According to Primark, it does not own any factories but sources all apparel products from contracted factories. Any contracted factory that manufactures products for Primark must meet internationally recognized standards before receiving the first sourcing order.
As of October 2022, Primark sourced from 883 contracted factories in 26 countries (note: it was a slight decline from 928 contracted factories in 28 countries as of May 2021). Of these factories, 85.5 percent were Asia-based because of the region’s massive production capacity and a balanced offer of various sourcing factors, from cost, speed to market, and flexibility to compliance risks.
Like many other EU-based fashion companies, near-shoring from within the EU was another critical feature of Primark’s sourcing strategies. About 14 percent of Primark’s contracted garment factories were EU-based (including Turkey).
Measured by the number of workers, Primark’s Asian factories were larger than their counterparts in other parts of the world. For example, while Primark’s factories in Pakistan and Bangladesh typically have more than 2,500+ workers, its factories in Western EU countries like the UK, Germany, Italy, and France, on average, only have 64-200 workers. This pattern suggests that Primark mainly uses Asian factories to fulfill volume sourcing orders, and its EU factories mainly produce replenishment or more time-sensitive fashionable items.
Meanwhile, similar to the case of other retailers like PVH, Primark’s contracted garment factories in China were smaller than their peers in the rest of Asia. For instance, while over 90% of Primark’s garment factories in Bangladesh employ more than 1,000 workers, around 43% of their contracted factories in China have fewer than 100 workers. This pattern suggests Primark could use China as an apparel sourcing base primarily for orders requiring greater flexibility and agility and those involving a wider variety of products but in smaller quantities.
Further, reflecting the unique role of the garment industry in creating economic opportunities for women, females account for more than half of the workforce in most garment factories that make apparel for Primark. The percentage was exceptionally high in developing countries like Tunisia (94%), Morocco (91%), Pakistan (69%), Sri Lanka (69%), Myanmar (64%), India (62%), and Vietnam (59%).
According to Primark (as of September 2023), its Ethical Trade and Environmental Sustainability team comprises over 120 specialists based in key sourcing countries. The team conducts around 3,000 supplier audits a year to monitor compliance (i.e., fair pay, safety, and healthy working conditions.) Additionally, Primark says its factories were in line with the company’s environmental code of conduct, and the company “donated any unsold merchandise to the Newlife Foundation in Europe and KIDS/Fashion Delivers in the US.
by Sheng Lu
Discussion questions:
What are the unique aspects of Primark’s apparel sourcing strategies? What role does sourcing play in supporting Primark’s business success? Any questions or suggestions for Primark regarding its sourcing practices?
Discussion questions: What factors contribute to the complexity of eliminating banned Xinjiang cotton from the apparel supply chain? How can the current efforts be enhanced to better address the situation and by whom? Feel free to share any other reflections on the video and the graphs.
#1 What are the examples of globalization in the above two videos about Temu?
#2 Based on the videos, who are the winners and losers of globalization and why?
#3 What role does international trade play in Temu’s business model?
#4 Some suggest ending the “de minimis rule.” Based on the videos, what is your view and recommendation for US policymakers?
#5 Anything you find interesting/surprising/intriguing in the video and why?
(Note: Anyone is welcome to join the discussion. For students in FASH455, please address at least two questions. Please mention the question number in your response, but there is no need to repeat the question).
Note: About “de minimis rule.”: Under US customs law, specifically the Trade Facilitation and Trade Enforcement Act of 2015, import duties are generally waived for goods valued at $800 or less per person per day. Therefore, Temu’s shipping from China to US consumers is likely to be eligible for the benefits.
This article comprehensively reviewed the world textiles and clothing trade patterns in 2022 based on the newly released World Trade Organization Statistical Review 2023 and data from the United Nations (UNComtrade). Affected by the slowing world economy and fashion companies’ evolving sourcing strategies in response to the rising geopolitical tensions, mainly linked to China, the world’s textiles and clothing trade in 2022 displayed several notable patterns different from the past.
Pattern #1: The expansion of world clothing exports witnessed a notable deceleration in 2022, primarily attributed to the economic downturn. Meanwhile, the world’s textile exports decreased from the previous year, affected by the reduced demand for textile raw materials used to produce personal protective equipment (PPE) as the pandemic waned.
The world’sclothing exports totaled $576 billion in 2022, up 5 percent year over year, much slower than the remarkable 20 percent growth in 2021. The slowed economic growth plus the unprecedented high inflation in major apparel import markets, particularly the United States and Western European countries, adversely affected consumers’ available budget for discretionary expenditures, including clothing purchases.
The world’s textile exports fell by 4.2 percent in 2022, totaling $339 billion, lagging behind most industrial sectors. Such a pattern was understandable as the demand for PPE and related textile raw materials substantially decreased with the pandemic nearing its end.
Pattern #2: China continued to lose market share in clothing exports, which benefited other leading apparel exporters in Asia. Notably, for the first time, Bangladesh surpassed Vietnam and ranked as the world’s second-largest apparel exporter in 2022.
In value, China remained the world’s largest apparel exporter in 2022. However, China’s clothing exports experienced a growth of 3.6 percent, below the global average of 5.0 percent, positioning China at the bottom of the top ten exporters.
China’s global market share in clothing exports dropped to 31.7 percent in 2022, marking its lowest point since the pandemic and a significant decrease from the approximate 38 percent recorded from 2015 to 2018. In fact, China lost market share in almost all major clothing import markets, including the US, the EU, Canada, and Japan. The concerns about the risks of forced labor linked to sourcing from China and the deteriorating US-China relations were among the primary factors driving fashion companies’ eagerness to reduce their ‘China exposure” further.
China has been diversifying its clothing exports beyond the traditional Western markets in response to the challenging business environment. For example, from 2021 to 2022, Asian countries, especially members of the Regional Comprehensive Economic Partnership (RCEP), became relatively more important clothing export markets for China. Nevertheless, since RCEP members primarily consist of developing economies with ambitions to enhance their own clothing production, the long-term growth prospects for their import demand of ‘Made in China’ clothing remain uncertain.
Bangladesh achieved a new record high in its market share of world clothing exports, reaching 7.9 percent in 2022, which exceeded Vietnam’s 6.1 percent. Many fashion companies regard Bangladesh as a promising clothing-sourcing destination with growth potential because of its capability to make cotton garments as China’s alternatives, competitive price, and reduced social compliance risks.
Fashion companies’ efforts to “de-risking from China” also resulted in the robust growth of clothing exports from other large-scale Asian clothing producers in 2022, including Vietnam (up 13 percent), Cambodia (up 12 percent), and India (up 10 percent). In other words, despite the concerns about China, fashion companies still treat Asia as their primary sourcing destination.
Pattern #3: Developed countries stay critical textile exporters, and middle-income developing countries gradually build new textile production and export capability.
The European Union members and the United States stayed critical textile exporters, accounting for 25.1 percent of the world’s textile exports in 2022, up from 24.5 percent in 2021 and 23.2 percent in 2020. Thanks to the increasing demand from apparel producers in the Western Hemisphere, U.S. textile exports increased by 5 percent in 2022, the highest among the world’s top ten.
As a persistent long-term trend, middle-income developing countries have consistently been strengthening their textile production and export capability. For example, China, Vietnam, Turkey, and India’s market shares in the world’s textile exports have steadily risen. They collectively accounted for 56.8 percent of the world’s clothing exports in 2022, a notable increase from only 40 percent in 2010. Also, over time, these middle-income developing countries have achieved a more balanced textiles-to-clothing export ratio.
