Supply Chain Resiliency and the Role of Small Manufacturers—U.S. Textile Industry’s Perspective

Witness: National Council of Textile Organizations (NCTO) President and CEO Kim Glas; The full testimony is available HERE

Note:

Berry Amendment: Under a provision of 1941 legislation known as the “Berry Amendment” , the Department of Defense (DOD) must buy clothing, fabrics, fibers, yarns, other made-up textiles, boots, and certain other items that are 100% US-made.  Notably, the Berry Amendment mandates a much higher level of domestic content than the Buy American Act of 1933, which, in general, only requires 50% of the costs of a product to be manufactured in the United States. DOD spent around $1.6 billion on clothing, textiles, and footwear in FY2020 under the Berry Amendment. The items covered by the Berry Amendment have varied over the years. In the FY2017 NDAA (P.L. 114-328), Congress extended the Berry Amendment by requiring DOD to provide 100% U.S.-made running shoes for recruits entering basic training.

Biden’s “Buy America” policy:

  • On January 25, 2021, President Biden issued an Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers, as part of his “Build Back Better” economic recovery plan. The order created the role of a “director of Made-in-America” within the Office of Management and Budget and increased the threshold and price preferences for domestic goods.
  • Related, on February 24, 2021, President Biden released an executive order (EO) and announced to conduct a 100-day supply chains review on several key US industries, including semiconductors, batteries, strategic minerals, and pharmaceuticals. The review will also cover certain critical business sectors, such as national defense, public health, information and communication technology, energy, transportation, and agriculture. Further, the EO explicitly asks the Secretary of Health and Human Services, in consultation with the heads of appropriate agencies, to submit a report identifying risks in the supply chain of personal protective equipment (PPE). PPE includes textile products like facial masks, gowns and gloves. More comprehensive reform and supply chain strategies are likely to follow after the supply chain review requested by the EO.

What Do You Take Away from FASH455?

I encourage everyone to watch the two short videos above, which provide an excellent wrap-up for FASH455 and remind us of the meaning and significance of our course. BTW, the names of several experts featured in the video should sound familiar to you, such as David Spooner (former U.S. Chief Textile Negotiator and Assistant Secretary of Commerce), Julia Hughes (president of the US Fashion Industry Association, USFIA) and Auggie Tantillo (former president of the National Council of Textile Organizations, NCTO).

First of all, I hope students can take away essential knowledge about textile and apparel (T&A) trade & sourcing from FASH455. As you may recall from the video, in FASH455, we’ve examined the phenomenon of globalization and its profound social, economic and political implications. We also discussed various trade theories and the general evolution pattern of a country’s T&A industry and its close relationship with that country’s overall industrialization process. We further explored three primary T&A supply chains in the world (namely the Western-Hemisphere supply chain, the flying geese model in Asia, and the phenomenon of intra-region T&A trade in Europe). Last but not least, we looked at unique and critical trade policies that matter significantly to the T&A sector (e.g., U.S.-China tariff war and the yarn-forward rules of origin) as well as the complicated factors behind the making of these trade policies. Whether your dream job is to be a fashion designer, buyer, merchandiser, sourcing specialist, or marketing analyst, understanding how trade and sourcing work will be highly relevant and beneficial to your future career given the global nature of today’s fashion industry.

Second, I hope FASH455 helps students shape a big-picture vision of the T&A industry in the 21st-century world economy and provides students a fresh new way of looking at the world. Throughout the semester, we’ve examined many critical, timely, and pressing global agendas that are highly relevant to the T&A industry, from the impact of COVID-19 on apparel sourcing and trade, apparel companies’ social responsibility practices, the debate on the textile and apparel provisions in the U.S.-Mexico-Canada Trade Agreement (USMCA or NAFTA2.0)  to the controversy of used clothing trade. It is critical to keep in mind that we wear more than clothes: We also wear the global economy, international business, public policy, and trade politics that make affordable, fashionable, and safe clothes possible and available for hardworking families. This is also the message from many of our distinguished guest speakers this semester, and I do hope you find these special learning events enlightening and inspiring.

Likewise, I hope FASH455 can put students into thinking about why “fashion” matters. A popular misconception is that “fashion and apparel” is just about “sewing,” “fashion magazine,” “shopping” and “Project Runway.” In fact, as one of the largest and most economically influential sectors in the world today, T&A industry plays a critical and unique role in creating jobs, promoting economic development, enhancing human development and reducing poverty. As we mentioned in the class, over 120 million people remain directly employed in the T&A industry globally, and a good proportion of them are females living in poor rural areas. For most developing countries, T&A typically accounts for 70%–90% of their total merchandise exports and provides one of the very few opportunities for these countries to participate in globalization. The spread of COVID-19, in particular, reveals the enormous social and economic impacts of the apparel sector and many problems that need our continuous efforts to make an improvement. 

Last but not least, I hope from taking FASH455, students will take away meaningful questions that can inspire their future study and even life’s pursuit. For example:

  • How has COVID-19 fundamentally and permanently changed the pattern of apparel sourcing and trade?
  • How to make the growth of the global textile and apparel trade more inclusive and equal?
  • How to make sure tragedies like the Rana Plaza building collapse will never happen again?
  • How will automation, AI and digital technologies change the future landscape of apparel sourcing, trade, and job opportunities?
  • How to use trade policy as a tool to solve tough global issues such as labor practices and climate change?
  • Is inequality a problem caused by global trade? If global trade is the problem, what can be the alternative?

These questions have no good answers yet. However, they are waiting for you, the young professional and the new generation of leaders, to write the history, based on your knowledge, wisdom, responsibility, courage, and creativity!

So what do you take away from FASH455? Please feel free to share your thoughts and comments.

Dr. Sheng Lu

Is the Western Hemisphere Textile and Apparel Supply Chain in Trouble?

Within the Western-Hemisphere (WH) textile and apparel supply chain, the United States serves as the leading textile supplier, whereas developing countries in North, Central, and South America (such as Mexico and countries in the Caribbean region) assemble imported textiles from the United States or elsewhere into apparel. The majority of clothing produced in the area is eventually exported to the United States or Canada.

WH countries still form a close supply chain partnership in textile and apparel production. For example, close to 70% of US textile exports went to WH members in 2020, a pattern that has stayed stable over the past decades (OTEXA, 2021). Meanwhile, the United States serves as the single largest export market for most apparel exporting countries in the WH For example, in 2019, close to 89% of apparel exports from CAFTA-DR and USMCA (NAFTA) members went to the US.

However, the WH textile and apparel supply chain is not without significant challenges. For example, CAFTA-DR and Mexico are increasingly using textiles inputs from outside the WH region, which weakens the US role as a dominant textile supplier. Notably, most of the market shares lost by US textile suppliers are fulfilled by Asian countries, including China and other members of the RCEP (Regional Comprehensive Economic Partnership). Theoretically, using cheaper textile inputs from Asia may help apparel producing countries in the WH improve the price competitiveness of their finished garments and diversify their export markets beyond the US.

Meanwhile, despite the apparent popularity of “near-sourcing”, no evidence suggests that US fashion brands and retailers are sourcing more from WH countries, including CAFTA-DR and USMCA (NAFTA) members. Neither the US-China trade war nor COVID-19 seems to have shifted the trends. Instead, close to 75%-80% of US apparel imports still come from Asian countries (OTEXA, 2021). Studies further show that a vast majority of US apparel imports from WH concentrate on a limited category of products, such as tops and bottoms, which is far from sufficient to meet retailers’ sourcing needs.

On the other hand, technical textiles and industrial textiles account for a growing share in the total US textile exports, and Asia is a particularly fast-growing market. However, there is few US free trade agreement with Asian countries, making it a disadvantage to promote “Made in the USA” products in these markets. It is debatable what should be the priority for the US textile and apparel trade policy: to continue to protect the exports of yarn and fabrics to the WH or open new export markets for technical and industrial textiles outside the WH region?

by Sheng Lu

Relate readings:

EU Textile and Apparel Industry and Trade Patterns (Updated April 2021)

1

The EU region as a whole remains one of the world’s leading producers of textile and apparel (T&A). The value of EU’s T&A production totaled EUR137.3 bn in 2019, down around 2% from a year ago (Note: Statistical Classification of Economic Activities or NACE, sectors C13, and C14). The value of EU’s T&A output was divided almost equally between textile manufacturing (EUR68.7bn) and apparel manufacturing (EUR68.6bn).

Regarding textile production, Southern and Western EU, where most developed EU members are located such as Germany, France, and Italy, accounted for nearly 75% of EU’s textile manufacturing in 2019. Further, of EU countries’ total textile output, the share of non-woven and other technical textile products (NACE sectors C1395 and C1396) has increased from 19.2% in 2011 to 23.0% in 2017, which reflects the on-going structural change of the sector.

Apparel manufacturing in the EU includes two primary categories: one is the medium-priced products for consumption in the mass market, which are produced primarily by developing countries in Eastern and Southern Europe, such as Poland, Hungary, and Romania, where cheap labor is relatively abundant. The other category is the high-end luxury apparel produced by developed Western EU countries, such as Italy, UK, France, and Germany.

9

It is also interesting to note that in Western EU countries, labor only accounted for 21.7% of the total apparel production cost in 2017, which was substantially lower than 30.1% back in 2006. This change suggests that apparel manufacturing is becoming capital and technology-intensive in some developed Western EU countries—as companies are actively adopting automation technology in garment production.

Because of their relatively high GDP per capita and size of the population, Germany, Italy, UK, France, and Spain accounted for nearly 60% of total apparel retail sales in the EU in 2020. Such a market structure has stayed stable over the past decade.

Data source: UNcomtrade (2021)

Intra-region trade is an important feature of the EU’s textile and apparel industry. Despite the increasing pressure from cost-competitive Asian suppliers, statistics from UNComtrade show that of the EU region’s total US$73.8bn textile imports in 2019, as much as 54.6% were in the category of intra-region trade. Similarly, of EU countries’ total US$204.0bn apparel imports in 2019, as much as 37.4% also came from other EU members. In comparison, close to 98% of apparel consumed in the United States are imported in 2019, of which more than 75% came from Asia (Eurostat, 2021; UNComtrade, 2021).

