Are you concerned about how USA-China Trade War’s Impact on your business?
The ongoing trade war between the United States and China, which began four years ago, has shown no signs of resolution. In September 2022, the Office of the US Trade Representative announced that it would continue to impose Section 301 punitive tariffs on Chinese products, despite calls for a review of the policy.
The decision was made in response to requests from domestic businesses that have benefited from the tariffs, and US Trade Representative Katharine Tai has emphasized that they will remain in place until China adopts more market-oriented economic principles. The continuation of this trade war and the imposition of Section 301 tariffs will have a significant impact on global trade, particularly on the apparel industry. In this article, we will explore how the USA-China trade war has affected apparel sourcing and examine potential future developments in the industry.
key Events of the China-USA Trade War
The China-USA trade war began in 2018 when the US imposed tariffs on imported Chinese goods worth billions of dollars, citing concerns about China’s unfair trade practices and alleged intellectual property theft. China retaliated with tariffs on American goods, and the two countries engaged in a back-and-forth escalation of tariffs on each other’s imports.
In 2019, the US and China reached a partial trade agreement, known as Phase One, which included China’s commitment to purchase more American goods and address some US concerns about intellectual property theft. However, many tariffs remained in place, and negotiations for a more comprehensive trade deal faltered.
In 2020, the COVID-19 pandemic further strained relations between the two countries, with the US accusing China of mishandling the outbreak and covering up information about the virus. The Trump administration also took a harder line on China, with new sanctions and restrictions on Chinese technology companies.
In 2021, the Biden administration conducted a review of the US-China trade policy and maintained many of the previous administration’s tariffs and restrictions on Chinese technology companies. In September 2022, the Office of the US Trade Representative announced it would continue the Section 301 punitive tariffs against Chinese products, signaling that the trade war is far from over.
Background on Apparel Sourcing
To understand the impact of the USA-China trade war on the apparel industry, it is essential to first have a clear understanding of apparel sourcing.
Apparel Sourcing
Apparel sourcing refers to the process of finding and purchasing materials, such as fabric, zippers, buttons, and thread, to make clothing. This process can include everything from design and production to transportation and distribution. Historically, the USA and China have been key players in the global apparel-sourcing industry.
In recent years, however, the shift in production and sourcing to low-cost countries, such as Vietnam, Bangladesh, and Indonesia, has changed the dynamics of the industry. While China still leads in apparel manufacturing, other countries are catching up, and the USA has also seen an increase in domestic manufacturing.
The apparel industry is a crucial part of the global economy, with an estimated value of $2.5 trillion and employing over 60 million people worldwide.
US fashion brands and retailers strongly oppose the punitive tariffs against Chinese products
US fashion brands and retailers have been among the loudest voices opposing the punitive tariffs imposed by the US government on Chinese products. There are several reasons why these companies believe that the tariffs are harmful to their businesses and to the broader US economy.
Many US fashion brands and retailers rely heavily on imports of apparel and textiles from China. The tariffs have increased the cost of these imports, making it more expensive for companies to produce and sell their products. This, in turn, has led to higher prices for consumers and reduced demand for US-made goods.
The USA-China Trade War and Its Impact on Apparel Sourcing
Impact of tariffs on apparel sourcing
The USA-China trade war has had a significant impact on apparel sourcing since the imposition of tariffs on Chinese goods in 2018. The USA has imposed tariffs on approximately $550 billion worth of Chinese goods, and China has responded with tariffs on $185 billion worth of US goods, including apparel and textiles. These tariffs have made importing goods from China more expensive for US companies, causing many to shift their sourcing to other countries.
Shifts in apparel sourcing patterns as a result of the trade war
One of the main effects of the trade war has been a shift in apparel sourcing patterns. In particular, companies have been diversifying their sourcing strategies by looking for alternative suppliers outside of China. This has led to an increase in sourcing from other low-cost countries, such as Vietnam, Bangladesh, and Cambodia. According to a report by the United Nations Conference on Trade and Development (UNCTAD), the USA’s imports from China decreased by 25% in the first half of 2021 compared to the same period in 2018, and Vietnam’s exports to the USA increased by 33% in the same period.
The growth rate of US apparel imports (by value)
Data source: OTEXA (2022)
The tariffs have disrupted global supply chains, making it harder for US fashion brands and retailers to source the materials they need to produce their products. Many companies have had to look for alternative suppliers outside of China, which can be costly and time-consuming.
| Source of imports | 2021 vs. 2020 | 2021 vs. 2019 |
| World | 27.4% | -2.5% |
| China | 29.4% | -21.3% |
| ASEAN | 15.0% | 3.8% |
| Vietnam | 14.3% | 6.2% |
| Bangladesh | 36.7% | 20.7% |
| Indonesia | 17.9% | -5.7% |
| India | 38.9% | 3.4% |
| USMCA | 27.1% | -11.0% |
| CAFTA-DR | 39.9% | 0.6% |
Effects of the trade war on apparel industry jobs in the USA and China
The impact of the trade war on the apparel industry has been far-reaching, affecting not only sourcing patterns but also pricing and jobs. The imposition of tariffs has led to higher prices for US consumers, as companies pass on the costs of tariffs to customers. Additionally, the trade war has affected jobs in both the USA and China. US apparel companies have been shifting their production to other countries to avoid tariffs, while Chinese textile and apparel manufacturers have seen a decline in orders from US customers.
