US-UK Free Trade Agreement: What Does it Mean for the Apparel Industry?

By Victoria Langro (2020 UD Summer Scholar) and Dr. Sheng Lu (advisor)

Key findings:

US-UK bilateral apparel trade

Over the past decade, the US and UK bilateral trade in apparel enjoyed steady growth, reflecting ever closer business ties of fashion companies in the two countries. While US apparel exports still predominantly go to geographically nearby countries such as Mexico and Canada, the UK has emerged to become the single largest export market for “Made in the USA” apparel outside the Western Hemisphere. Similarly, the United States has always been the UK’s single largest export market outside the EU region.

On the other hand, the apparel products that the US and the UK export to each other target different segments of the market. Industry sources indicate that the clothing exported from the US to the UK primarily focuses on the premium market. Garments “Made in the USA” in the UK are mostly carried by premium brands and retailers such as Free People, J. Crew, and Moda Operandi. However, due to a lack of brand power, clothing “Made in the USA” is typically priced 30%-50% lower than similar products locally made in the UK or elsewhere in Western EU, such as France and Italy.

In comparison, approximately 70% of apparel exported from the UK to the US are luxury goods. With a relatively clear-cut market position, luxury and high-end designer UK brands, such as Burberry, Roland Mouret, and Victoria Beckham, can effectively reach out to their target markets.

How Might the US-UK FTA Affect the Bilateral Apparel Trade

According to the released negotiation objectives, both the US and the UK seem to be willing to consider a substantial cut or even a full elimination of the apparel tariff rate as part of the trade deal. Should this happen, fashion companies across the Atlantic could benefit from a proportional reduction of their sourcing cost, resulting in a considerable expansion of the US-UK bilateral apparel trade flows.

On the other hand, to enjoy the preferential duty benefit under a free trade agreement, rules of origin will always be a requirement. Notably, most US trade agreements currently adopt the so-called “yarn-forward” rules of origin. In contrast, most EU-based trade deals adopt a more liberal “fabric-forward” rule.

While it is hard to predict which specific rules of origin the proposed US-UK trade agreement will adopt, it seems the result will have a more significant impact on the US apparel exports to the UK than the other way around. Restrained by the limited domestic supply and high cost, a substantial proportion of US apparel exports contain imported textile raw materials. This means US apparel producers may have to either switch to use more expensive domestic textile inputs or forgo the FTA duty-saving benefits should restrictive rules of origin are adopted. Meanwhile, the UK apparel exports to the US will be less sensitive to the rules of origin in the proposed FTA, as most of these luxury items are already 100% “Made in the UK” to meet customers’ expectations.

Uncertainties associated with the US-UK FTA

The US-UK trade negotiations have to deal with an evolving Brexit. Given the EU’s economic cloud, understandably, some argue that the UK may have to reach a comprehensive trade agreement with the EU before it can consider a trade deal with the US. Additionally, several US domestic politics and policy factors may further slow down the progress of the US-UK trade negotiation, from the US presidential election to the upcoming expiration of the trade promotion authority (TPA).

Further reading: Langro, V., & Lu, S. (2020). US-UK Free Trade Agreement: What Does it Mean for the Apparel Industry? Just-Style.

Author: Sheng Lu

Professor @ University of Delaware

16 thoughts on “US-UK Free Trade Agreement: What Does it Mean for the Apparel Industry?”

  1. Always the same question about these statistics: are we talking about apparel ship from and made in the UK or US ? Normally not, the statistics normally show „ship from“ independent from the origin. Burberry is mentioned as an example. Their percentage of UK-production is very low. They have a global sourcing portfolio like all other brands of that size – and only their distribution center in the UK. Consequently the link from these statistics to an FTA (from which only originating products can benefit) leads to wrong conclusions and results.

    1. hi Bernd, we used a big data tool—related products must explicitly mentions “made in the UK” or “made in the USA” in there product description.

  2. First of all I still doubt the „Made in“- Information since apparel produced in UK is very rare. Even if UK-made I have even more doubts that they will fulfil the traditional rules of origin for apparel in case of an FTA.