Regarding EU countries’ textile and apparel trade with non-EU members (i.e., extra-region trade), the United States remained one of the EU’s top export markets and a vital textile supplier (mainly for technical and industrial textiles). Meanwhile, Asian countries served as the dominant apparel sourcing base outside the EU region for EU fashion brands and retailers.  

The EU textile and apparel industry is not immune to COVID-19. According to the European Apparel and Textile Federation (Euratex), the EU textile and apparel production feel 9.3% and 17.7% respectively in 2020 from a year ago.

2021 hopefully will be a year of recovery and growth for the EU textile and apparel industry. According to Euratex, the EU Business Confidence indicator of March 2021 gained momentum, with a confirmed upward trend in the textile industry (+3.8 points), and a modest recovery in the clothing industry (+1.6 points). However, Euratex also noted that EU textile and apparel companies still face daunting challenges and uncertainties in 2021, ranging from the rising raw material price, increasing transportation cost, to political instability in some key sourcing destinations (such as China and Myanmar).

by Sheng Lu

ModCloth Sourcing and Supply Chain Strategies during the Pandemic

Credit: Apparel and Textile Sourcing Tradeshow

Speaker: Linda Ollmann, Director – Sourcing Operations, ModCloth

Event summary

ModCloth is a womenswear company that strives to empower women along every step of their manufacturing process. The customer loves the clothing and the pieces can be utilized in many different ways throughout many different seasons.

As of right now, ModCloth does most of their sourcing partnerships with vendors in China, largely because vendors in China were able to give ModCloth the most efficient price point at the shortest lead time. However, ModCloth did start to look for vendors outside of China in countries such as Vietnam, Sri Lanka, and India, but they found that the lead times were still the shortest when they sourced with vendors in China.

While ModCloth wants to continue having short lead times to satisfy their customer, they have some new sourcing strategies that they are going to be implementing in the near future. One thing they are going to do is find the best suppliers possible to get their fabric from so that their customers are happy and can even possibly love the company even more than they already do. In addition to this, ModCloth is dedicated to pursuing sustainable practices and this includes within the factories that they partner with. They also want to find a way to continue having a shorter lead time from the time customers order a garment to the time it gets delivered at their doorstep, all while having a low carbon footprint and being as environmentally conscious as possible.

Just like every other company in the world, ModCloth was impacted by COVID-19. However, since ModCloth started out as an entirely ecommerce brand they were able to adapt to the new virtual norm very well. They decided that with the pandemic slowing everything down, it was important that they focus on improving the company from the inside out. This helped them become more stable internally so they could inevitably build the brand up again on the outside. People have been primarily shopping online due to the closure of brick and mortar stores, so ModCloth did not see too much of a dip in their sales.

ModCloth is very interested in what their customers want and need. Their customers have expressed a need for more sustainable clothing and fabrics and this is exactly what ModCloth wants to give to them. It was mentioned in the webinar that it is easy to put information about the sustainability of a garment in the product description on their website which helps the customer really understand where the piece of clothing they are about to purchase is coming from. This will help customers remain faithful in the brand as well as help the customer feel connected to the brand

Summarized by Lexi Dembo (FASH455 spring 2021)

The Future of Asia as a Textile and Apparel Sourcing Base—Discussion Questions from Students in FASH455

Garment factories in Vietnam adopt RFID; Video credit: Li &Fung

#1: How to explain the phenomenon that US fashion companies are diversifying apparel sourcing from China, but not so much from the Asia region? For example, as of 2020, still, around 75% of US apparel imports came from Asian countries.

#2: From the readings and your observation, to which extent will automation challenge the conclusions of the “flying geese model” and the evolution pattern of Asian countries’ textile and apparel industry over the past decades?

#3: It could be a crazy idea, but given the current business environment, what would the textile and apparel supply chain in Asia look like without “Made in China”? What would be the implications for US fashion companies sourcing strategies?

#4: RCEP members are with a diverse competitiveness in textile and apparel production and exports. Several leading Asian apparel-exporting countries are not RCEP members (such as Bangladesh). Is it unavoidable that RCEP will create BOTH winners and losers for textile and apparel trade? How so?

#5: Is the growth model and development path of Asian countries’ textile and apparel industry an exception—meaning it is challenging to apply it to the rest of the world, such as the Western Hemisphere and Africa? What is your view?

#6: What is your outlook of Asia as a textile and apparel-sourcing base in the post-Covid world? Why?

(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)

How Is the Pandemic Changing the Global Fashion Industry?

Note: In the video “Textile” actually refers to “garment”

Related readings

State of U.S. Textile and Apparel Manufacturing: Output, Employment, and Trade (Updated March 2021)

Textile and apparel manufacturing in the U.S. has significantly shrunk in size over the past decades due to multiple factors ranging from automation, import competition to the shifting U.S. comparative advantages for related products. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $18.79 billion in 2019, up 23.8% from 2009. In comparison, U.S. apparel manufacturing dropped to $9.5 billion in 2019, 4.4% lower than ten years ago (Bureau of Economic Analysis, 2021).

Meanwhile, like many other sectors, U.S. textile and apparel production was hit hard by COVID-19 in the first half of 2020 but started to recover since the 3rd quarter. Notably, as of September 2020, U.S. textile production had resumed about 90% of its production capacity at the pre-COVID level. The value of U.S. apparel production in 2020Q3 was even 2.2% higher than in 2019Q3.

On the other hand, as the U.S. economy is turning more mature and sophisticated, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.12% in 2020 (Q1-Q3) from 0.57% in 1998 (Bureau of Economic Analysis, 2021).

The U.S. textile and apparel manufacturing is changing in nature. For example, textile products had accounted for over 66% of the total output of the U.S. textile and apparel industry as of 2019, up from only 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some product categories that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven. These products are also becoming the new growth engine of U.S. textile exports. Notably, “special fabrics and yarns” had accounted for more than 34% of U.S. textile exports in 2019, up from only 20% in 2010 (Data source: UNComtrade, 2021).

Compatible with the production patterns, employment in the U.S. textile industry (NAICS 313 and 314) and apparel industry (NAICS 315) fell to the bottom in April-May 2020 due to COVID-19 but started to recover steadily since June 2020. From January 2020 to January 2021, the total employment in the two sectors decreased by 8.6% and 13.2%, respectively. However, to be noted, as production turns more automated and thanks to improved productivity (i.e., the value of output per worker), U.S. textile and apparel factories have been hiring fewer workers even before the pandemic. The downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector.  Related, how to attract the new generation of workforce to the factory floor remains a crucial challenge facing the future of textile and apparel “Made in the USA.”

International trade supports textiles and apparel “Made in the USA.” Notably, nearly 40% of textiles “Made in the USA” (NAICS 313 and 314) were sold overseas in 2019, up from only 15% in 2000. A recent study further shows that product category and the size of the firm were both statistically significant factors that affected the U.S. textile and apparel manufacturer’s likelihood of engaged in exports.

from Nordstrom Rack

It is not rare to find clothing labeled “made in the USA with imported fabric” or “made in the USA with imported material” in the stores. Statistical analysis shows a strong correlation between the value of U.S. apparel output and U.S. yarn and fabric imports from 1998 to 2019.

Like many other developed economies whose textile and apparel industries had reached the stage of post-maturity, the United States today is a net textile exporter and net apparel importer. COVID-19 has affected U.S. textile and apparel trade in several important ways:

  • Trade volume cut: Both affected by the shrinkage of import demand and supply chain disruptions, the value of U.S. textile and apparel imports dropped by as much as 19.3% in 2020 from a year ago, particularly apparel items (down 23.5%). Likewise, the value of U.S. textile and apparel exports in 2020 decreased by 15.6%, including an unprecedented 26% decrease in yarn exports.
  • Trade balance shifted: Before the pandemic, U.S. was a net exporter of fabrics. However, as the import demand for non-woven fabrics (for making PPE purposes) surged during the pandemic, U.S. ran a trade deficit of $502 million for fabrics in 2020. Meanwhile, as retail sales slowed and imports dropped during the pandemic, the U.S. trade deficit in apparel shrank by 19% in 2020 compared with 2019.However, the shrinkage of the trade deficit did not boost clothing “Made in the USA” in 2020, reminding us that the trade balance often is not an adequate indicator to measure the economic impact of trade.
  • No change in export market: Close to 70% of U.S. textile and apparel export went to the Western Hemisphere in 2020, a pattern that has stayed stable over the past decades (OTEXA, 2021). More can be done to strengthen the Western Hemisphere supply chain and textile and apparel production in the region by leveraging regional trade agreements like CAFTA-DR and USMCA.

By Sheng Lu

FASH455 Interview Series—QVC Global Sourcing Internship (Guest: Lora Merryman)

About Lora Merryman

Lora Merryman is a Master of Science student in Fashion and Apparel Studies at the University of Delaware (class of 2021). She also graduated from the UD with a Bachelor’s Science in Fashion Merchandising in 2020. She currently works for QVC as a global sourcing intern.  

Lora was selected as a 2020 University of Delaware summer scholar. She also served as a graduate teaching assistant for FASH455 in Fall 2020 and Winter 2021. Lora is the author of a recent research publication on data science education for fashion majors, featured by Just-Style and several other industry news outlets.  

US-China Tariff War During COVID-19—Discussion Questions from Students in FASH455

Steve Lamar, President & CEO, American Apparel and Footwear Association

#1 Studies show that the Section 301 punitive tariff on imports from China hurts both US fashion retailers and ordinary consumers. But why doesn’t President Biden announce to remove the tariffs and stop the trade war?

#2 It doesn’t seem the tariff war with China has brought more apparel manufacturing back to the US. Is this result expected or surprising? How does the outcome of the trade war support or challenge the trade theories we learned in the class (e.g., mercantilism, absolute advantage, comparative advantage, and factor proportion theories)?

#3 The U.S.-China tariff war continues during the pandemic, resulting in higher sourcing costs for US fashion brands and retailers, which have been struggling hard financially. In such a case, if you were the CEO of a leading US fashion brand, why or why not would you pass the tariff burden to consumers, i.e., ask consumers to pay a higher price?