Pattern #4: Regional textile and apparel trade patterns strengthened further with the growing popularity of near-shoring, particularly in the Western Hemisphere. However, an early indication has emerged that Asian countries are diversifying their sources of textile raw materials away from China to mitigate growing risks.
The regional textile and apparel supply chains were in good shape in Asia and Europe. For example, nearly 80 percent of Asian countries’ textile input and apparel imports came from within the region in 2022. Likewise, approximately half of EU countries’ textile imports were intra-region trade in 2022, and one-third were for apparel.
The Western Hemisphere (WH) textile and apparel supply chain became more integrated in 2022 thanks to the booming near-shoring trends. For example, 20.8 percent of WH countries’ textile imports came from within the region in 2022, up from 20.1 percent in the previous year. Likewise, about 15.1 percent of WH countries’ apparel imports came from within the region in 2022, higher than 14.7 percent in 2021 and 13.9 percent in 2022.
Compared with Asia and the EU, SSA clothing producers used much fewer locally-made textiles (i.e., stagnant at around 11% from 2011 to 2022), reflecting the region’s lack of textile manufacturing capability. A more comprehensive examination of strategies for bolstering the textile manufacturing sector in Sub-Saharan Africa, particularly in light of the recently enacted African Continental Free Trade Area (AfCFTA) agreement, might be warranted.
Additionally, data suggests that Asian countries began diversifying their textile imports away from China to mitigate supply chain risks. For example, with the official implementation of anti-forced labor legislation in the US and other primary apparel import markets directly targeting cotton made in China’s Xinjiang region, Asian countries significantly reduced their cotton fabric imports (SITC code 652) from China in 2022. Instead, Asian countries other than China accounted for 46.3 percent of the region’s textile supply in 2022, up from around 42-43 percent between 2019 and 2021.
It is critical to watch how willing, to what extent, and how quickly Asian countries can effectively reduce their dependency on textile supplies from China. The result is also an important reminder that Western fashion companies’ de-risking from China could exert significant and broad impacts across the entire supply chain beyond finished goods.
#1U.S. fashion companies are deeply concerned about the deteriorating U.S.-China bilateral relationship and plan to accelerate “reducing China exposure” to mitigate the risks.
Respondents identified “Finding a new sourcing base other than China” as a more prominent challenge in 2023 than the previous year (i.e., 4th in 2023 vs. 11th in 2022).
This year, over 40 percent of respondents reported sourcing less than 10 percent of their apparel products from China, up from 30 percent of respondents a year ago and a notable surge from only 20 percent in 2019. Similarly, a new record high of 61 percent of respondents no longer use China as their top supplier in 2023, up from 50 percent of respondents in 2022 and much higher than only 25-30 percent before the pandemic.
Nearly 80 percentof respondents plan to reduce apparel sourcing from China over the next two years, with a record high of 15 percent planning to “strongly decrease” sourcing from the country. This strong sentiment was not present in past studies. Notably, large-size U.S. fashion companies (with 1,000+ employees) that currently source more than 10 percent of their apparel products from China are among the most eager to de-risk.
#2 Tackling forced labor risks in the supply chain remains a significant challenge confronting U.S. fashion companies in 2023.
“Managing the forced labor risks in the supply chain” ranks as the 2nd top business challenge in 2023, with 64 percent of respondents rating the issue as one of their top five concerns.
Most surveyed U.S. fashion companies have taken a comprehensive approach to mitigating forced labor risks in the supply chain. Three practices, including “asking vendors to provide more detailed social compliance information,” “attending workshops and other educational events to understand related regulations better,” and “intentionally reducing sourcing from high-risk countries,” are the most commonly adopted by respondents (over 80 percent) in response to forced labor risks and the UFLPA’s implementation.
Since January 1, 2023, U.S. Customs and Border Protection (CBP)’s UFLPA enforcement has affected respondents’ importation of “Cotton apparel products from China,” “Cotton apparel products from Asian countries other than China,” and “Home textiles from China.”
U.S. fashion companies are actively seeking to diversify their sourcing beyond Asia to mitigate the forced labor risks, particularly regarding cotton products.
#3 There is robust excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).
CAFTA-DR members play a more significant role as an apparel sourcing base this year. Over 80 percent of respondents report sourcing from CAFTA-DR members in 2023, a notable increase from 60 percent in the past few years. Also, nearly 30 percent of respondents placed more than 10 percent of their sourcing orders with CAFTA-DR members this year, a substantial increase from only 19 percent of respondents in 2022 and 10 percent in 2021.
About 40 percent of respondents plan to increase apparel sourcing from CAFTA-DR members over the next two years. Most respondents consider expanding sourcing from CAFTA-DR as part of their overall sourcing diversification strategy.
With U.S. fashion companies actively seeking immediate alternatives to sourcing from China and Asia, respondents emphasize theincreased urgencyof improving textile raw material access to promote further U.S. apparel sourcing from CAFTA-DR members. “Allowing more flexibility in sourcing fabrics and yarns from outside CAFTA-DR” was regarded as the top improvement needed.
#4 US fashion companies demonstrate a solid dedication to expanding their sourcing of clothing made from recycled or other sustainable textile fibers:
Nearly 60 percent of respondents say at least 10 percent of their sourced apparel products already use recycled or other sustainable textile fibers. Another 60 percent of surveyed companies plan to “substantially increase sourcing apparel made from sustainable or recycled textile materials over the next five years.”
Addressing the higher sourcing costs and the low-profit margins are regarded as the top challenge for sourcing clothing using recycled or other sustainable fiber.
About 60 percent of respondents also call for policy support for sourcing clothing using recycled or other sustainable textile materials, such as preferential tariff rates and guidance on sustainability and recycling standards.
#5 Respondents strongly support and emphasize the importance of the early renewal of the African Growth and Opportunity Act (AGOA) and extending the program for at least another ten years.
Respondents sourcing from AGOA members are typically large-scale U.S. fashion brands or retailers (with 1,000+ employees). Generally, these companies treat AGOA as part of their extensive global sourcing network and typically source less than 10 percent of the total sourcing value or volume from the region.
About 40 percent of respondents view AGOA as “essential for my company to source from AGOA members.”
About 60 percent of respondents say the temporary nature of AGOA “has discouraged them from making long-term investments and sourcing commitments in the region.” Many respondents expect to cut sourcing from AGOA members should the agreement is not renewed by June 2024.
About one-third of respondents currently sourcing from AGOA explicitly indicate, “Ethiopia’s loss of AGOA eligibility negatively affects my company’s interest in sourcing from the entire AGOA region.” In comparison, only about 17 percent of respondents say they “have moved sourcing orders from Ethiopia to other AGOA members.
Other topics covered by the report include:
5-year outlook for the U.S. fashion industry, including companies’ hiring plan by key positions
The competitiveness of major apparel sourcing destinations in 2023 regarding sourcing cost, speed to market, flexibility & agility, and compliance risks (assessed by respondents)
Respondents’ qualitative comments on the prospect of sourcing from China and “re-risk”
U.S. fashion companies’ latest social responsibility and sustainability practices related to sourcing
U.S. fashion companies’ trade policy priorities in 2023
Background
This year’s benchmarking study was based on a survey of executives from 30 leading U.S. fashion companies from April to June 2023. The study incorporated a balanced mix of respondents representing various businesses in the U.S. fashion industry. Approximately 73 percent of respondents were self-identified retailers, 60 percent self-identified brands, and 65 percent self-identified importers/wholesalers.
