The latest trade data shows that in the first quarter of 2022, US apparel imports increased by 39.7% in value and 24.7% in quantity from a year ago. However, the seemingly robust import expansion is shadowed by the rising market uncertainties.
Uncertainty 1: US economy. As the US economic growth slows down, consumers have turned more cautious about discretionary spending on clothing to prioritize other necessities. Notably, in the first quarter of 2022, clothing accounted for only 3.9% of US consumers’ total expenditure, down from 4.3% in 2019 before the pandemic. Likewise, according to the Conference Board, US consumers’ confidence index (CCI) dropped to 107.3 (1985=100) in April 2022 from 113.8 in January 2022, confirming consumers’ increasing anxiety about their household’s financial outlook. Removing the seasonal factor, the real growth of US apparel imports in March 2022 was only half the pace a month ago (i.e., down from 18.4% to 9.3%).
Uncertainty 2: Worldwide inflation. Data from the Bureau of Economic Analysis shows that the price index of US apparel imports reached 102.5 in March 2022 (May 2020=100), up from 100.1 one year ago (i.e., a 2.5% price increase). At the product level (i.e., 6-digit HS Code, HS Chapters 61-62), over 60% of US apparel imports from leading sources such as China, Vietnam, Bangladesh, and CAFTA-DR experienced a price increase in the first quarter of 2022 compared with a year ago. The price surge of nearly 40% of products exceeded 10 percent. As almost everything, from shipping, textile raw materials, and labor to energy, continues to soar, the rising sourcing costs facing US fashion companies are not likely to ease anytime soon.
The deteriorating inflation also heats up the debate on whether to continue the US Section 301 tariff action against imports from China. Since implementing the punitive tariffs, US fashion companies have to pay around $1billion in extra import duties every year, resulting in the average applied import tariff rate for dutiable apparel items reaching almost 19%. Although some e-commerce businesses took advantage of the so-called “de minimis” rule (i.e., imports valued at $800 or less by one person on a day are not required to pay tariffs), over 99.8% of dutiable US apparel imports still pay duties.
Uncertainty 3: “Made in China.” China remained the top apparel supplier at the country level, accounting for 27.3% of market shares in quantity and 21.9% in value in the first quarter of 2022, on par with a year ago. China’s market shares in March 2022 (i.e., 29.0% in quantity and 18.6% in value) were also higher than in 2020 and 2021.
However, the “stable trade pattern” could change quickly. Notably, China’s recent strict COVID lockdowns in its major port cities, including Shanghai and Shenzhen, have resulted in several warning signs. For example, in an April 2022 survey of about 199 textile and apparel factories located in China’s Jiangsu Province (one of China’s largest textile and apparel production bases), over 65% of respondents reported “operational difficulty” during China’s most recent COVID lockdowns, including about 40% had to cut their production volume by more than 30%. Similarly, in another national survey of 127 apparel factories in Spring 2022 by the China National Garment Association (CNGA), nearly 90% of respondents reported shipping delays, and two-thirds of export-oriented factories suffered a decline in sales revenue. Further, the rising operational costs (72.4%) and lack of orders (48.8%) were the respondents’ top two business challenges. According to the survey results, the financial situation of small and medium-sized (SMEs) factories was particularly dire. However, these SMEs are the backbones of China’s flexibility and agility in textile and apparel production.
As the Q1 data hasn’t fully reflected the trade impacts of China’s Zero-COVID policy plus the seasonal factor, the trend of US apparel sourcing from China will be critical to watch over the next few months.
Uncertainty 4: Shipping delays. Data suggests we are not out of the woods yet for shipping delays and supply chain disruptions. For example, as Table 2 shows, the seasonable pattern of US apparel imports in March 2022 is similar to January before the pandemic (2017-2020). In other words, many US fashion companies still face about 1.5-2 months of shipping delays. Additionally, several of China’s major ports were under strict COVID lockdowns starting in late March, including Shanghai, the world’s largest. Thus, the worsened supply chain disruptions could negatively affect the US apparel import volumes in the coming months.
by Sheng Lu
Further reading: Lu, S. (2022). Myanmar loses appeal for US apparel imports. Just-Style.