#4 Why or why not do you think the tariff war with China has fundamentally shifted US fashion companies’ sourcing strategy?

#5 What’s your take on “tariff engineering” adopted by fashion companies? A smart idea? Loophole? Controversial? Need to be encouraged/discouraged? And Why?

#6 Any reflections on the video discussion (above) regarding the US apparel industry’s view on the impact of the tariff war during the pandemic?

(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)

Globalization and Its Implications for the Fashion Industry—Discussion Questions from Students in FASH455

Sourcing map: North Face–Men’s Thermoball Eco Hoodie

#1 Why or why not do you think VF Corporation should de-globalize its supply chain—for example, bringing more sourcing and production back to the United States?

#2 Given such a globalized operation, should we still call VF Corporation an American company? Also, does the label “Made in ___” still matter today?

#3 Is the sole benefit of globalization helping us get cheaper products? How to convince US garment workers who lost their jobs because of increased import competition that they benefit from globalization also?

#4 How has COVID-19 changed your understanding of the benefits, costs, and debates on globalization? Do we still need globalization in a post-COVID world? Why?

#5 Throughout history, globalization has been viewed as a two-sided debate with social groups weighing its benefits and negative costs.  With the emergence of COVID-19, how do you think certain social groups’ opinions towards globalization will change?

(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)

Which Apparel Sourcing Factors Matter?

Key findings:

The apparel sourcing formula is getting ever more sophisticated today. US fashion brands and retailers consider a wide range of factors when deciding where to source their products. The long list of sourcing factors includes #1 Capacity, #2 Price & tariff, #3 Stability, #4 Sustainability, and #5 Quality (see the table below).

When evaluating the world’s top 27 largest apparel supplying countries’ performance,  no souring destination appears to be perfect. In general, fashion brands and retailers have many choices for sourcing destinations that can meet their demand for production capacity, price point, and quality. However, fashion companies face much more limited options when seeking an apparel sourcing destination with a stable financial and political environment and a strong sustainability record.

When we compare the trade volume and the performance against the five primary sourcing factors:

  • Apparel sourcing today is no longer a “winner takes all” game. Notably, the factor “Capacity” is suggested to have limited impacts on the value of apparel imports from a particular sourcing destination.
  • Apparel sourcing is not merely about “competing on price” either--the impact of the factor “Price & tariff” on the pattern of apparel imports statistically is not significant.
  • Improving financial and political stability as well as product quality can help a country enhance its attractiveness as an apparel sourcing base. In particular, American and Asia-based fashion companies seem to give substantial weight to the factors of “Stability” and “Product quality” in their sourcing decisions.
  • Fashion companies’ current sourcing model does not always provide strong financial rewards for sustainability. Interestingly, the result indicates that a higher score for the factor “sustainability” does NOT result in more sourcing orders at the country level. Behind the result, fashion companies today likely consider sustainability and compliance at the vendor level rather than at the country level in their sourcing decisions. It is also likely that sustainability and compliance are treated more as pre-requisite or “bottom-line” criteria instead of a factor to determine the volume of the sourcing orders. 

In conclusion, fashion companies’ sourcing decisions seem to be more complicated and subtle than what is often described in public.

By Emma Davis and Sheng Lu

Further reading: Emma Davis & Sheng Lu (2021). Which apparel sourcing factors matter the most?. Just-Style.

Regional Supply Chain Remains a Key Feature of World Textile and Apparel Trade

While textile and apparel is well-known as a global sector, the latest statistics show that world textile and apparel trade patterns remain largely regional-based. Three particular regional textile and apparel trade flows are critical to watch:

First, Asian countries are increasingly sourcing textile raw material from within the region. As much as 85% of Asian countries’ textile imports came from other Asian countries in 2019, a substantial increase from only 70% in the 2000s. This result reflects the formation of an ever more integrated regional textile and apparel supply chain in Asia. However, as Asian countries become more economically integrated, textile and apparel producers in other parts of the world could find it more challenging to get involved in the region. With the recent reaching of several mega free trade agreements among countries in the Asia-Pacific region, such as the Regional Comprehensive Economic Partnership (RCEP), the pattern of “Made in Asia for Asia” is likely to strengthen further.

Second, the EU intra-region trade pattern for textile and apparel stays relatively strong and stable. Intra-region trade refers to trade flows between EU members. Statistics show that 54.6% of EU(27) members’ textile imports and 37.4% of their apparel imports came from within the EU(27) region in 2019. This pattern only slightly changed over the past decade. In other words, despite the reported increasing competition from Asian suppliers, many of which even enjoy duty-free market access to the EU market (such as through the EU Everything But Arms program), a substantial share of apparel sold in the EU markets are still locally made.

EU consumers’ preferences for “slow fashion” (i.e., purchasing less but for more durable products with higher quality) may contribute to the stable EU intra-region trade pattern. Many EU consumers also see textile and apparel as cultural products and do NOT shop simply for the price. This explains why Western EU countries such as Italy, Germany, and France rank the top apparel producers and exporters in the EU region despite their high wage and production costs.

Third, the Western Hemisphere (WH) supply chain faces significant challenges despite the seemingly growing popularity of “near-sourcing.” On the one hand, textile and apparel exporters in the Western-Hemisphere still rely heavily on the regional market. In 2019, respectively, as much as 79% of textiles and 86% of apparel exports from countries in the Western Hemisphere went to the same region. 

However, on the other hand, the Western-Hemisphere supply chain is facing increasing competition from Asian suppliers. For example, in 2019, only 22% of North, South, and Central American countries’ textile imports and 15% of their apparel imports came from within the Western Hemisphere, a new record low in ten years. Similarly, in the first eleven months of 2020, only 15.7% of US apparel imports came from the Western Hemisphere, down from 17.1% in 2019 before the pandemic. The limited local textile production capacity and the high production cost are the two notable factors that discourage US fashion brands and retailers from committing to more “near-sourcing” from the Western Hemisphere.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

In comparison, Asian countries supplied a new record high of 62.2% of textiles and 75% apparel to countries in the Western Hemisphere in 2019, up from 49.1% and 71.1% ten years ago. This trend suggests that as the competitiveness of “Factory Asia” continues to improve, even regional trade agreements (such as USMCA and CAFTA-DR) and their restrictive “yarn-forward” rules of origin have limits to protect the Western Hemisphere supply chain.

Additionally, many say that the reaching of RCEP creates new pressure for the new Biden administration to consider joining the CPTPP and strengthening economic ties with countries in the Asia-Pacific region. Notably, several USMCA and CAFTA-DR members, such as Mexico, also have RCEP or CPTPP membership. Apparel producers in these Western Hemisphere countries may find it more rewarding to access the cheaper textile raw material from Asia through CPTPP or RCEP rather than claiming the duty-saving benefits for finished garments under USMCA or CAFTA-DR. Like it or not, the Biden administration’s inaction will also have consequences. 

by Sheng Lu

Further reading: Lu, Sheng. (2021). Regional supply chains still shape textile and apparel trade. Just-Style

US Apparel Sourcing Trends to Watch in 2021

Key points:

  • Key themes in 2021: COVID-19+ trade policy
  • U.S. apparel imports continue to rebound, but uncertainty remains
  • Asia will remain the dominant apparel sourcing base
  • U.S. fashion companies are NOT giving up China as one of their essential apparel-sourcing bases, although companies continue to reduce their “China exposure” overall. Meanwhile, do NOT underestimate the impact of non-economic factors on sourcing.
  • No clear evidence suggests near sourcing from the Western Hemisphere is happening in a large scale
  • Watch Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These two mega-free trade agreements could shape new textile and apparel supply chains in the Asia-Pacific region.

FASH455 case study: Should the U.S. rejoin the Trans-Pacific Partnership (TPP)?

Background

  • The Trans-Pacific Partnership (TPP) was a proposed free trade agreement between the United States and eleven other countries in the Asia-Pacific region, including Malaysia, Peru, Australia, Vietnam, Mexico, Canada, Japan, Singapore, Brunei, Chile, and New Zealand.
  • Once TPP is implemented, tariffs for textiles and apparel traded between TPP members would be reduced to zero from their current rate (around 5%-10% for textiles and 10-30% for apparel). The tariff rate for trade between TPP members and non-TPP members (such as China) will remain unchanged. However, TPP would NOT provide additional import duty saving benefits for textile and apparel products traded between Mexico, Canada, and the United States because tariffs are already reduced to zero under the U.S.-Mexico-Canada Trade Agreement (USMCA or commonly called NAFTA 2.0).
  • TPP adopts the strict “yarn-forward” rules of origin for apparel items. This means that fibers may be produced anywhere, but each component starting with the yarn used to make the apparel garments must be formed within the TPP area so that the finished apparel can be qualified for the preferential duty-treatment provided by TPP.
  • Among the TPP members, Vietnam is already the second-largest apparel exporter to the United States. Despite the high tariff rate, the value of US apparel imports from Vietnam increased by 131% between 2010 and 2019, much higher than 17% of the world average. Vietnam’s shares in the US apparel import market also quickly increased from only 4.0% in 2005 to 16.8% in 2019 (and 20.2% from Jan to August 2020).
  • As a developing country, Vietnam relies on imported yarns and fabrics heavily for its apparel production. Over 97% of Vietnam’s textile imports come from Asian countries, including China, South Korea, Taiwan, and Japan. Less than 1% of Vietnam’s textile imports came from the United States in 2019. 
  • Meanwhile, thanks to foreign investments (mostly from Asia), Vietnam quickly builds its local textile manufacturing capacity. Notably, data from the World Trade Organization (WTO) shows that for the first time in history, Vietnam ranked the world’s seventh-largest textile exporter in 2019, climbing 8.3% from a year earlier to reach $8.8billion. If it can maintain this momentum, Vietnam will likely surpass South Korea and become the world’s sixth-largest textile exporter in just 1-2 years (around 2022-2023).  
  • President Trump announced to withdraw the United States from TPP in January 2017. However, the rest of the 11 members moved on and reached the agreement without the United States. The so-called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP without the US) was signed in March 2018 and officially took effect in December 2018. Much of the original TPP provisions remain intact in CPTPP.
  • China, one of the world’s largest apparel exporters and textile exporters, is actively exploring the possibility of joining CPTPP. Meanwhile, China plays an increasingly important role as a textile supplier for apparel-exporting countries in Asia over the past decade. In 2019, China supplied 57% of Vietnam’s textile imports, up from 26% in 2010.
  • China is also a member of the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement between ten member states of the Association of Southeast Asian Nations (ASEAN)* and five other large economies in the Asia-Pacific region (China, Japan, South Korea, New Zealand, and Australia).[Note: ASEAN members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam]. Studies suggest that RCEP will likely further strengthen China’s role as the primary textile suppliers for other RCEP members, including Vietnam.
  • Since CPTPP goes into effect, there have been growing calls for the new Biden administration to consider rejoining TPP (CPTPP). However, debates remain regarding the specific economic benefits and costs of doing so.  