The respondents to the survey included both large U.S. fashion corporations and medium to small companies. Around 77 percent of respondents reported having more than 1,000 employees. And the rest (23 percent) represented medium to small-sized companies with 100-999 employees.
The latest OTEXA trade data suggests several US apparel import patterns:
First, US apparel imports indicated a slow improvement in April 2023 but remained weak this year. For example, measured in quantity, US apparel imports fell by 33.9% in April 2023 from a year ago, but it was less significant than in March (i.e., down 40.2% YoY*). Likewise, measured in value, US apparel imports fell by 29.3% YoY in April 2023, which improved from a 32.7% YoY decline in March 2023. (*YoY: Year-over-year)
Overall, the shrinking US apparel import volume reflected the headwinds in the US economy and consumers’ hesitancy to purchase clothing amid financial uncertainties and high inflation. Recent economic indicators also present a mixed picture of the US economy’s growth trajectory. For example, while the US consumer confidence index slightly went up from 68.0 in March to 69.6 in April 2023 (January 2019=100), the advanced clothing store sales index in April fell to 115.6 (Jan 2019=100), the lowest so far in 2023 (e.g., was 120.6 in January 2023). However, since summer is traditionally a peak season for clothing sales, followed by events like back-to-school shopping, there remains hope that US apparel imports may experience a slight recovery at some point in the second half of the year.
Second, trade data suggested that US apparel imports came from more diverse sources. For example, the Herfindahl–Hirschman index (HHI) fell below 0.1 in the first four months of 2023. Likewise, the market shares of the five largest suppliers (CS5) fell below 60% for the first time since 2018. The result suggested that leveraging sourcing diversification is a prevalent strategy among US fashion companies to mitigate supply chain risks and address market uncertainties.
Third, US fashion companies are serious and eager to further reduce their “China exposure.” Although China remained the top apparel supplier to the US, its market share fell to a new low of 17.9% in value and 30.6% in quantity in the first four months of 2023. Notably, for the first time in decades, less than 10% of US cotton apparel imports came from China in March/April 2023, revealing the significant impact of the Uyghur Forced Labor Prevention Act (UFLPA) on US fashion companies’ China sourcing strategies.
Related, US fashion companies appear to be increasingly cautious about sourcing apparel from Vietnam as its supply chain is too exposed to China, raising concerns about forced labor risks. In value, Vietnam accounted for 17.3% of US apparel imports in the first four months of 2023, down from 18.6% a year ago. Notably, almost the same amount of Vietnam’s textile and apparel products were subject to the CBP’s UFLPA investigation as China in FY2023.
Fourth, large-scale Asian countries benefited the most as US fashion companies looking for China’s alternatives. Specifically, measured in value, about 70.6% of US apparel imports came from Asia in the first four months of 2023, down from 74.9% in 2022. However, the five largest apparel exporting countries in Asia other than China (i.e., Vietnam, Bangladesh, Indonesia, India, and Cambodia) accounted for 44.7% of US apparel imports in the first four months of 2023, a new high since 2018 (i.e., was 35.3%). These countries are among the most popular “alternatives to China” because of their balanced performance regarding production capacity, cost, flexibility, and compliance risks.
Fifth, US fashion companies are also actively exploring new near-shoring opportunities from the Western Hemisphere. For example, about 17.3% of US apparel imports came from Western Hemisphere countries in the first four months of 2023, up from 15.6% in 2023. That being said, measured in quantity, US apparel imports from Mexico and CAFTA-DR members fell by 13.0% and 21.2% in the first four months of 2023 from a year ago due to the struggling US economy. It will be interesting to see whether CAFTA-DR and Mexico can keep or enhance their market shares when the US import demand recovers.
The full paper is HERE. Below are the key findings:
Over the past decade, U.S. fashion brands and retailers have seen Central America as a critical emerging apparel-sourcing destination. Especially since implementing the Dominican-Republic Central America Free Trade Agreement (CAFTA-DR) in 2006, a trade deal among the United States, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic (joined in 2007), and Costa Rica (joined in 2009), apparel sourcing from the region gained consistent interest among U.S. companies.
Nevertheless, U.S. apparel sourcing from CAFTA-DR members is NOT without significant challenges. For example, CAFTA-DR countries’ market shares in the U.S. apparel import market fell from 11.8% in 2005 before the trade agreement entered into force to only 10.6% in 2022, measured by value. Trade data also indicated that U.S. apparel sourcing from CAFTA-DR members concentrated on simple and low-value items, such as T-shirts, and lacked product diversification with no improvement over the years.
Given the high stakes of improving the status quo, this study quantitatively evaluated the impact of textile raw material access on CAFTA-DR’s apparel exports to the United States. Specifically, this study assumed that CAFTA-DR members cut their textile import tariff rates to improve garment producers’ textile raw material access (i.e., to reduce the cost of sourcing textiles from anywhere in the world and beyond the U.S. supply). The computable general equilibrium (CGE) model estimation based on the GTAP9 database shows mixed results:
On the one hand, cutting CAFTA-DR members’ textile import tariffs to improve their garment producers’ textile raw material access would significantly improve CAFTA-DR members’ price competitiveness of their apparel exports to the United States and increase the export volume.
However, cutting CAFTA-DR members’ textile import tariffs to improve their garment producers’ textile raw material access would significantly expand their textile imports from non-U.S. sources. This means that CAFTA-DR members’ dependence on the U.S. textile raw material supply may decline further.
Overall, the study’s findings remind us that the debate on expanding U.S. apparel sourcing from CAFTA-DR members should go beyond CAFTA-DR members’ garment production. Instead, more efforts could be made to enhance CAFTA-DR garment producers’ textile raw material access as an effective way to expand the region’s apparel exports to the United States.
Meanwhile, several leading CAFTA-DR apparel exporting countries, including Honduras and Nicaragua, have been engaged in negotiations for free trade agreements with China, Taiwan, and other Asian economies. As the study’s findings indicate, these new trade deals could incentivize CAFTA-DR apparel manufacturers to increase their textile sourcing from Asia. In other words, inaction on the U.S. side and maintaining the status quo still could have significant implications for the future stability of the Western Hemisphere textile and apparel supply chain.
USITC adopted two methods to estimate Section 301 tariffs’ economic impacts:
Econometric model estimates using monthly trade data (10-digit HS code) from January 2017 to December 2021.
A set of partial equilibrium models that linked section 301 tariffs to domestic prices and production at the four-digit NAICS code level. USITC used data from 2018 to 2021 as the base year.
USITC only considered Section 301 tariffs’ direct impacts, i.e., “how tariffs impacted prices, production, and trade for products subject to section 301 tariffs and domestic sectors that compete directly with those imports.”
Regarding the overall impact of Section 301 actions, USITC found that the tariffs imposed on Chinese goods resulted in a price rise paid by US importers, but the exporter prices received by Chinese firms were mostly unchanged. As a result, “imports from China decreased in quantity, leading to a substantial decline in their import value. These changes, in turn, caused an increase in production and prices in US domestic industries that were competing with Chinese imports.”
USITC also evaluated the specific impacts of Section 301 tariffs on the Cut and Sew apparel (NAICS 3152) sector. According to USITC:
“nontariff-inclusive value” refers to the change in the value of imports from China excluding the value of the section 301 duties themselves, which provide an indication of the change in import quantities because export prices are mostly unchanged.
First, Section 301 tariffs hurt US apparel imports from China. USITC estimated that US woven apparel (NAICS 3152) imports from China decreased by 14.7% in 2019 but fell nearly 40% in 2020 and 2021 due to Section 301 tariffs. However, USITC didn’t explain why imports from China suddenly worsened, nor if other factors, such as the Uyghur Forced Labor Prevention Act (UFLPA), played a role.
