Fashion Gears Up for a Trade War

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Fashion Gears Up for a Trade War

By Stephen Lamar, AAFA - 08/24/2018

What do diaper bags, baseball caps, fabric, and metal snaps have in common?

They are all on the front lines of the trade war.

Those items, and many other fashion articles and accessories, have been targeted by the Trump administration to be subject to an additional 25 percent tariff when imported from China. Indeed, they join about $200 billion worth of products — including special chemicals, boats, wood flooring, furniture, bicycles, medical and surgical equipment, sports gear, snow blowers, art, and more — that are also in danger of additional tariffs.

While apparel, footwear, and other home textiles have so far escaped being targeted, some stakeholders have asked for many of these items to be subject to these 25 percent tariffs.

As many in the business community know, these tariffs are on the table because the President believes they are an effective tool to change the policies of other governments. In fact, the President regularly extols the value of tariffs in putting pressure on foreign countries to negotiate trade deals, to generate revenue, to pay down the federal debt, and to battle high foreign tariffs.

Specifically, President Trump is hoping to use tariffs to bring about a deal with China that would, among other things, address long-standing concerns related to forced technology transfer and intellectual property rights (IPR). Initially, the administration had added products to the lists using an algorithm that favored high-tech goods and equipment while avoiding consumer items. The idea was to concentrate pain on China without exposing U.S. consumers.

But that algorithm seems to have been abandoned. The latest list contains a wide variety of consumer products. Further, the President has threatened to put tariffs on all U.S. imports from China. While that may be negotiating bluster, the threat — viewed from the lens of the President’s tariff actions since January — is being treated seriously by many in the industry.

And they have good reason to be concerned. The administration has already collected more than $3 billion worth of punitive tariffs this year, largely from outside our industry. But with some tariffs on our products already proposed, and more possible, the nearly $17 billion tariff burden our industry already pays to the U.S. Treasury could multiply fast.

So what can we do to stop this?

We need to tell our story — forcefully, loudly, and articulately. The administration is accepting comments (click here) through September 6 from the industry, and that is a good place to start.

But it is also vital to engage with Congress, which ultimately sets tariff policy because of Article I, Section 8 of the U.S. Constitution. Members of Congress need to hear about the damaging impact tariffs have on their constituents. Some of the arguments they find most salient include the following:

·       Tariffs are a hidden tax on U.S. consumers. A 25 percent punitive tariff on clothes, shoes, and fashion accessories imported from China, on top of the high tariffs already paid on these products, would strip a family of four of roughly $500 dollars per year because of the inflation that the tariffs will trigger. This number rises rapidly when we add in tariff-price increases for other consumer goods or the inflationary impact these tariffs would have on sourcing from other countries. U.S. consumers, who had been expecting to pocket a refund from the recent tax overhaul, will find those savings sucked backed into government coffers instead. Of course, consumers may balk at higher prices, which would mean the tax would instead be absorbed by U.S. companies and their U.S. workers in the form of lost sales and layoffs.

·       Tariffs are a tax on U.S. manufacturing. Incredibly, the administration has repeatedly tried to impose tariffs on a wide range of intermediate goods and equipment that are used to make articles in the United States. U.S. apparel and footwear manufacturing, and the U.S. jobs they support, is on the rise — a trend that started about 10 years ago — but this growth will be stifled, or turn backwards, if manufacturers suddenly find the cost of their fabrics, yarns, components, and equipment increased by 25 percent. Some companies are already experiencing this pain

·       Tariffs are a tax on U.S. global value chains. Nearly four million American workers depend on our industry, and its global footprint, for their livelihood. Given the importance of China to our industry — the source of 41 percent of our apparel, 72 percent of our footwear, and 84 percent of our travel goods — a new 25 percnt punitive tax on imports from that country would cause a huge strain on our industry, draining away resources that would have been used to invest in people or product innovation.

·       Tariffs beget more tariffs. The U.S. tariff approach has triggered retaliation from China, and other countries, who have proposed import taxes on a wide range of American-made products. While much of this retaliation has been targeting U.S. agriculture, a surprisingly high number of U.S.-made textile and fashion items have also been included. Not only do these retaliatory tariffs further erode U.S. manufacturing opportunities by taxing U.S. exports, but they mean that supply chains often get taxed multiple times — once when the input is imported into China and again when the final product is imported into the United States.

The coming weeks will be critical. Decisions will be made soon about which products will face which new tariffs, and whether yet more tariffs will be proposed. Although an on-again, off-again dialogue with China may begin to yield results, it is also possible that this situation can drag on for months, if not years.

You may never look at a diaper bag the same way again.

 

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.