Discussion question: from the perspective of the U.S. textile industry and U.S. fashion brands and retailers, why or why not the United States should rejoin TPP?

A Snapshot of Myanmar’s Apparel Industry and Export

First, the textile and apparel industry plays a significant role in Myanmar’s economy, particularly the export sector. Data from the UNComtrade shows that textile and apparel accounted for nearly 30% of Myanmar’s total merchandise exports in 2019, followed by footwear and luggage. Industry data also indicates that the textile, apparel, and footwear industry employed more than 1.1 million workers in Myanmar in 2018, up from only 0.3 million in 2016.

On the other hand, as a developing country, Myanmar highly depends on the imported textile raw material. As of 2019, nearly 83% of Myanmar’s textile imports came from China.

Second, since the United States lifted the import ban on Myanmar and the EU reinstated the Everything But Arms (EBA) trade preferences for the country in 2013, Myanmar has been one of the most popular emerging apparel sourcing bases among fashion companies.  From 2015 to 2019, Myanmar’s apparel exports to the world enjoyed an impressive 57% annual growth. Myanmar’s apparel exports to the EU (97% annual growth) and the United States (78% annual growth) have been growing particularly fast.

From 2019 to 2020, some of the top fashion brands that carry apparel items “Made in Myanmar” include United Colors of Benetton, Next, Only, Guess, Jack & Jones, and Mango.

Second, the reasons why fashion companies source apparel from Myanmar are multiple:

  • Thanks to foreign investment (e.g., nearly half of Myanmar’s garment factories are foreign-owned), Myanmar specializes in making relatively higher-quality functional/technical clothing (i.e., outwear like jackets and coats). This is different from many other apparel exporting countries like Bangladesh, Vietnam, and Cambodia, mostly exporting low-cost tops and bottoms.
  • Myanmar’s apparel exports were able to enjoy duty-free market access in the EU, Japan, and South Korea. Myanmar was also a beneficiary of the US Generalized System of Preferences (GSP) program. This explains why Myanmar’s apparel exports mostly go to the EU (56%), Japan and South Korea (30%), and the US (5.5%).
  • Relatively low production cost—garment workers earn around $85/month in 2019.

However, Myanmar still accounts for a tiny share in fashion companies’ total sourcing portfolio because of the size effect. For example, as of 2019, less than 0.1% of US and EU countries’ apparel imports came from Myanmar.

Third, western fashion brands could reevaluate their sourcing strategy from Myanmar because of its recent coup. Notably, in a new study, we find that apparel sourcing is not merely about “competing on price.” Instead, fashion companies give substantial weight to the factors of “political stability” and “financial stability” in their sourcing decisions—reputation risk matters. The country’s latest political instability will hurt Myanmar’s attractiveness as an apparel sourcing base, given many other alternatives out there.

Further, the international community, including the US and the EU, is considering new sanctions against Myanmar. Should Myanmar lose its EU’s EBA eligibility or no longer enjoy duty-free access to its key apparel export markets, the country’s apparel exports could be among the biggest losers. Notably, it could be challenging for Myanmar to find an alternative apparel export market during the pandemic. (for example, only 1.3% of Myanmar’s apparel exports went to China in 2019).

By Sheng Lu

Further reading:

Bangladesh Garments Manufacturer and Exporter Association (BGMEA) 2020 Sustainability Report

The full report is available HERE

Key findings:

The ready-made garment industry (RMG) is critical to Bangladesh economically. In 2018, RMG accounted for 84% of the country’s total exports and 11% of Bangladesh’s gross domestic product (GDP). The RMG industry supports about 4.1 million workers (including 65% female) in Bangladesh directly and additional 40 million workers through backward and forward linkage industries. North America and Europe are the two major destinations of RMG exports from Bangladesh.

Led by BGMEA, the Bangladeshi RMG industry has made efforts to improve in its social responsibility and environmental sustainability practices.

  • Specific initiatives include regularly monitoring workplace safety & compliance, providing social standards training for factories, offering guidance for sustainable use of natural resources and green buildings, and improving workers’ various benefits (such as fair wage, skill development, gender equality and better working condition).
  • The gender wage gap in Bangladesh was 2.2%, much lower than the 21.2% of the world average.
  • The Bangladeshi RMG industry has also made efforts to promote freedom of association and collective bargaining, an important aspect of human rights for workers defined by the International Labor Organization (ILO).  The number of trade unions in the RMG industry has increased from 138 in 2012 to around 800 in 2020.

The Bangladeshi RMG industry still faces several major challenges that need to be addressed. For example:

  • A lack of skilled labor force and skill development opportunities. In some cases, the RMG factory owners have to pay more costs than they assume due to the fact that unskilled workers need more working hours than skilled workers.
  • Pressure from competition and production cost. While RMG factories have to spend more on remediation and compliance investment, they are facing a declining selling price of their products. As a result, factories are struggling to maintain their social and environmental compliance while sustaining the business.
  • Looking into the future, international buyers sourcing apparel from Bangladesh care most about the country’s safe working conditions, fair wages to the workers, no use of forced or child labor, social and environmental sustainability, and good business environment. In comparison, workers in the Bangladeshi garment industry care most about fair wages, bonuses on due time, a safe working environment, overtime, and job security.

Summarzied by Hailey Levin

Outlook 2021– Key Issues to Shape Apparel Sourcing

In January 2021, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2021–Key Issues to Shape Apparel Sourcing Management Briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!

What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2021?

I see COVID-19 and market uncertainties caused by the contentious US-China relations as the two most significant challenges facing the apparel industry in 2021.

The difficulties imposed by COVID-19 on fashion businesses are twofold. First, with the resurgence of COVID cases worldwide, when and how quickly apparel consumption can rebound to the pre-COVID level remain hard to tell, particularly in leading consumption markets, including the United States and Europe. As the apparel business is buyer-driven, the industry’s full recovery is impossible without a strong return of consumers’ demand. Numerous studies also show that switching to making and selling PPE won’t be sufficient to make up for losses from regular businesses for most fashion companies.

Second, COVID-19 will also continue to post tremendous pressures on the supply side. In the 2020 Fashion Industry Benchmarking Study, which I conducted in collaboration with the US Fashion Industry Association (USFIA), the surveyed sourcing executives reported severe supply chain disruption during the pandemic. These disruptions come from multiple aspects, ranging from a labor shortage, a lack of textile raw materials, and a substantial cost increase in shipping and logistics. Even more concerning, many small and medium-sized (SME) vendors, particularly in the developing countries, are near the tipping point of bankruptcy after months of struggle with the order cancellation, mandatory lockdown measures, and a lack of financial support.  The post-covid recovery of the apparel business relies on a capable, stable, and efficient textile and apparel supply chain, in which these SME vendors play a critical role.

In 2021, fashion companies also have to continue to deal with the ramifications of contentious US-China relations. On the one hand, the chance is slim that the punitive tariffs imposed on Chinese products, which affect most textiles and apparel, will soon go away. On the other hand, we cannot rule out the possibility that the US-China commercial relationship will deteriorate further in 2021, as more sensitive, complicated, and structural issues began to get involved, such as national security, forced labor, and human rights. Compared with President Trump’s unilateral trade actions, the new Biden administration may adopt a multilateral approach to pressure China. However, it also means more countries could be “dragged into” the US-China trade tensions, making it even more challenging for fashion companies to mitigate the trade war’s supply chain impacts.

Meanwhile, I see digitalization as a big opportunity for the apparel industry, not only in 2021 but also in the years to come. Fashion brands and retailers will increasingly find digitalization ubiquitous to their businesses—like air and electricity. In 2021, I expect fashion companies will make more efforts to creatively use digital technologies to interact with consumers, make transactions, develop products, and improve consumers’ online shopping experiences. Thanks to the adoption of digital tools, apparel companies may also find new opportunities to improve sustainability, better understand their customers through leveraging data science, and develop a more agile and nimble supply chain. 

What’s happening with supply chains? How is the sourcing landscape likely to shift in 2021, and what can apparel firms and their suppliers do to stay ahead, remain competitive and build resilience for the future?

Apparel companies’ sourcing and supply chain strategies will continue to evolve in response to consumers’ shifting demand, COVID-19, and the new policy environment. Several trends are worth watching in 2021:

First, fashion companies’ sourcing bases at the country level will stay relatively stable in 2021 overall. For example, although it sounds a little contradictory, fashion companies will continue to treat China as an essential sourcing base and reduce their “China exposure” further, a process that has started years before the tariff war. Most apparel sourcing orders left China will go to China’s competitors in Asia, such as Vietnam, Bangladesh, and Cambodia. This also means that Asia, as a whole, will remain the single largest source of apparel imports, particularly for US and Asia-based fashion companies. In comparison, still, “near-sourcing” is NOT likely to happen on a large scale, mainly because “near-sourcing” requires enormous new investments to rebuild the supply chain, and most fashion companies do not have the resources to do so during the pandemic. 

Second, sourcing diversification is slowing down at the firm level, and more apparel companies are switching to consolidate their existing sourcing base. For example, as the 2020 USFIA benchmarking study found, close to half of the respondents say they plan to “source from the same number of countries, but work with fewer vendors” through 2022. Another 20 percent of respondents say they would “source from fewer countries and work with fewer vendors.” The results are understandable– competition in the apparel industry is becoming supply chain-based. Building a strategic partnership with high-quality vendors will play an ever more critical role in supporting fashion brands and retailers’ efforts to achieve speed to market, flexibility and agility, sourcing cost control, and low compliance risk. Thus, apparel companies find it more urgent and rewarding to consolidate the existing sourcing base and resources and strengthen their key vendors’ relations.