Second, Section 301 tariffs mostly replaced US woven apparel (NAICS3152) imports from China with other sources. However, the direct benefits of Section 301 tariffs to US domestic cut and sew manufacturing seemed limited. Specifically, USITC estimated that US woven apparel imports from sources other than China increased by 7.1% in 2019, 24.8% in 2020, and 25.2% in 2021 due to Section 301 tariffs. In comparison, Section 301 tariffs resulted in modest growth of US domestic woven apparel (NAICS3152) production (up to 6.3%) over the same period.
Actual trade and production data further showed that US woven apparel (NAICS 3152) imports from sources other than China increased from $55.3 billion in 2018 to $61.2 billion in 2021 (or up 10.7%). Over the same period, US domestic woven apparel (NAICS 3152) sales & value of shipments declined from $7.49 billion to $7.38 billion (or down 1.4%) (Data source: Census). In other words, no clear evidence suggests that Section 301 tariffs boosted US domestic woven apparel production.
Third, Section 301 tariffs made US woven apparel (NAICS 3152) imports from EVERYWHERE more expensive. On the one hand, USITC found that the price of US woven apparel (NAICS 3152) imports from China increased by 4.4% in 2019, 14.7% in 2020, and 14.5% in 2021 due to the Section 301 tariffs. However, similar to the case of trade volume, USITC didn’t explain why Section 301 tariffs’ price impact suddenly became more significant in 2020 and 2021. (Note: In fact, the Tranche 4A tariffs were 15% since September 1, 2019, but were reduced to 7.5% effective February 14, 2020, because of the US-China Phase One deal.)
Meanwhile, due to limited production capacity outside of China, the Section 301 tariffs caused an increase in the cost of US woven apparel imports from all other countries. Specifically, USITC found that the price of US woven apparel (NACIS 3152) imports from sources other than China increased by 3.2% from 2018 to 2021. (Note: given the hiking sourcing costs in 2022, the price increase could be more significant should USITC include updated 2022 trade data in the estimation.)
Additionally, USITC acknowledged that its estimation may “likely captures the most significant impacts of these tariffs in the short run.” However, some effects of section 301 tariffs would likely be delayed. For example, USITC said, “if importers and domestic producers anticipated the tariffs remaining in place long enough,” they may consider more costly changes, such as adjusting their supply chains and investing in domestic production.
Discussion questions:
Based on USITC’s assessment, should President Biden keep or remove the Section 301 tariffs on imports from China? Why or why not?
Regarding the impact of Section 301, any questions remain unanswered or can be studied further?
Any findings in the USITC report surprised you and why?
Trend 1: US fashion companies continue to diversify their sourcing base in 2022
Numerous studies suggest that US fashion companies leverage sourcing diversification and sourcing from countries with large-scale production capacity in response to the shifting business environment. For example, according to the 2022 fashion industry benchmarking study from the US Fashion Industry Association (USFIA), more than half of surveyed US fashion brands and retailers (53%) reported sourcing apparel from over ten countries in 2022, compared with only 37% in 2021. Nearly 40% of respondents plan to source from even more countries and work with more suppliers over the next two years, up from only 17% in 2021.
Trade data confirms the trend. For example, the Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.110 in 2021 to 0.105 in 2022, suggesting that US apparel imports came from even more diverse sources.
Trend 2: Asia as a whole will remain the dominant source of imports
Measured in value, about 73.5% of US apparel imports came from Asia in 2022, up from 72.8% in 2021. Likewise, the CR5 index, measuring the total market shares of the top five suppliers—all Asia-based, i.e., China, Vietnam, Bangladesh, Indonesia, and India, went up from 60.6% in 2021 to 61.1% in 2022. Notably, the CR5 index without China (i.e., the total market shares of Vietnam, Bangladesh, Indonesia, India, and Cambodia) enjoyed even faster growth, from 40.7% in 2021 to 43.7% in 2022.
Additionally, facing growing market uncertainties and weakened consumer demand amid high inflation pressure, US fashion companies may continue to prioritize costs and flexibility in their vendor selection. Studies consistently show that Asia countries still enjoy notable advantages in both areas thanks to their highly integrated regional supply chain, production scale, and efficiency. Thus, US fashion companies are unlikely to reduce their exposure to Asia in the short to medium term despite some worries about the rising geopolitical risks.
Trend 3: US fashion companies’ China sourcing strategy continues to evolve
Several factors affected US apparel sourcing from China negatively in 2022:
One was China’s stringent zero-COVID policy, which led to severe supply chain disruptions, particularly during the fall. As a result, China’s market shares from September to November 2022 declined by 7-9 percentage points compared to the previous year over the same period.
The second factor was the implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022, which discouraged US fashion companies from sourcing cotton products from China. For example, only about 10% of US cotton apparel came from China in the fourth quarter of 2022, down from 17% at the beginning of the year and much lower than nearly 27% back in 2018.
The third contributing factor was the US-China trade tensions, including the continuation of Section 301 punitive tariffs. Industry sources indicate that US fashion companies increasingly source from China for relatively higher-value-added items targeting the premium or luxury market segments to offset the additional sourcing costs.
Further, three trends are worth watching regarding China’s future as an apparel sourcing base for US fashion companies:
One is the emergence of the “Made in China for China” strategy, particularly for those companies that view China as a lucrative sales market. Recent studies show that many US fashion companies aim to tailor their product offerings further to meet Chinese consumers’ needs and preferences.
Second is Chinese textile and apparel companies’ growing efforts to invest and build factories overseas. As a result, more and more clothing labeled “Made in Bangladesh” and “Made in Vietnam” could be produced by factories owned by Chinese investors.
Third, China could accelerate its transition from exporting apparel to providing more textile raw materials to other apparel-exporting countries in Asia. Notably, over the past decade, most Asian apparel-exporting countries have become increasingly dependent on China’s textile raw material supply, from yarns and fabrics to various accessories. Moreover, recent regional trade agreements, particularly the Regional Comprehensive Economic Partnership (RCEP), provide new opportunities for supply chain integration in Asia.
Trend 4: US fashion companies demonstrate a new interest in expanding sourcing from the Western Hemisphere, but key bottlenecks need to be solved
Trade data suggests a mixed picture of near-shoring in 2022. For example, members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) and US-Mexico-Canada Trade Agreement (USMCA) accounted for a declining share of US apparel imports in 2022, measured in quantity and value. While CAFTA-DR and USMCA members showed an increase in their market share of US apparel imports in the fourth quarter of 2022, reaching 10.7% and 3.1%, respectively, this growth was not accompanied by an increase in trade volume. Instead, US apparel imports from these countries decreased by 11% and 15%, respectively, compared to the previous year. CAFTA-DR and USMCA members’ gain in market share was mainly due to a sharper decline in US apparel imports from the rest of the world (i.e., decreased by over 25% in the fourth quarter of 2022).
Trade data also suggests two other bottlenecks preventing more US apparel sourcing from CAFTA-DR and USMCA members. One is the lack of product diversity. For example, the product diversification index consistently shows that US apparel imports from CAFTA-DR members and Mexico concentrated on only a limited category of products, and the problem worsened in 2022. The result explained why US fashion companies often couldn’t move souring orders from Asia to CAFTA-DR and USMCA members.