As the trade war continues, it will be important for apparel companies to consider diversifying their sourcing strategies and for policymakers to carefully consider the impact of trade policies on the apparel industry.
Case Studies
To illustrate the impact of the USA-China trade war on apparel sourcing, we will examine two case studies.
A. Case Study 1: H&M
In 2019, Swedish fashion retailer H&M announced that it would be increasing its production in Cambodia as a result of the trade war between the USA and China. The company had previously sourced a significant portion of its products from China, but the tariffs imposed by the US government made it more expensive to import these goods. As a result, H&M began to shift its manufacturing lines to Cambodia, where labor costs were lower and the company had already established a presence.
H&M’s shift to Cambodia was part of a larger trend among apparel companies, which were looking to diversify their sourcing away from China. According to a report by the International Labor Organization (ILO), Cambodia’s apparel industry has seen significant growth in recent years, driven in part by the US-China trade war. The country has become an increasingly popular destination for apparel manufacturing, with companies such as Nike, Adidas, and Levi’s all establishing production facilities there.
B. Case Study 2: Levi’s
In 2020, American denim company Levi Strauss & Co. announced that it would be expanding its production in Cambodia as part of its strategy to diversify its sourcing away from China. The company had previously sourced a significant portion of its products from China, but the tariffs imposed by the US government made it more expensive to import these goods.
Levi’s had been sourcing from Cambodia for many years and had established a strong relationship with its suppliers in the country. By increasing its production in Cambodia, the company was able to take advantage of the lower labor costs and favorable business environment. According to the ILO, Cambodia’s apparel industry has grown rapidly in recent years, employing over 700,000 workers in 2020. Levi’s expansion in Cambodia was part of a larger trend among apparel companies, which were looking to diversify their sourcing away from China and into other low-cost countries in Southeast Asia.
Conclusion
The USA-China trade war has had a significant impact on the apparel industry, particularly in terms of apparel sourcing. The imposition of tariffs has led to a shift in sourcing patterns and higher prices for consumers, while also affecting jobs in both the USA and China. As the trade war continues, it will be important for apparel companies to consider diversifying their sourcing strategies and for policymakers to carefully consider the impact of trade policies on the apparel industry.
For investors and companies seeking to shift their production to other countries, the Manhattan Special Economic Zone (SEZ) in the USA could be an attractive option. The Manhattan SEZ is a designated industrial park that offers a range of benefits to investors, including tax incentives, streamlined regulatory procedures, and access to a skilled workforce. The SEZ has a particular focus on garment manufacturing, making it an ideal location for companies seeking to shift their production away from China.
In conclusion, while the USA-China trade war has created significant challenges for the apparel industry, it has also presented opportunities for investors and companies to explore new markets and diversify their sourcing strategies. The Manhattan SEZ is just one example of a location that offers attractive benefits to companies seeking industrial land and garment manufacturing facilities for their production shift. It will be important for companies and policymakers to continue to monitor the impact of the trade war on the apparel industry and adapt accordingly to ensure its continued growth and success.
References
- “The Impact of the US-China Trade War on the Global Apparel Industry,” just-style.com, 9 May 2019, https://www.just-style.com/analysis/the-impact-of-the-us-china-trade-war-on-the-global-apparel-industry_id136337.aspx
- “The Trade War’s New Clothes: Apparel Sourcing Strategies,” Harvard Business Review, 28 August 2019, https://hbr.org/2019/08/the-trade-wars-new-clothes-apparel-sourcing-strategies
- “US-China trade war rattles garment sector,” Nikkei Asia, 19 August 2020, https://asia.nikkei.com/Business/Business-trends/US-China-trade-war-rattles-garment-sector
- “The US-China trade war’s impact on the fashion industry, explained,” Vox, 28 May 2019, https://www.vox.com/the-goods/2019/5/28/18641236/us-china-trade-war-fashion-industry-impact
- “Vietnam sees surge in garment exports as trade war hits China,” Financial Times, 27 January 2020, https://www.ft.com/content/9d8aa8a0-3a2e-11ea-a01a-bae547046735
- “Sweden’s H&M to increase production in Cambodia,” Reuters, October 9, 2019, https://www.reuters.com/article/us-hm-production-cambodia-idUSKBN1WP16L.
- International Labour Organization (ILO), “Cambodia’s Garment and Footwear Industry in 2020: A Review of Key Developments and Challenges,” November 2020, https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/documents/publication/wcms_759239.pdf.
- “In Trade War, Levi’s Looks Beyond China,” Wall Street Journal, January 29, 2020, https://www.wsj.com/articles/in-trade-war-levis-looks-beyond-china-11580255401.
- International Labour Organization (ILO), “Cambodia’s Garment and Footwear Industry in 2020: A Review of Key Developments and Challenges,” November 2020, https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/documents/publication/wcms_759239.pdf.