Third, apparel sourcing executives still need to keep a close watch on trade policy in 2021. However, we may see fewer news headlines about trade and more “behind the door” advocacy and diplomacy. Specifically:

  • US Section 301 actions: While the punitive tariffs on Chinese goods may not go away anytime soon, there could be a fight over whether the new Biden administration should continue granting certain companies exclusions from those tariffs. Further, in October 2020, the Trump Administration launched two new Section 301 investigations on Vietnam regarding its import and use of timber and reported “undervaluation currency.” The case is pending, but the stakes are high for fashion companies —Vietnam is often treated as the best alternative to sourcing from China and already accounting for nearly 20% of total US apparel imports.
  • The US-China relationship: We all know the relationship is at its low-point, but the fact is many US fashion companies still treat China as one of their most promising markets to explore. China continues to expand its role in the Asia-based textile and apparel supply chain also. In a nutshell, more than ever, apparel executives need to care about what is going on in geopolitics. Hopefully, “tough times can breed positive outcomes.”
  • CPTPP and RCEP: With the reaching of the Regional Comprehensive Economic Partnership (RCEP) in November 2020, there are growing calls for the new Biden administration to consider rejoining the Trans-Pacific Partnership (TPP) in some format to showcase the US presence in the Asia-Pacific region. To make the situation even more complicated, China has openly expressed its interest in joining the Comprehensive Progressive Agreement of the Trans-Pacific Partnership (CPTPP), commonly known as “the TPP without the US.” 2021 will be a critical time window for all stakeholders, including the apparel sector, to debate various trade policy options that could shape the future trade architecture in the Asia-Pacific region.
  • Brexit: Brexit will enter a new phase in 2021 as the transition period ends on 31 December 2020. On the positive side, we have a playbook to follow—the UK has announced its new tariff schedules for various scenarios, which provide critical market predictability. We might also see the reaching of a new US-UK free trade agreement in the first half of the year, which will be exciting news for the apparel sector, particularly those in the luxury segment. However, as the US Trade Promotion Authority (TPA) is set to expire in July 2021, when and how soon such an agreement will enter into force will be another story. By no means trade policy in 2021 will go boring.

by Sheng Lu

COVID-19 and U.S. Apparel Imports: Key Trends (Updated: January 2021)

First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. However, the speed of recovery slowed. Specifically, The value of U.S. apparel imports in November 2020 marginally went down by 0.3% from October 2020 (seasonally adjusted), compared with an 8.8% growth from Aug to September and a 4.6% growth from September to October (seasonally adjusted).

As of November 2020, the volume of U.S. apparel imports has recovered to around 85-90% of the pre-coronavirus level.  This result echoes the trend of U.S. apparel retail sales (NAICS 4481), which also indicates a “V-shape” rebound since May 2020.

Data further shows that compared with the 2008 world financial crisis, Covid-19 has caused a more significant drop in the value of U.S. apparel imports. However, it seems the post-Covid recovery process has been more robust than the 2009 financial crisis. The Auto Regressive Integrated Moving Average (ARIMA) model forecasts that at the current speed of recovery, the value of U.S. apparel imports (seasonally adjusted) could start to enjoy a positive year over year (YoY) growth by February 2021 (or around 11 months after the outbreak of Covid-19 in March 2020). In comparison, when recovering from the 2008 world financial crisis, it took almost 15 months to turn the YoY growth rate from negative to positive).

With the new lockdown measures taken in response to the resurgence of the Covid cases, the outlook of US apparel imports remains uncertain. It should also be noted that the period from December to April usually is the light season for apparel imports.

Second, supporting the findings of some recent studies, data suggests that U.S. fashion brands and retailers continue to reduce their “China exposure” in 2020. For example, both the HHI index and market concentration ratios (CR3 and CR5) suggest that apparel sourcing orders are gradually moving from China to other Asian countries.  Related, since August 2020, China’s market shares in total U.S. apparel imports have been sliding both in quantity and in value.

We should NOT ignore the impact of non-economic factors on China’s prospect as an apparel sourcing destination. For example, the reported forced labor issue related to Xinjiang, China, and a series of actions taken by the U.S. government (such as the CBP withhold release orders) have significantly affected U.S. cotton apparel imports from China. Measured by value, from January to November 2020, only 15.4% of U.S. cotton apparel came from China, compared with 22.2% in 2019 and 28% back in 2017. While China’s total textile and apparel exports to the US dropped by 32% in 2020 (Jan to Nov), China’s cotton textiles and cotton apparel exports to the US went down more sharply by 41.1% and 47.2%, respectively.

Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (19.8% YTD in 2020 vs. 16.2% in 2019), ASEAN (32.6% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.2% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.4% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 (Jan to Nov) from a year ago.

Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the U.S.-China tariff war. In the first eleven months of 2020, 9.4% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.4% from USMCA members (down from 4.5% in 2019). The limited local textile production capacity and the high production cost are the two notable disadvantages of sourcing from the region.

by Sheng Lu

Regional Comprehensive Economic Partnership (RCEP) and Textiles and Apparel

What is RCEP?

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between ten member states of the Association of Southeast Asian Nations (ASEAN)* and five other large economies in the Asia-Pacific region (China, Japan, South Korea, New Zealand, and Australia). RCEP was reached on November 15, 2020, after nearly eight years of tough negotiation. (Note: ASEAN members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. India was an original RCEP member but decided to quit in late 2019 due to concerns about competing with Chinese products, including textiles and apparel.)

So far, RCEP is the world’s largest trading bloc. As of 2019, RCEP members accounted for nearly 26.2% of world GDP, 29.5% of world merchandise exports, and 25.9% of world merchandise imports.

Hopefully, RCEP will enter into force as early as late 2021 or early 2022. Officially, RCEP will enter into force 60 days after at least six members approved the agreement through their respective domestic legislature; However, these six members must include three ASEAN members and three non-ASEAN members.

Why RCEP matters to the textile and apparel industry?

RCEP matters significantly for the textile and apparel (T&A) sector. According to statistics from the United Nations, in 2019, the fifteen RCEP members altogether exported US$374 billion worth of T&A (or 50% of the world share) and imported US$139 billion (or 20% of the world share).

In particular, RCEP members serve as critical apparel-sourcing bases for many US and EU fashion brands. For example, in 2019, close to 60% of US apparel imports came from RCEP members, up from 45% in 2005. Likewise, in 2019, 32% of EU apparel imports also came from RCEP members, up from 28.1% in 2005.

Notably, RCEP members have been developing and forming a regional textile and apparel supply chain. More economically advanced RCEP members (such as Japan, South Korea, and China) supply textile raw materials to the less economically developed countries in the region within this regional supply chain. Based on relatively lower wages, the less developed countries typically undertake the most labor-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets worldwide.

As a reflection of an ever more integrated regional supply chain, in 2019, as much as 72.8% of RCEP members’ textile imports came from other RCEP members, a substantial increase from only 57.6% in 2005. Nearly 40% of RCEP members’ textile exports also went to other RCEP members in 2019, up from 31.9% in 2005.

What are the key provisions in RCEP related to textiles and apparel?

First, RCEP members have committed to reducing the tariff rates to zero for most textile and apparel traded between RCEP members on day one after the agreement enters into force. That being said, the detailed tariff phaseout schedule for textile and apparel products under RCEP is very complicated. Each RCEP member sets their own tariff phaseout schedule, which can last more than 20 years (for example, 34 years for South Korea and 21 years for Japan.) Also, different from U.S. or EU-based free trade agreements, the RCEP phaseout schedule is country-specific. For example, South Korea sets different tariff phaseout schedules for textile and apparel products from ASEAN, China, Australia, Japan, and New Zealand. Japan’s tariff cut for apparel products is more generous toward ASEAN members and less so for China and South Korea (see the graph above). Companies interested in taking advantage of the duty-free benefits under RCEP need to study the “rules of the game” in detail.

Second, in general, RCEP adopts very liberal rules of origin for apparel products. It only requires that all non-originating materials used in the production of the good have undergone a tariff shift at the 2-digit HS code level (say a change from any chapters from chapters 50-60 to chapter 61). In other words, RCEP members are allowed to source yarns and fabrics from anywhere in the world, and the finished garments will still qualify for duty-free benefits.  Most garment factories in RCEP member countries can immediately enjoy the RCEP benefits without adjusting their current supply chains.

What are the potential economic impacts of RCEP on the textile and apparel sector?

On the one hand, the implementation of RCEP is likely to further strengthen the regional textile and apparel supply chain among RCEP members. Particularly, RCEP will likely strengthen Japan, South Korea, and China as the primary textile suppliers for the regional T&A supply chain. Meanwhile, RCEP will also enlarge the role of ASEAN as the leading apparel producer in the region.

On the other hand, as a trading bloc, RCEP could make it even harder for non-RCEP members to get involved in the regional textile and apparel supply chain formed by RCEP members. Because an entire regional textile and apparel supply chain already exists among RCEP members, plus the factor of speed to market, few incentives are out there for RCEP members to partner with suppliers from outside the region in textile and apparel production. The tariff elimination under the RCEP will put textile and apparel producers that are not members of the agreement at a more significant disadvantage in the competition. Not surprisingly, according to a recent study, measured by value, only around 21.5% of RCEP members’ textile imports will come from outside the area after the implementation of the agreement, down from the base-year level of 29.9% in 2015.

Further, the reaching of RCEP could accelerate the negotiation of other trade agreements in the Asia-Pacific region, such as the China-South Korea-Japan Free Trade Agreement. Many also say RCEP may create new pressure for the new Biden administration to strengthen the US economic ties with countries in the Asia-Pacific region, such as joining the CPTPP or negotiating new bilateral trade agreements. 