Another problem is the underutilization of the trade agreement. For example, CAFTA-DR’s utilization rate for US apparel imports consistently went down from its peak of 87% in 2011 to only 74% in 2021. The utilization rate fell to 66.6% in 2022, the lowest since CAFTA-DR fully came into force in 2007. This means that as much as one-third of US apparel imports from CAFTA-DR did NOT claim the agreement’s preferential duty benefits. Thus, regarding how to practically grow US fashion companies’ near-shoring, we could expect more public discussions and debates in the new year.
This study aims to understand western fashion brands and retailers’ latest China apparel sourcing strategies against the evolving business environment. We conducted a content analysis of about 30 leading fashion companies’ public corporate filings (i.e., annual or quarterly financial reports and earnings call transcripts) submitted from June 1, 2022 to December 31, 2022.
The results suggest several themes:
First, China remains one of the most frequently used apparel sourcing destinations. For example:
Express says, “The top five countries from which we sourced our merchandise in 2021 were Vietnam, China, Indonesia, Bangladesh and the Philippines, based on total cost of merchandise purchased.”
According to TJX, “a significant amount of merchandise we offer for sale is made in China.”
Children’s Place says, “We source from a diversified network of vendors, purchasing primarily from Vietnam, Cambodia, Indonesia, Ethiopia, Bangladesh, and China.“
Ralph Lauren adds, “In Fiscal 2022, approximately 97% of our products (by dollar value) were produced outside of the US, primarily in Asia, Europe, and Latin America, with approximately 19% of our products sourced from China and another 19% from Vietnam.
However, many fashion companies have significantly cut their apparel sourcing volume from China. More often, China is no longer the No.1 apparel sourcing destination, overtaken by China’s competitors in Asia, such as Vietnam.
According to Lululemon, “During 2021, approximately 40% of our products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 7% in China (PRC), including 2% in Taiwan, and the remainder in other regions… From a sourcing perspective, when looking at finished goods for the upcoming 2022 fall season, Mainland China represents only 4% to 6% of our total unit volume.”
Levi’s says, “The good thing about our supply chain is we’ve got truly a global footprint. We don’t manufacture a whole lot in China anymore. We’ve been slowly divesting manufacturing out of China, if you will, and kind of playing our chips elsewhere on the global map… Less than 1% of what we’re bringing into this country, into the US, less than 1% of it is coming from China.”
Adidas says, “In 2021, we sourced 91% of the total apparel volume from Asia (2020: 93%). Cambodia is the largest sourcing country, representing 21% of the produced volume (2020: 22%), followed by China with 20% (2020: 20%) and Vietnam with 15% (2020: 21%).”
Victoria’s Secret says, “On China, China is a single-digit percentage of our total inflow of merchandise. We’re not particularly dependent on China at all.”
Nike: “As of May 31, 2022, we were supplied by 279 finished goods apparel contract factories located in 33 countries. For fiscal 2022, contract factories in Vietnam, China and Cambodia manufactured approximately 26%, 20% and 16% of total NIKE Brand apparel, respectively“
Meanwhile, fashion companies still heavily use China as a sourcing base for textile raw materials (such as fabrics). For example:
Columbia Sportswear says it sources most of its finished products from Vietnam, but “a large portion of the raw materials used in our products is sourced by our contract manufacturers in China.”
Likewise, Puma says, “90% of our recycled polyester comes from Vietnam, China, Taiwan (China) and Korea.”
Guess says, “During fiscal 2022, we sourced most of our finished products with partners and suppliers outside the U.S. and we continued to design and purchase fabrics globally, with most coming from China.”
Lulumemon says, “Approximately 48% of the fabric used in our products originated from Taiwan, 19% from China Mainland, 11% from Sri Lanka, and the remainder from other regions.”
Second, Western fashion companies unanimously ranked the COVID situation as one of their top concerns for China. Many companies reported significant sales revenue and profits loss due to China’s draconian “zero-COVID” policy and lockdown measures. For example,
Tapestry says, “For Greater China, sales declined 11% due to lockdowns and business disruption… as a result, we have tempered our fiscal year 2023 outlook based on the expectation for a delayed recovery in China.”
Adidas says, “With Great China… we continue to see several market-specific challenges that are affecting our entire industry. The strict zero COVID-19 policy with nationwide restrictions remains in place amid more than 2000 daily new COVID-19 cases in November. As a consequence, offline traffic is subdued due to the imminent risk of new lockdowns.
Under Armour says, “Ongoing impacts of the COVID-19 pandemic and related preventative and protective actions in China…have negatively impacted consumer traffic and demand and may continue to negatively impact our financial results.”
VF Corporation says, “The performance in Greater China…continues to be impacted by widespread rolling COVID lockdowns and restrictions as well as lower consumer spending.”
Puma says, “COVID-19-related restrictions are still impacting business in Greater China, and higher freight rates and raw material prices continue to put pressure on margins.”
Notably, despite China’s most recent COVID policy U-turn, most fashion companies expect market uncertainties to stay in China, at least in the short run, given the surging COVID cases and policy unpredictability. For example:
PVH says, “While we remain optimistic about our business in China, it continues to be a challenging environment as restrictions have once again intensified in the fourth quarter of 2022.”
Nike says, “So we’ve taken a very cautious approach in our guidance to China, given the short-term uncertainties that are there.”
Abercrombie & Fitch also listed China’s COVID situation as one of their top risk factors, “risks and uncertainty related to the ongoing COVID-19 pandemic, including lockdowns in China, and any other adverse public health developments.”
Third, fashion companies report the negative impacts of US-China trade tensions on their businesses. Also, as the US-China relationship sours, fashion bands and retailers have been actively watching the potential effect of geopolitics. For example,
Express says, “recent geopolitical conditions, including impacts from the ongoing conflict between Russia and Ukraine and increased tensions between China and Taiwan, have all contributed to disruptions and rising costs to global supply chains.”
When assessing the market risk factors, Chico’s FAS says, “our reliance on sourcing from foreign suppliers and significant adverse economic, labor, political or other shifts (including adverse changes in tariffs, taxes or other import regulations, particularly with respect to China, or legislation prohibiting certain imports from China)”
Adidas holds the same view, “In addition, the challenging market environment in China had an adverse impact on the company’s business activities… Additional challenges included the geopolitical situation in China and extended lockdown measures.”
Macy’s adds, “At this time, it is unknown how long US tariffs on Chinese goods will remain in effect or whether additional tariffs will be imposed. Depending upon their duration and implementation, as well as our ability to mitigate their impact, these changes in foreign trade policy and any recently enacted, proposed and future tariffs on products imported by us from China could negatively impact our business, results of operations and liquidity if they seriously disrupt the movement of products through our supply chain or increase their cost.”
Gap Inc. says, “Trade matters may disrupt our supply chain. For example, the current political landscape, including with respect to U.S.-China relations, and recent tariffs and bans imposed by the United States and other countries (such as the Uyghur Forced Labor Prevention Act) has introduced greater uncertainty with respect to future tax and trade regulations.”
QVC says, “The imposition of any new US tariffs or other restrictions on Chinese imports or the taking of other actions against China in the future, and any responses by China, could impair our ability to meet customer demand and could result in lost sales or an increase in our cost of merchandise, which would have a material adverse impact on our business and results of operations.”
Additionally,NO evidence shows that fashion companies are decoupling with China. Instead, Western fashion companies, especially those with a global presence, still hold an optimistic view of China as a long-term business opportunity. For example:
Inditex, which owns Zara, says, “we remain absolutely confident about our opportunities there (in China) in the medium to long term. Fashion demand continues to be strong in China. For sure it will remain a core market for us for Inditex.”