  3. Well, the election is tomorrow so we’ll see how that affects future trade policies, but I wonder how COVID-19 is affecting this trade deal since no one wants goods or even people visiting their country from the U.S. Right now, we are essentially a health liability that no one wants to deal with…

    On another note, I don’t find it that surprising that Made in the U.S. apparel isn’t that popular in the UK. We don’t have a long history of manufacturing high quality or luxury goods especially when you think of places like Milan and Paris. America isn’t necessarily viewed as a fashion hub. I wonder if it is a matter of marketing. New York and Los Angeles for example are considered fashion capitals so what would happen if labels started saying Made in Los Angeles or Made in New York. Could that increase U.S. apparel consumption in the UK? Considering the current state of American politics, it’s not at all surprising that the UK doesn’t highly value clothing made here…

    1. Aly, you made some very interesting comments! One in particular is “I wonder if it is a matter of marketing.” This made me think that since the US doesn’t have a long history of fashion craftsmanship like Europe, is our fashion industry more marketing? Many people do not even need a fashion degree or history to do well in the U.S. fashion industry, why is that?

      Also, the “Made in NY” or “Made in LA” idea is brilliant. Think about this, we do not necessarily say “Made in Europe”, we say “Made in Italy” or “Made in Milan.” Therefore, I believe that would be a great strategy in order to see increased sales of US-made apparel in the UK.

      Overall, I am interested in whether the US and UK decide on a yarn-forward RoO or fabric-forward RoO. Since US brands and retailers mostly prefer fabric-forward or use the yarn-forward exception, I would think it would be beneficial to use the fabric-forward rule. Asking the UK to make their sourcing strategies more strict could create chaos in the UK market. Essentially, is it asking the US to “lighten up” on their restrictions, but it will only benefit them and US brands and retailers in the long run.

    2. Hi Aly!
      I think that your interpretation of the state of the apparel manufacturing process in the US is insightful. America is known to follow a mentality of producing fast and cheap. This then translates to high volumes of inventory that retailers try to push on consumers at the best of their ability while also depending on the aid of highly effective and convincing advertisements. This differs so much from the components of tradition and high quality that many countries in the EU revere in their everyday production while still maintaining similar levels of success. If America were to adopt this mentality, I would be interested to see what the result would be. Even so, I don’t think this is feasible just simply due to the fact that tradition and high quality are components that are products of a long-standing culture that develops over generations.

      I really enjoyed reading about your idea of incorporating city-specific production of origin on garment labels rather than just “Made in the US”. Since New York City and LA are two cities in which the US can be the proud country that inhabits two globally known fashion hubs. It would bring a certain level of sophistication that “Made in America” can’t bring to garments, especially luxury garments. If we normalized this on a bigger scale it could have the potential to transform the trade between the US and EU in the apparel industry.

  4. posted on behalf of Lizzy
    As I learnt, part of the economy in the UK is supported by the tourism. Under the affect of COVID-19, will this further decreases the demand of “Made in USA” products for a long-term?

    The Free Trade Agreement between U.S. and UK offers more opportunities for fashion brands and retailers to explore oversea export markets. As mentioned in the article, the clothing exported from the US to the UK primarily focuses on the premium market. “Made in USA” products have more competitive pricing than domestic products made in the UK. However, the products exported from the UK to the US are mainly focusing on the luxury products. This may be caused by the historical background. Those indicate that the markets toward by the brands in UK and the US are different. The The luxury products exported from UK can fill in the blank for the US fashion market. However, the “Made in USA” products are competing with domestic premium fashion brands in the UK. Some of the brands and retailers in the UK may not be able to benefit from the free trade agreement between US and the UK.

    The standards and rules followed by the US and the UK are different. Those may cause disagreement and barriers for companies to cooperate with each other. When the companies export products to another country, they need to adjust their standard and rule to satisfy and meet the requirements of others.

    Just like what we mentioned during the lecture, policy is another factor that can affect the free trade agreement, like Brexit.

  5. The whole “Made In” concept strikes me weird. It was fascinating to read that clothing labeled “Made in the USA” in the UK is typically priced 30%-50% lower than similar products locally made in the UK . Why does most of the luxury items have to be 100% “Made in the UK” to meet customers’ expectations in the UK? I wonder if it’s because Europe doesn’t see the US as a “fashion capital” or “fashion hub” although I think that’s an unfair assessment to make. I understand that the US relies heavily on imports but cities like New York City shouldn’t be counted out as a fashion capital of the world.