By Sheng Lu

Further reading

TAL Apparel in response to COVID-19

About TAL Apparel

TAL Apparel is one of the world’s largest apparel companies, with over 70 years of history.  Owned by Hong-Kong based TAL group, TAL Apparel employs about 26,000 garment workers in 10 factories globally, producing roughly 50 million pieces of apparel each year, including men’s chinos, polo tees, outerwear, and dress shirts. TAL Apparel claims it makes one in six dress shirts sold in the United States, including for well-known U.S. fashion brands such as Brooks Brothers, Bonobos, and LL Bean.

Other than owning factories in Asian countries such as Vietnam, China, Malaysia, Indonesia, and Thailand, TAL Apparel opened its first garment factory in Ethiopia in 2018 – based at the country’s flagship Hawassa Industrial Park. Among the reasons behind the decision is Ethiopia’s duty-free access to the US under the African Growth and Opportunity Act (AGOA), and to Europe under the Everything But Arms (EBA) initiative.

Discussion questions [Anyone is more than welcome to join our online discussions; For FASH455, please address at least two questions in your comment; please also mention the question number in your comment.]

  1. From TAL Apparel’s perspective, what are the major impacts of COVID-19 on the apparel industry, especially regarding sourcing and supply chain management? What are the key challenges apparel companies facing?
  2. How has TAL Apparel responded to COVID-19? What lessons can we learn from their experiences?
  3. From TAL Apparel’s story, how is the big landscape of apparel sourcing changing because of COVID-19?
  4. What long term business decisions apparel companies like TAL Apparel have to make, and what are your recommendations?
  5. Anything else you find interesting/intriguing/surprising/enlightening from the video?

Sourcing Strategy Comparison: EU VS. US Fashion Companies—Comments from Students in FASH455

“Hugo Boss’s sourcing strategies are relatively different from fashion brands and retailers in the US. Hugo Boss’s self-owned production facilities are all located in Europe, and they follow the general trend of Eastern Europe being responsible for mass production items and Western Europe being responsible for more of the fine craftsmanship/made-to-measure items. Hugo Boss’s production distribution, which is 53% in Europe, 40% occurs in Asia, 6% in Africa, and 1% in the Americas, is much more diverse than the production distribution of the United States’ T&A industry, which heavily relies on Asian suppliers. It is indicative of a strong regional supply chain in Europe, and because the regional supply chain in the Americas is not as strong due to complicated trade agreements and lack of production capacity, many fashion brands and retailers heavily depend on overseas production from Asian countries. “

“I think that EU’s sourcing strategies are different from the U.S.’s sourcing strategy in the sense that it is kept within Europe. In the U.S., they are currently trying to bring the sourcing supply chain back to the Western Hemisphere, but it is very difficult for fashion brands to concede when sourcing is cheaper in Asia, and there is not enough labor who are trained for the work that they need. Over at the EU, with everything kept within the organization, it is a lot easier to find factories within different countries without reducing GDP since it is kept within the organization.”

“I think that one of the biggest differences between EU and US fashion brand’s sourcing strategies is the fact that there is a much higher luxury or high-end apparel market in the EU. Since they produce mostly luxury apparel products, they naturally place a lot more emphasis on the quality of their products being made rather than the quantity and speed of production. Since the US is more fast-fashion heavy, we do a lot more outsourcing of production so retailer’s are able to produce as many clothes as possible within a short period of time at a very low cost which is simply not achievable in many US clothing factories.”

“Hugo Boss pays close attention to where they are sourcing from and where each of their products should be made within their 4 production facilities. This stuck out to me because I don’t know how many US fashion brands have their own production facilities. I know a lot of brands outsource to countries like China and Bangladesh to factories who are also making clothing for many different brands.”

EU has developed countries as well as developing countries, unlike the US. Western EU countries like Italy, France, UK and Germany are developed and focus more so on textile production. Whereas developing countries in the EU like Poland and Hungary focus more heavily on apparel manufacturing. In addition, unlike the US, the developed countries in EU also produce apparel exports, of high level, luxury goods.”

“It seems that in the EU the main focus is quality and social standards for these fashion brands and production. In the US, promoting local economic growth seems to be more of the focus of the free trade agreements. Sourcing for HUGO BOSS at least has strategically chosen factories where they can ensure quality checks and know how to conditions are. In the US, outside of the region, it seems that there are a lot of brands who do not know their secondary producers…”

“As the EU is more focused on production in high end markets than is the US, they (EU fashion companies) source more high-end quality fabrics. Progress has been made through technological advances, as the HUGO BOSS group developed the “smart factory” to further improve the quality of their fabrics and recognize any potential flaws before production. This stood out to me as a major difference, considering the US focuses on producing more fast-fashion goods and prioritizes high productivity overall quality garments. Also, they are more careful in their selection of suppliers and strive to build more long-term relationships with their suppliers. In comparision, most US fashion companies just try to produce as cheap and fast as possible through a short-term transctional-based importer-vendor relationship.”

“I think the sourcing strategies are similar to the U.S. in the fact that they source from various countries, creating this sense of “Made in the World.” However, there are differences as well. HUGO BOSS uses their own production facilities in addition to sourcing from other countries which is something we do not see often in the US. In fact, most brands and retailers in the US do not have their own production facilities or vertical supply chain, but instead source from overseas. Additionally, HUGO BOSS carefully selects their suppliers and immediately focus on social responsibility. US sourcing strategies seem to emphsis more on finding a factory with the lowest labor costs. EU brands and retailers, on the other hand, test their suppliers with test orders before selecting them as a supplier for the brand, and immediately develop social responsibility practices, such as trainings and building relationships. In the US, brands and retailers tend to focus on social responsibility in response to bad press and typically do so by a top-down approach.”

“The sourcing strategy in the Europe cares more about social impact. Retailers and brands there promote and educate their suppliers to be sustainable and take over their social responsibility. Another one is the European fashion retailers and brands are more likely to locate their product facilities within the Europe. Since the Europe does have a relatively stable and complete supply chain, the retailers and brands are able to saving transportation cost and expand the lead time. Third, the technology becomes an important factors for retailers and brands to consider. They are attempting to utilize technology to enhance the performance and their production process. “

“Hugo Boss strives to be the most desirable fashion and lifestyle brand in the premium sector. This shows in their emphasis on design, comfort, fit, and durability, as well as being mindful of their social and environmental impacts. They maintain long term relationships with a careful selection of suppliers, demand social compliance, and stay up to date with their “smart factory” aka AIs to speed up production and quality. They also source heavily from Asia, but also developed countries such as Italy and Germany. These values and practices are manifested in American brands, however, I believe we aren’t as extensive with sourcing from developed countries (such as Italy). From what I have learned thus far, it seems we source from countries close by and/or developing, but not so much mingling with luxury known countries, such as France or Italy (and if we do, the prices are expensive, and American customers don’t want to pay higher prices). We (US), too, source heavily from Asia, because it is cheap, and still focus internally on our own country when it comes to being more competitive in technological advancements. American and EU consumers alike value transparency in the clothing brands they buy from, and American brands are mindful of this, too. I would say we are more alike than different.”

[Please feel free to critique the comments above and join our online discussion]

Related readings

COVID-19 and U.S. Apparel Imports: Key Trends (Updated: November 2020)

First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. The value of U.S. apparel imports in September 2020 went up by 8.8% from August 2020 (seasonally adjusted), a new record high since March 2020 when COVID-19 broke out in the States. As of September 2020, the volume of U.S. apparel imports has recovered to around 84-85% of the pre-coronavirus level.  This result echoes the trend of U.S. apparel retail sales (NAICS 4481), which also indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports hopefully will last for another 1-2 months.

Data also shows that compared with the 2008 world financial crisis, Covid-19 has caused a more significant drop in the value of U.S. apparel imports. However, it seems the post-Covid recovery process has been more robust than the 2008 financial crisis. Notably, the Auto Regressive Integrated Moving Average (ARIMA) model forecasts that at the current speed of recovery, the value of U.S. apparel imports (seasonally adjusted) could start to enjoy a positive year over year (YoY) growth by February 2021 (or around 11 months after the outbreak of Covid-19 in March 2020). In comparison, when recovering from the 2008 world financial crisis, it took almost 15 months to turn the YoY growth rate from negative to positive.

Second, still, no evidence suggests that U.S. fashion companies are giving up China as one of their essential apparel-sourcing bases. Notably, since May 2020, China had quickly regained its position as the top apparel supplier to the U.S. market. From June to September 2020, China’s market shares have stably stayed at around 27-28% in value and 40-42% in quantity.

According to the media, some sourcing orders are returning to China as China’s competitors in Asia are struggling with more limited production capacity, shortage of raw material and supply chain disruption caused by Covid-19.

CR5 (exclude China) includes Vietnam, Bangladesh, Indonesia, India and Cambodia

That being said, trade data suggests that U.S. fashion companies continue to reduce their “China exposure” overall. For example, both the HHI index and the market concentration ratios (CR3–total market shares of top 3 suppliers and CR5–total market shares of top 5 suppliers) indicate that apparel sourcing orders are gradually moving from China to other Asian countries–it is interesting to see HHI, CR3 and CR5 all suggest a more diversified apparel sourcing base in 2020 (Jan-Sep) than in 2018 and 2019; however, the value of CR5 (exclude China) reached a new record high in 2020 (Jan-Sep).

Third, related to the point above, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.0% YTD in 2020 vs. 16.2% in 2019), ASEAN (33.1% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.4% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.4% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.

Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first nine months of 2020, only 9.1% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.4% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first nine months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 26% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the major contributing factors.