Ralph Lauren says, “China provides not only the successful blueprint for our elevated ecosystem strategy globally, it also represents one of several geographic long-term opportunities for our brand…We continue to see near and long term brand opportunities in China.”
Lululemon says, “On China, we remain very excited…we remain very, very excited about the potential and the role that will play in quadrupling our international business with Mainland China.”
Nike says, “We have remained committed to investing in Greater China for the long term.”
Adidas says, “On China, clearly, we believe in as a midterm opportunity in China… And then when the market opens up (from COVID), we believe, the western brand is well-positioned in China again, and we can start growing significant in China again.”
Meanwhile, Western fashion companies plan to make more efforts to localize their product offer and cater to the specific needs of Chinese consumers, especially the young generation. The “Made in China for China” strategy could become more popular among Western fashion companies. For example,
PVH says, “So, I think in general, our production in China is heavily oriented to China for China production. I think for us generally speaking, the biggest impact of the shutdowns that we’ve seen across Shanghai and Beijing has really been focused on the impact to our China market.”
Likewise, Levi’s says, “We’re manufacturing somewhere in the neighborhood of 5% of our global production is in China, and most of it staying in China.“
Hanesbrands says, “we’re committed to opening new stores, and that’s continues to go well, despite, the challenges that are there. Looking specifically at Champion, we continued our expansion in China adding new stores in the quarter through our partners.”
H&M says, “we still see China as an important market for us.”
According to Hugo Boss, “Thanks to overall robust local demand, revenues in China in 2021 grew 24% as compared to 2019.”
VF Corporation adds, “China is a significant opportunity…(We are) really pushing decision-making into the regions and providing more and more latitude for local-for-local decision-makings around product, around storytelling, certainly staying within the confines or the framework of the brand strategy, but really giving more freedom and more empowerment to the regions.”
Julianne Bartolotta is the founder and CEO of the apparel brand Julianne Bartolotta (JB).
Grew up in Huntington, New York, Julianne began her fashion career by double majoring in Apparel Design and Fashion Merchandising at the University of Delaware. After graduating in Spring 2018, Julianne joined Saks Fifth Avenue’s Private Label Brands as a Product Development Assistant Manager. Julianne was involved in designing for the men’s brands, Saks Fifth Avenue Collection and Saks Fifth Avenue Modern. Although a relatively small team, the experience allowed Julianne to “wear many hats” and control the entire design process from start to finish. Julianne and her team also designed for many product categories, including sportswear, tailored clothing, dress shirts, swim, and personal furnishings, to name a few.
After two years on the men’s team, Julianne moved over to help rebrand and relaunch Saks Fifth Avenue’s women collections. Her designs were adopted for Fall 21 collection and the experience allowed her to get familiar with the whole design process. This project also gave Julianne the knowledge and courage to move to the next career level.
In January 2022, Julianne left her dream job at Saks and started to build her own apparel brand. Officially launched in November 2022, Julianne Bartolotta has become a rising star in the luxury fashion world.
Sheng: Thank you so much for speaking with us,Julianne! What inspired you to start your apparel company? What makes it special and exciting?
Julianne: When Covid-19 hit New York in March 2020, I was furloughed from my job at Saks like many peers. I remember being at home when the house phone rang, and it was my dad calling to tell my mom and me that his nursing home ran out of masks and he needed us to sew 200 cloth masks for the nurses and staff. My mom and I ran to the only store open, Walmart, to buy fabric. We then set up a folding table in my kitchen and got to sewing. So we decided to choose a fabric with bright, colorful designs because we thought it would make people happy.
My dad got so many responses from the residents and the staff, saying that they loved the masks. They made the residents feel more comfortable and at ease when seeing their nurse, because it was as if wearing the mask was like wearing a smile.
After seeing the positive impact of my masks on the residents and staff, I decided to begin offering other mask designs on an Etsy Shop. My Etsy took off, and I started experimenting with scrunchies, headbands, swimsuits, and dresses, all sewn by me.
When I returned to Saks, I found myself craving the lifestyle of an entrepreneur. I enjoyed being my own boss and making creative decisions. Seeing people wear my designs and having a 5-star average on Etsy pushed me to take a leap of faith and pursue starting my own business. I officially gave my resignation in December of 2021 and began January 2022 with my focus solely on my brand.
Today, Julianne Bartolotta (JB) is a women’s Ready-to-Wear brand, offering a mini capsule collection each season. We offer sweaters, dresses, skirts, shorts, blouses, and even catsuits. My target audience is women ages 25-45, who live in urban and suburban areas that value fashion and look forward to dressing up on the weekends. She does not mind spending a bit more on a dress because she is excited to wear something unique, trendy, and well-made. We are a woman-owned, women-run, family business, where my mom is my Chief Operating Officer (COO), and my sister is one of my fit and marketing models.
Every item in the collection is designed by me and made in Italy, using the same manufacturers as other household luxury brands. Each style is meant to act as a “statement piece,” meaning there is something statement-worthy about the design, color, fabrication, or buttons. During my time at Saks, I learned from studying selling reports that the styles with “statement-worthy” details had the highest sell-throughs across most brands. I learned that women want to show off their cool clothes! They would rather spend $250 on a dress that stands out than $250 on a dress that probably won’t get her much attention.
My intention with this collection is to make women feel like a light in a dark room, just as my masks did during such a scary and unpredictable time. Clothing is how we portray ourselves to the world. My brand prides itself on making quality clothing, with statement-worthy designs, to show the world a woman’s femininity and confidence. With JB, the clothing speaks for itself, so you don’t have to!
Sheng: All your companies’ products are “Made in Italy.” Why is that?
Julianne: While at Saks, we used factories in Italy, China, Spain, and other countries worldwide. When President Trump imposed higher tariffs on China, it pushed us to revisit our supplier base. We eventually decided to move almost everything to Italy because the tariff duties were lower and the “Made in Italy” label is very desirable. People love clothing made in Europe, especially Italy. Italian factories pride themselves on their craft. They are very artisanal and view fashion as art. The factories are also smaller, with about 25-50 people working on the main floor. Because of this, the garments are being handled by fewer people, so the workers will spend a lot of time taking care of each garment. So if you were to compare this to factories in Asia, for example, there would typically be hundreds of workers on the main floor, and each worker would have a particular job, sewing a specific part of the garment and passing it on to the next worker (i.e., productin line).
When branching off to start my own business, I took this sourcing knowledge with me and chose to work with Made in Italy factories. Because the factories in Italy are smaller, they are also able to offer lower minimums. Being a starting-out designer, it’s important not to over-buy. You don’t want to end up in a situation where you are sitting on inventory and can’t move it.
The “Made in Italy” label is also an homage to my Italian heritage. I am actually a dual citizen, so I have American citizenship as well as Italian citizenship. I have family in Italy that I have visited in recent years and communicate with regularly. Having my garments made in Italy is a way for me to give recognition to my family’s roots and uphold a standard of luxury at the same time.
When sourcing fabric for my garments, it would be typical to attend fabric shows in Milan and Florence to pick the best fabrics for my designs. Because of Covid, I could not travel to attend these shows, so I had yarn books and color cards sent to me instead. I was able to get pricing and pick the best suitable fabrics that way, but in the future, I plan to go and network with the mills as well.
Sheng: Can you share with us your sourcing practice? For example, what are your vendor selection criteria? What does the importing process look like?
