to Guatemala, a popular Central American location for retailers to manufacture.
“Guatemala, which has been forming Caravans and sending large numbers of people, some with criminal records, to the United States, has decided to break the deal they had with us on signing a necessary Safe Third Agreement,” he tweeted in July. “Now we are looking at the “BAN,” Tariffs, Remittance Fees, or all of the above. Guatemala has not been good. Big U.S. taxpayer dollars going to them was cut off by me 9 months ago.”
After a year of torturous negotiations and a threat by the U.S. and Mexico that they would go ahead as a twosome, Canada finally surrendered in October to forge a new trade deal between the three countries to effectively replace the 25-year-old North American Free Trade Agreement, NAFTA.
The new agreement between the U.S., Mexico and Canada — known as the United States-Mexico-Canada-Agreement or USMCA — has yet to be ratified by legislators in both the U.S. and Canada. Mexico is the only country that has, to date, moved ahead.
“Until the USMCA is ratified, and until it’s implemented, people are going to continue to be nervous,” said Steve Lamar, executive vice president at the American Apparel & Footwear Association.
Like India, it also lost its Generalized System of Preferences, disallowing it duty-free access to the U.S. for certain goods, such as some travel goods. The U.S.’ explanation was that Turkey is now sufficiently economically developed, proven by an increase in gross national income per capita, declining poverty rates, and export diversification.
It did, however, reduce tariffs it previously placed on Turkish steel. They were originally placed to pressure Turkey to free American pastor Andrew Brunson. He has since been released.
Lastly, Japan can also not rest easy. The U.S. is considering unleashing tariffs on Japanese auto imports if the two countries cannot reach a deal. A sticking point for the U.S. is that it wants American farmers to have more access to Japan. At $94 million, apparel imports from Japan are pretty small.
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