Just an anecdote–according to some industry insiders, the booming of E-commerce during the pandemic may also possibly explain why “near sourcing” is not reflected in trade data despite its reported growing popularity. Specifically, US fashion retailers would:1) import products from Asia and stock them in the bonded warehouses in Mexico (note: bonded warehouse means dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty). 2) When US consumers place orders, the retailer will ship products directly from these bonded warehouses in Mexico to the final destination. Most importantly, retailers could take advantage of the US de minimis rule (i.e., goods valued at $800 or less could enter the U.S. duty-free one person one day) and avoid paying tariffs– even though these products are counted as imports from Asian countries that do not have a free trade agreement with the United States. In other words, these products are not officially treated as imports from Mexico even though they are shipped from bonded warehouse in Mexico.

by Sheng Lu

Battling the Trade War and COVID-19: Rethinking Global Supply Chains in a Time of Crisis

Speaker: Wilson Zhu, the Chief Operating Officer of Li & Fung

Event summary:

  • The originator of the US-China trade war was not actually about the “trade deficit”, but rather a lack of “trust” between the two countries.
  • Trade deficit could be a “misleading concept”–while the iPhone was claimed to be “Made in China”, it wasn’t manufactured there at all—instead, China only played the role of a “middle-man of the supply chain.” Such a misunderstanding is within the ancient country of origin rules used in international trade.
  • The “Made in China” label is becoming “obsolete.” As China continues to expand its supply chain globally, ports in China are evolving into “managers” of products “Made in the world.”
  • Despite the tariff war and the pandemic, interestingly enough, it seems some apparel sourcing orders are returning from India and Vietnam to China. Further, China’s emergence as a lucrative apparel consumption market implies huge business opportunities for fashion brands and retailers.
  • There is still great hope for the global apparel supply chain in the post-Covid world. Less economically developed countries like Vietnam are now mimicking the former industrialization of China in its factories with the help of advanced technology. And, the United States continues to advance the efficiency and sophistication of its textile production.  It seems that all in all, the only way to make it through this crisis successfully, is through global collaboration, not conflict.

(summarized by Andrea Attinello)

USMCA: Changes for the Textile and Wearing Apparel Industries

Video credit: U.S. Customs and Border Protection

From findings of the 2020 USFIA Fashion Industry Benchmarking Study :

The surveyed U.S. fashion companies demonstrate more readiness and interest in using the US-Mexico-Canada Trade Agreement (USMCA) for apparel sourcing purposes in 2020 than a year ago:

For companies that were already using NAFTA for sourcing, the vast majority (77.8 percent) say they are “ready to achieve any USMCA benefits immediately,” up more than 31 percent from 2019.

Even for respondents who were not using NAFTA or sourcing from the region, about half of them this year say they may “consider North American sourcing in the future” and explore the USMCA benefits.

Nevertheless, when asked about the potential impact of USMCA on companies’ apparel sourcing practices, some respondents expressed concerns about the rules of origin changes. These worries seem to concentrate on denim products in particular. For example, one respondent says, “USMCA changes negatively affects our denim jeans sourcing particularly with the new pocketing rules of origin.” Another adds, “Denim pocketing ROO change is a concern but manageable.” 

It also remains to be seen whether USMCA will boost “Made in the USA” fibers, yarns, and fabrics by limiting the use of non-USMCA textile inputs. For example, while the new agreement expands the Tariff Preference Level (TPL) for U.S. cotton/man-made fiber apparel exports to Canada (typically with a 100 percent utilization rate), these apparel products are NOT required to use U.S.-made yarns and fabrics.

Related readings:

New ILO Report: The supply chain ripple effect– How COVID-19 is affecting garment workers and factories in Asia and the Pacific

The full report is available HERE. Key findings:

1. The garment industry in the Asia-Pacific region is particularly vulnerable to the adverse impact of COVID-19 because of the size of the industry present and the high stakes involved. Notably, garment workers (over 60 million in total, including 35 million women) accounted for 21.1% of the manufacturing employment in the region as of 2019. Over 60% of the world’s apparel exports currently come from the Asia-Pacific region.

2. The cumulative impacts of COVID-19 on garment supply chains have been both far-reaching and complex: 1) As of September 9, 2020, more than 31 million garment workers in the Asia Pacific region were still affected by factory closure (i.e., mandatory closures of non-essential workplaces). 2) The drop in consumer demand and the decline in retail sales in the primary apparel consumption markets across the world have affected garment workers in the Asia-Pacific region negatively. As of September 9, 2020, 49% of all jobs in the Asia-Pacific garment supply chains (29 million) were dependent on demand for garments from consumers living in countries with the most stringent lockdown measures in place. Another 31 million jobs (51%) depended on consumer demand that is based in countries with a medium level of lockdown measures in place. 3) COVID-19 has further caused supply chain disruptions and prevented imported inputs into garment production from arriving in time. The heavy reliance on textile raw material supply from China makes many apparel producing countries in South-East Asian countries highly vulnerable to shortages of inputs.

3. The world apparel trade has fallen in the first half of 2020 sharply. This includes a 26% YoY drop in the US, a 25% drop in the EU, and a 17% drop in Japan. However, the timing and magnitude of these import declines vary significantly — China’s exports started to drop first at the beginning of the year,2020. Then, the exports from Vietnam, Bangladesh, Indonesia, and India began to decrease also since February (a joint effect of the shortage of raw material + decreased import demand). Data further shows that the drop in world apparel trade has been more significant than other products in the first half of 2020.

4. Apparel suppliers in the Asia Pacific region have been struggling with order cancellations AND longer payment terms insisted on by Western fashion brands and retailers. Garment factories say that they don’t have the leverage to ‘push back’ against these changes to contract terms and buyer policies.

5. Thousands of garment factories in the Asia-Pacific region closed at least temporarily because of COVID-19, some of them indefinitely. For example, In Cambodia, approximately 15-25% of factories had no orders at the end of the June 2020. Likewise, around 60% of garment factories in Bangladesh reported closing for more than 3 weeks. Related, layoffs have been widespread. For example, according to Indonesia’s Ministry of Industry, approximately 30% of their apparel and footwear workforce had been laid-off by July 2020 (812,254 in total). In Cambodia, approximately 15% of their garment workers (more than 150,000 workers) were reported to have lost their jobs during the pandemic. Further, garment factories have been operating at reduced capacity during the pandemic. For example, in Bangladesh, as of July 2020, the proportion of workers returning to work after re-opening was only 57% of the pre-pandemic level. Similarly, in Vietnam, as of July 2020, the proportion of workers returning to work after re-opening was also just around 50% of the pre-pandemic level.

Related reading:

COVID-19 and U.S. Apparel Imports: Key Trends (Updated: October 2020)

First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. The value of U.S. apparel imports in August 2020 went up by 7.6% from July 2020 (seasonally adjusted), a new record high since March 2020 when COVID-19 broke out in the States. As of August 2020, the volume of U.S. apparel imports has recovered to around 80% of the pre-coronavirus level.  This result echoes the trend of U.S. apparel retail sales (NAICS 448), which also indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports hopefully will last for another 1-2 months.

Nevertheless, between January and August 2020, the value of U.S. apparel imports decreased by almost 30% year over year, which has been MUCH worse than the performance during the 2008-2009 global financial crisis (down 11.8%).

Second, no evidence suggests that U.S. fashion companies are giving up China as one of their essential apparel-sourcing bases. Notably, since May 2020, China had quickly regained its position as the top apparel supplier to the U.S. market. From June to August 2020, China’s market shares have stably stayed at around 27-28% in value and 40-42% in quantity.

Some industry sources show that “Made in China” enjoys two notable advantages that other apparel supplying countries cannot catch up in the short term. 1) unparalleled production capacity, meaning importers can source almost all products in any quantity from China vs. more limited production capacity (both in terms of variety and volume) in other alternative sourcing destinations. 2) China can mostly produce textile raw material locally vs. many apparel exporting countries still rely heavily on imported yarns and fabrics (supplied by China).

However, non-economic factors, particularly the reported Xinjiang forced labor issue, are complicating fashion companies’ sourcing decisions. Notably, US cotton apparel imports from China year-to-date (YTD) in 2020 (Jan to August) significantly decreased by 54% from a year ago, much higher than the 22% drop in US imports from the rest of the world.  As a result, China’s market share in the US cotton apparel import market sharply declined from 22% in 2019 to only 15.1% in 2020 (Jan-Aug), a record low in the past ten years. This unusual trade pattern suggests that the concerns about social compliance risk are holding US fashion companies back from sourcing cotton apparel products from China. As the forced labor issue continues to evolve and become ever more sensitive and high profile, it is not unlikely that US fashion companies may substantially cut their China sourcing further, even if it is not a preferred choice economically.

Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.2% YTD in 2020 vs. 16.2% in 2019), ASEAN (33.6% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.6% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.5% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.

Likewise, thanks to a highly integrated regional textile and apparel supply chain, Asian countries all together were able to maintain fairly stable market shares on the world stage over the past decade despite all market disruptions, from the financial crisis, trade war to the wage increase.

Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first seven months of 2020, only 8.9% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.1% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first eight months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 28.0% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the contributing factors.

Further, industry sources show that the apparel products U.S. fashion companies import from members of USMCA and CAFTA-DR predominantly are tops and bottoms. The lack of production capacity for other product categories significantly limits the growth potential of these countries playing the role as a leading sourcing base.

by Sheng Lu

State of the U.S. Textile and Apparel Industry: Output, Employment, and Trade (Updated October 2020)

The size of the U.S. textile and apparel industry has significantly shrunk over the past decades. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $18.79 billion in 2019, up 23.8% from 2009. In comparison, U.S. apparel manufacturing dropped to $9.5 billion in 2019, 4.4% lower than ten years ago (Bureau of Economic Analysis, 2020).

Meanwhile, COVID-19 has hit U.S. textile and apparel production significantly. Notably, the value of U.S. textile and apparel output decreased by as much as 21.4% and 14.9% in the second quarter of 2020, respectively, compared with a year ago. This result was worse than a 15% decrease during the 2008-2009 world financial crisis.  Further, the decline in U.S. textile exports is an essential factor contributing to the significant drop in U.S. textile manufacturing. In the first seven months of 2020, the value of U.S. yarn and fabric exports went down by 31% and 19%, respectively, year over year (OTEXA, 2020). 

Additionally, as the U.S. economy is turning more mature and sophisticated, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.13% in 2019 from 0.57% in 1998 (Bureau of Economic Analysis, 2020).

The U.S. textile and apparel manufacturing is also changing in nature. For example, textile products had accounted for over 66% of the total output of the U.S. textile and apparel industry as of 2019, up from 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some emerging markets that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven.

As production turns more automated, the U.S. textile and apparel manufacturing sector is NOT creating more jobs. Even before the pandemic, from January 2005 to January 2020, employment in the U.S. textile manufacturing (NAICS 313 and 314) and apparel manufacturing (NAICS 315) declined by 44.3% and 59.3%, respectively (Bureau of Labor Statistics, 2020). However, improved productivity (i.e., the value of output per employee) could be a critical factor behind the net job losses.