Julianne: Currently I work with three factories in Italy, all specializing in different realms. One specializes in knitting sweaters, one works with woven fabrics, and the other works with jersey knits and stretch materials. I selected these factories because they were able to offer me low minimums. I was also given net payment terms, so I don’t have to pay my factories upfront for my clothes, which allows me to use selling time to help pay for the invoices.
When selecting my factories, I also made sure to know what other brands they work with. Big retailers like Saks have special ethics codes in place that the brand’s factories must comply with to sell to their stores. This includes ensuring that the factories don’t overwork their staff, the work environment conditions are safe, and the workers are compensated appropriately for their work. I made sure to use only reputable factories that produce for other luxury brands so that I comply with the same standards.
When I am working on costing for my styles, I have to contact my broker for each item’s landing factor to get my landed cost. A landing factor is a number that includes the exchange rate and duties on a specific style based on the type of article of clothing it is (blouse, jacket, pants, etc.), whether it is woven or knit, what the fabrication is, and where it is coming from. The landing factor for an Italian wool sweater could be different from the landing factor on an Italian wool coat. Landing factors usually range from .5 to 1.9. For example, if an item has a first cost of 30 euros and a landing factor of 1.5, the landed cost would come to $45. Landing factors can change over time, so it’s important that I check in with my broker every season to make sure I know what to expect when it comes time to ship.
My landing factors do not include the shipping cost. Because my orders are so small, and my production timeline is shorter than other big brands, it is in my best interest to air my goods. This isn’t the case for most brands, as airing goods can become quite costly. Usually, goods would be shipped by boat, but when Covid hit, there were fewer workers to unload the cargo ships in New York, which caused many retail orders to become very delayed. I wanted to avoid this altogether, and since my boxes are small, I chose to air my shipments instead. As I work on my production timeline and grow my business, I will probably have to move towards shipping my goods by boat.
Sheng: Regarding the apparel business environment in 2023, what are the opportunities and challenges? What trends shall we watch closely?
Julianne: The apparel industry right now is tough, butthere are still opportunities for fashion businesses. Inflation has caused many people to rethink how much they are willing to spend on clothing. People want to feel like they will get their money’s worth on their purchases across the board. This is where social media marketing comes into play. If you can create a strong social media presence, and gain credibility through the right PR tactics, people will be more inclined to shop for your brand. Influencers are becoming modern world celebrities. If you see Danielle Bernstein wearing a dress from a small named brand, you suddenly give the brand credibility and want to check out their Instagram. With more people joining Tiktok, Instagram’s algorithm shifting towards reels, and influencers gaining more popularity, there are plenty of opportunities to spread the word; brands need to take advantage of these social media tools in the most compelling way.
It is becoming more common for people to start a side hustle in today’s world. Many people work from home and have the extra time and effort to put towards their small business. This means that the market for fashion startups is becoming saturated, but if you can create a brand that stands out from the rest, and put out engaging social media content, your audience can really grow and take off.
I would pay attention to how big and small brands are trying to take advantage of Tiktok and Instagram. Big brands are joining the Tiktok and Reels bandwagon and putting out more relatable content. They are using influencers, giving them discount codes to share, and sending them PR packages to show off on social media. It’s also interesting to see how small startup brands can utilize the same influencers and tactics to bring awareness to themselves. Social media creates a stage where small and big brands can coexist and compete for the same customers. Through social media, small brands can become more relevant, and big brands can try to stay relevant.
Sheng: Any reflections on your experiences at UD and FASH? What advice do you have for our current students who are preparing for their careers after graduation?
Julianne: Looking back on my college experience at UD and in the Fashion and Apparel Department(FASH), it feels like it was just yesterday! I double majored in Apparel Design and Fashion Merchandising, so I took a majority of the fashion classes offered, but if I could give any advice, I would say to be involved as much as you can. Utilize the amazing learning and career development opportunities that UD FASH offers you! Also, interning as much as possible– whether you get paid or not, it could be a valuable experience. I would suggest interning in a few different fields in fashion (if you can) to see what you like best before applying to jobs. For example, I had market week internships, product development internships, and fashion design internships, and I worked in retail. These experiences helped me decide what I liked and didn’t like.
Also, it is competitive out there, so don’t get discouraged! For example, the interview with Saks was a long process but I am so grateful that it worked out the way it did.
If you are a designer and want to start your own business, I would HIGHLY recommend working for someone else first. When you work for someone else, whether a big brand or a small startup, you learn the business’s ins and outs and network. It is much easier to start a business when you have connections then trying to start a business having to cold call vendors. Starting a business is also much easier when you understand the production calendar. Knowing what needs to be done and in what order will avoid a lot of mistakes! Put your time in, learn and grow, and you will be able to achieve great things!
This study was based on a statistical analysis of 3,307 randomly selected clothing items made from recycled textile materials for sale in the U.S. retail market between January 2019 and August 2022 (see the sample picture above). The results show that:
First, U.S. retailers sourced clothing made from recycled textile materials from diverse countries.
Specifically, the sampled clothing items came from as many as 36 countries, including developed and developing economies in Asia, America, the EU, and Africa.
However, reflecting the unique supply chain composition of clothing made from recycled textile materials, U.S. retailers’ sourcing patterns for such products turned out to be quite different from regular new clothing. For example, whereas the vast majority (i.e., over 90%) of U.S. regular new clothing came from developing countries as of 2022 (UNComtrade, 2022), as many as 43% of the sampled clothing items made from recycled textile materials (n=1,408) were sourced from developed countries. Likewise, U.S. retailers seemed to be less dependent on Asia when sourcing clothing made from recycled materials (41.9%, n=1,387) and instead used near-sourcing from America (30.1%, n=994) more often, particularly domestic sourcing from the United States (14.8%, n=490).
Second, U.S. retailers appeared to set differentiated assortments for products imported from developed and developing countries when sourcing clothing made from recycled textile materials.
Among the sampled clothing items made from recycled textile materials, those imported from developing countries, on average, included a broader assortment than developed economies. Likewise, imports from developing countries also concentrated on products relatively more complex to make as opposed to developed countries. Developing countries’ more extensive clothing production capability, including the available production facilities and skilled labor force, than developed economies could have contributed to the pattern.
On the other hand, likely caused by developed countries’ overall higher production costs, the average retail price of sampled clothing items sourced from developed countries was notably higher than those from developing ones. However, NO clear evidence shows that U.S. retailers used developed countries primarily as the sourcing bases for luxury or premium items and used developing countries only for items targeting the mass or value market.
Third, an exporting country’s geographic location was another statistically significant factor affecting U.S. retailers’ sourcing pattern for clothing made from recycled textile materials. Specifically,
Imports from Asia had the most diverse product assortment (e.g., sizing options) and focused on complex product categories (e.g., outwear) that targeted mass and value markets.
Imports from America (North, South, and Central America) concentrated on simple product categories (e.g., T-shirts and hosiery) with moderate assortment diversity and mainly targeted the mass and value market.
Imports from the EU were mainly higher-priced luxury items in medium-sophisticated or sophisticated product categories with diverse assortment.
Imports from Africa concentrated on relatively higher-priced premium or luxury items in simple product categories (i.e., swim shorts) with a limited assortment diversity.