    1. I agree Lyndsey! I always wondered why people sought items that are “Made in” specific countries, and it wasn’t until I became a fashion major that I even looked at the tags on clothes to see the materials used and where it was manufactured. I also agree with some of the previous comments about it being a marketing tactic. I think the UK, and much of the EU, holds textile and apparel companies to a much higher standard than US companies, at least as far as quality is concerned. Since the UK already benefits from robust intra-regional trade, I think the US would benefit more from a FTA and would provide for growth opportunities in overseas countries.

  6. There are many factors at play when discussing the possibility of a Free Trade Agreement between the US and the UK.
    The US would benefit incrementally more than the UK from a FTA since it would lower barriers to access to other important consumer markets for the US, while the UK already has access to other robust consumer markets in Europe.
    It would be interesting to see how some things are compromised for this hypothetical agreement, such as rules of origin. The US follows a yarn-forward rule of origin while the UK follows fabric-forward, so deciding on what rule would be used between the two nations will be interesting especially since there is a lot of conversation in the US about altering the rules of origin in NAFTA to be more lenient than yarn-forward.

  7. Overall, I believe that the UK would be just fine without reaching a trade agreement deal with the US. As the video mentioned, the majority of the US exports to the UK are mass market apparel. This area is very vulnerable to competition. However, the majority of the UK apparel exported to the US is luxury apparel. Luxury apparel is much less vulnerable to competition. If the US and UK were to reach an agreement, the US would struggle due to the fact that many of their imports come from Asian countries. This would not follow the rules of origin rules desired by the agreement. I feel like the UK would better benefit from this agreement because as we have learned through class and by reading articles, the UK has a very well-rounded supply chain within their own region. In addition to this intra-regional sourcing chain, the UK produces a lot of luxury goods which cannot be replicated by other countries. They are exclusive to the UK market, making them much more desirable. However, since the US mainly produces and exports mass market apparel, there is constant competition with growing developing countries. I believe going forward the luxury market will continue to expand and grow, giving the UK much more power in the outcome of this decision. However, it will be interesting to see what agreement is met in the near future and how the rules of origin will play into the production of “Made in the US” apparel.

  8. It was interesting to learn about the trade between the US and the UK because I had very little knowledge on it since we mostly focus on trade with China and other Asian countries. I wasn’t aware that the United States is the UK’s single largest export market outside the EU region for “Made in the USA” products, simply because we rarely, if ever, see “Made in the UK” here. If we domestically make products here in the US, typically we see those products as good quality. So, I am wondering if the UK has the same mindset, because when they see locally made products or elsewhere in the Western EU, they are priced higher. Typically higher quality = higher price. It will be interesting to see how the US-UK trade agreement will shift after a finally winner of the presidency is announced. No matter what, the results will have a more significant impact on the US, so I hope that the agreement will be in favor of our country.

  9. I think it’s very interesting to read about how products labeled “Made in the USA” are marked much lower in comparison to similar products sold in the UK made in neighboring countries of the EU. In my opinion, I think this stems from the idea that American culture is casual and our fashion isn’t valued as art. The growing casualization of western culture in terms of athleisure, and general lack of avant garde or true formal attire plays a part in painting this picture of American fashion as lazy and simple, therefore it shouldn’t be priced similarly to European retailers. I don’t know if I agree with this sentiment, but that is probably just my American fashion student bias.

  10. I found this very interesting to learn about because I have not read in the news about a trade agreement with the US and the UK. We learned in our lectures that the UK is in the top 5 US Goods Export Markets, which means the UK and the US could benefit from a deal. I know the US and the UK have been two places in the world struggling with coronavirus the most and wonder if this will effect the deal greatly. I believe this will effect the agreement, because both countries need to look at their economies closer as both have more to lose now. I also found interesting that in the UK clothing labeled “Made in the USA” is priced 30%-50% lower than garments that are made in the UK, but these garments are held mostly by premium retailers. I wonder if this has anything to do with UK’s view on our products. Is it the UK’s consumer or retailers that are driving this view?

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