Data further shows that COVID19 has resulted in more than 83,700 job losses in the U.S. textile and apparel manufacturing sector between March-April 2020, of which around 80% have returned as of September 2020. Nevertheless, the downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector.  

Consistent with the theoretical prediction, U.S. remains a net textile exporter and a net apparel importer. In 2019, the U.S. enjoyed a $1,633million trade surplus in textiles and suffered an $80,637 million trade deficit in apparel (USITC, 2020). Notably, nearly 40% of textiles “Made in the USA” (NAICS 313 and 314) were sold overseas in 2019, up from only 15% in 2000 (OTEXA, 2020). On the other hand, because of the regional supply chain, close to 70% of U.S. textile and apparel export go to the western hemisphere, a pattern that stays stable over the past decade.

by Sheng Lu

Discussion questions:

  • Why or why not do you think the U.S. textile industry (NAICS 313 +314) and the apparel industry (NAICS 315) are in good shape?
  • Based on the statistics, do you think textile and apparel “Made in the USA” have a future? Please explain.
  • What are the top challenges facing the U.S. textile industry and the apparel industry in today’s global economy and during the COVID19?

Fashion Education in China: An Exclusive Dialogue with Fashion Majors from the Donghua University (October 2020)

 

(Student fashion show–from College of Fashion and Design at DHU)

To enhance students’ global awareness and facilitate cross-cultural exchange, we are very pleased to have several special guests from the Donghua University (DHU) to answer questions proposed by FASH455 students regarding the fashion education in China. Donghua University (DHU), located in downtown Shanghai and formerly known as the China Textile University, has one of the oldest and most prestigious fashion programs in China.

  • Luo Wang: a Ph.D. student at the College of Fashion and Design at DHU. Luo received her B.S. in fashion design and engineering from DHU and was an exchange student at the North Carolina State University, College of Textiles.
  • Caixia Chen: a Ph.D. student at the College of Fashion and Design at DHU. Caixia received her B.S. in fashion design and engineering from DHU as well. Her research interests include fashion marketing and fashion supply chain management.
  • Zongyu Xiong: an M.S. student in the College of Fashion and Design at DHU. Her research interests include cost management in the fashion supply chain.
  • Jingjing Wang: a freshman majoring in Fashion Design and Engineering in the College of fashion and design at DHU.
  • Bai Li: Bai received her B.S. in fashion design and engineering from DHU and M.S. in Fashion and Apparel Studies from UD. Currently, Bai is a Ph.D. student at UD studying functional apparel design and physical therapy. 

Question from FASH455: Why do you choose to be a fashion major—personal interest or guaranteed job offer?

Luo Wang: For me, it is personal interest. Both my bachelor and master degrees were in fashion design. I was interested in the development of the luxury apparel market in China. As China’s economy continues to grow, I have been studying the purchasing behaviors of Chinese consumers for apparel as well.

Caixia: Personal interest.

Zongyu: Personal interest is the main reason above all. And I also hope that I can engage in fashion-related jobs in the future.

Jingjing: I choose to be a fashion major because of my personal interest. But my future work may not be in the fashion area.

Bai Li: Both–personal interest in fashion and a kind of guaranteed job offer because of the engineering component of the major.

Question from FASH455: What classes do you take as a fashion major in China?

Luo Wang: At the Donghua University, we have two departments in the College of Fashion and Design. One is fashion design, and the other is apparel engineering. I was a design major. For my undergraduate studies, I have taken Design Introduction, fashion design, pattern making, Apparel Production, and Marketing Management, Apparel Making Basic Techniques,Fashion Illustration,Computer-Aided Fashion Illustration,Apparel Making Techniques,Apparel Accessory Design,Clothing CAD,Apparel Accessory Design.

For my graduate studies, I have taken Branded Fashion Exertion, Fashion Accessories Art Design, Design management, History of Art Design, Branded Fashion Design, Fashion Brand Constitution, Fashion Comments, Western Modern Art, and Western Art Literary Theory.

Caixia: Fashion marketing, fashion manufacture management, fashion buyer, fashion English, Fashion trade, fashion forecasting, draping, and pattern-making.

Actually, the Donghua Universty offers two fashion majors. One is fashion design which focuses on design. The students majored in fashion design are good at drawing. Another one is fashion engineering, which focuses on draping, pattern-making, fashion trade, fashion marketing etc.

Zongyu: Global marketing of clothing, Market research and forecast, Consumer psychology, Clothing Materials, CAD, Fashion Illustration, Clothing craft, Draping, and some theoretical course.

Jingjing: So far I’ve taken clothing marketing and merchandising, garment production management, fashion retail management, etc..

Bai Li:  1) Engineering basic courses: chemistry, physics, electrical and electronic engineering, and C programming, etc. 2) Fashion design courses: pattern making, trend forecasting, draping, clothing materials, etc. 3) Senior thesis and senior collections for the fashion show

Question from FASH455: What is the percentage of fashion majors in your school that receive job offers immediately after finishing their studies?

Caixia: As I know,  around 100 fashion engineering majors graduate from the college of fashion and design at DHU every year. Among them, about 50% receive job offers immediately after finishing their studies, and about 20% will continue to pursue a master degree in China. Another 20% will choose to study abroad.

Zongyu: According to the official statistics released by DHU, the employment rate reached 92.18% for the total 729 class of 2015 graduated from the college of fashion and design.

Jingjing: About 90%.

Question from FASH455: How do your professors tell you about the fashion industry in the United States?

Luo Wang: We were told that a notable competitive advantage of the U.S. fashion industry is in marketing and business strategy. As we know, U.S. has the world’s top business schools and MBA programs; I think this is why our professors told us we need to learn more about the business strategy of U.S. fashion companies.

Caixia: U.S. is one of the largest textile and apparel importers in the world. China — by far is the largest supplier of textiles and apparel to the U.S..

Zongyu: I’m sorry for my limited knowledge. I just know a little about the recent trend of American textile industry moving back to the U.S..

Jingjing: The fashion industry in the United States is quite developed, and it has an important place in the world. However, it also meets bottlenecks at its present development stage. Some classic brands are managed less well than in previous years.

Bai Li: Not much…some professors had limited knowledge of the fashion industry in the States.

Question from FASH455: How do you think globalization has affected China, especially its textile and apparel industry?

Luo Wang: In my opinion, globalization is a double-edged sword that brings China both changes and opportunities. The low labor cost was a significant advantage of the apparel industry in China. With the deepening of globalization, however, China has been strengthening the enforcement of regulations in the social aspects, which focus on improving worker’s welfare and meeting the international labor standards. As a result, China is gradually losing the advantages in labor cost compared with many other developing countries. On the other hand, an opportunity for the apparel industry in China is that we begin to pay more attention to the building of our indigenous fashion brands rather than making knockoffs.

Caixia: It is of grave concerns to some Chinese manufacturers that more and more international buyers now switch to source from lower-cost countries such as Bangladesh and Vietnam. However, in my opinion, Chinese manufacturers still enjoy competitive advantages. For example, Chinese suppliers can provide better quality products and more value-added services. Furthermore, by adopting new technologies, Chinese factories are able to offset the impact of increased production cost through improved efficiency and product quality.

On the other hand, globalization has made it more difficult for Chinese fashion companies to develop its own brands. In particular, the local Chinese fashion brands are facing grant challenges with the flood of international brands into the Chinese market.

Zongyu: For Chinese companies,  globalization not only has resulted in more competitive pressures but also has created more opportunities to get access to the world marketplace.  Chinese companies realize that they have to embrace a global version and develop high quality and innovative products so as to stand out from the market competition.

In terms of the Chinese consumers, globalization has brought them with more choices of better quality and lower-priced products.

Jingjing: Globalization is a two-edged sword, creating both opportunities and challenges for China. In the past, low-cost labor is a major competitive advantage for China. But now China’s cost advantage is gradually diminishing compared with other less developed countries whereas China is still not “strong enough” to compete on technology with advanced economies.

Bai Li: Of course, globalization has created many new job opportunities in China but also has caused some labor and environmental issues.

Questions from FASH455: What are the working conditions of garment factories in China?

Caixia: The working condition in China’s garment factory has improved significantly as you can see from the pictures below. Automation and technology advancement also play an important role.

4

IMG_1291

IMG_1292

Zongyu: Dragons and fishes jumbled together, meaning there are companies in either good or bad conditions. But compared with the past, working conditions in the Chinese garment factories overall have much improved. Most factories have met the 5S (5s is the name of a workplace organization method that uses a list of five words: sort, set in order, shine, standardize and sustain) or 6S(5s plus safety) requirements.

Jingjing: Following the principle of 5s management, Chinese garment factories overall are getting cleaner, more orderly and more modernized.

Question from FASH455: Does it bother the Chinese people that American companies send work to China to produce cheap labor?

Zongyu: It is just my personal view: exporting textile and apparel is necessary for China as a developing country to generate economic growth and create job opportunities. But China is also transforming and upgrading its economy.

Jingjing: I think it is a normal phenomenon in the developing world. Actually, Chinese companies have started to offshore production to less developed countries with cheaper labor.

Anything else you would like to share with our students? 

Luo Wang: As a pillar industry supporting China’s exports and foreign exchange earnings, the textile and apparel industry is a sector of strategic importance to China’s national economy. You can find the world’s most complete textile and apparel supply chain in China, from material planting to retailing. I would strongly recommend you to come and visit China, from its garment factories in Guangdong province (located in the South Part of China), online apparel retail businesses in Zhejiang Province (for example, Alibaba), to Shanghai where you can enjoy the most novel way of clothing shopping. Further, in today’s supply-chain based economy, China plays a critical role in linking the textile and apparel industry around the world. I am sure understanding China will help you shape a big picture of the global textile and apparel industry and beneficial for your future careers.

Questions from our DHU guests for FASH455 students:

  1. What do Americans think of “Made in China” today?
  2. Do the classes you take help with your career preparation?
  3. Have you taken any internship classes at UD? What did you do?