The study’s findings demystified the country of origin of clothing made from recycled textile materials hidden behind macro trade statistics. The findings also created critical new knowledge that contributed to our understanding of the supply chain of clothing made from recycled textile materials and U.S. retailers’ distinct sourcing patterns and affecting factors for such products. The findings have several other important implications:
First, the study’s findings revealed the broad supply base for clothing made from recycled textile materials and suggested promising sourcing opportunities for such products. Whereas existing studies illustrated consumers’ increasing interest in shopping for clothing made from recycled textile materials, the study’s results indicated that the “enthusiasm” also applied to the supply side, with many countries already engaged in making and exporting such products. Meanwhile, the results showed that U.S. retailers sourced clothing made from recycled textile materials in different product categories with a broad price range targeting various market segments to meet consumers’ varying demands. Moreover, as textile recycling techniques continue to advance, potentially enriching the product offer of clothing made from recycled textile materials, U.S. retailers’ sourcing needs and supply base for such products could expand further.
Second, the study’s findings suggest that sourcing clothing made from recycled textile materials may help U.S. retailers achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials for U.S. retailers. Instead, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help U.S. retailers with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base.
Additionally, the study’s findings call for strengthening U.S. domestic apparel manufacturing capability to better serve retailers’ sourcing needs for clothing made from recycled textile materials. On the one hand, the results demonstrated U.S. retailers’ strong interest in sourcing clothing made from recycled textile materials that were “Made in the USA.” Also, the United States may enjoy certain competitive advantages in making such products, ranging from the abundant supply of recycled textile waste and the affordability of expensive modern recycling machinery to the advanced research and product development capability. On the other hand, the results showed that U.S. retailers primarily sourced simple product categories (e.g., T-shirts and hosiery), targeting the value and mass markets from the U.S. and other American countries. This pattern somewhat mirrored the production and sourcing pattern for regular new clothing, for which apparel “Made in the USA” also lacked product variety and focused on basic fashion items compared with Asian and EU suppliers. Thus, strengthening the U.S. domestic apparel production capacity, especially for those complex product categories (e.g., outwear and suits), could encourage more sourcing of “Made in the USA” apparel using recycled textile materials and support production and job creation in the U.S. apparel manufacturing sector.
In December 2022, Just-Style consulted a panel of industry experts and scholars in its Outlook 2023–what’s next for apparel sourcing briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!
2023 is likely another year full of challenges and opportunities for the global apparel industry.
First, the apparel industry may face a slowed world economy and weakened consumer demand in 2023. Apparel is a buyer-driven industry, meaning the sector’s volume of trade and production is highly sensitive to the macroeconomic environment. Amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide in the new year. Likewise, the World Trade Organization (WTO) forecasts that the world merchandise trade will grow at around 1% in 2023, much lower than 3.5% in 2022. As estimated, the world apparel trade may marginally increase between 0.8% and 1.5% in the new year, the lowest since 2021. On the other hand, the falling demand may somewhat help reduce the rising sourcing cost pressure facing fashion companies in the new year.
Second, fashion brands and retailers will likely continue leveraging sourcing diversification and strengthening relationships with key vendors in response to the turbulent market environment. According to the 2022 fashion industry benchmarking study I conducted in collaboration with the US Fashion Industry Association (USFIA), nearly 40 percent of surveyed US fashion companies plan to “source from more countries and work with more suppliers” through 2024. Notably, “improving flexibility and reducing resourcing risks,” “reducing sourcing from China,” and “exploring near-sourcing opportunities” were among the top driving forces of fashion companies’ sourcing diversification strategies. Meanwhile, it is not common to see fashion companies optimize their supplier base and work with “fewer vendors.” For example, fashion companies increasingly prefer working with the so-called “super-vendors,” i.e., those suppliers with multiple-country manufacturing capability or can make textiles and apparel vertically, to achieve sourcing flexibility and agility. Hopefully, we could also see a more balanced supplier-importer relationship in the new year as more fashion companies recognize the value of “putting suppliers at the core.”
Third, improving sourcing sustainability and sourcing apparel products using sustainable textile materials will gain momentum in the new year. On the one hand, with growing expectations from stakeholders and pushed by new regulations, fashion companies will make additional efforts to develop a more sustainable, socially responsible, and transparent apparel supply chain. For example, more and more fashion brands and retailers have voluntarily begun releasing their supplier information to the public, such as factory names, locations, production functions, and compliance records. Also, new traceability technologies and closer collaboration with vendors enable fashion companies to understand their raw material suppliers much better than in the past. Notably, the rich supplier data will be new opportunities for fashion companies to optimize their existing supply chains and improve operational efficiency.
On the other hand, with consumers’ increasing interest in fashion sustainability and reducing the environmental impact of textile waste, fashion companies increasingly carry clothing made from recycled textile materials. My latest studies show that sourcing clothing made from recycled textile materials may help fashion companies achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials. Instead, in the US retail market, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help fashion companies with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base. Related, we are likely to see more public dialogue regarding how trade policy tools, such as preferential tariffs, may support fashion companies’ efforts to source more clothing using recycled or other eco-friendly textile materials.
Additionally, the debates on fashion companies’ China sourcing strategy and how to meaningfully expand near-sourcing could intensify in 2023. Regarding China, fashion companies’ top concerns and related public policy debates next year may include:
What to do with Section 301 tariff actions against imports from China, including the tariff exclusion process?
How to reduce “China exposure” further in sourcing, especially regarding textile raw materials?
How should fashion companies respond and mitigate the business impacts of China’s shifting COVID policy and a new wave of COVID surge?
What contingency plan will be should the geopolitical tensions in the Asia-Pacific region directly affect shipping from the region?
Meanwhile, driven by various economic and non-economic factors, fashion companies will likely further explore ways to “bring the supply chain closer to home” in 2023. However, the near-shoring discussion will become ever more technical and detailed. For example, to expand near-shoring from the Western Hemisphere, more attention will be given to the impact of existing free trade agreements and their specific mechanisms (e.g., short supply in CAFTA-DR) on fashion companies’ sourcing practices. Even though we may not see many conventional free trade agreements newly launched, 2023 will be another busy year for textile and apparel trade policy deliberation, especially behind the scene and on exciting new topics.
By Sheng Lu
Discussion question: As we approach the middle of the year, why do you agree or disagree with any predictions in the outlook? Please share your thoughts.
#1. Are classic trade theories (e.g., comparative advantage) still relevant or outdated in the 21st century? Why? Please share your thoughts based on the video and the figures.
#2. Based on the video and the figures above, is the US textile manufacturing sector a winner or loser of globalization and international trade? Why?
#3. Take the following poll (anonymous) and share your reflections.
#4. Should the government’s trade policy consider non-economic factors such as national security and geopolitics? What should be the line between promoting “fair trade” and “trade protectionism”? What’s your view?
#5. Is there anything else you find interesting/intriguing/thought-provoking in the video? Why?
(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)
On September 2, 2022, the Office of the US Trade Representative (USTR) announced it would continue the billions of dollars of Section 301 punitive tariffs against Chinese products. USTR said it made the decision based on requests from domestic businesses benefiting from the tariff action. As a legal requirement, USTR will launch a full review of Section 301 tariff action in the coming months.
In her remarks at the Carnegie Endowment for International Peace on Sep 7, 2022, US Trade Representative Katharine Tai further said that the Section 301 punitive tariffs on Chinese imports “will not come down until Beijing adopts more market-oriented trade and economic principles.” In other words, the US-China tariff war, which broke out four years ago, is not ending anytime soon.
A Brief History of the US Section 301 tariff action against China
The US-China tariff war broke out as both unexpected and not too surprising. For decades, the US government had been criticizing China for its unfair trade practices, such as providing controversial subsidies to state-owned enterprises (SMEs), insufficient protection of intellectual property rights, and forcing foreign companies to transfer critical technologies to their Chinese competitors. The US side had also tried various ways to address the problems, from holding bilateral trade negotiations with China and imposing import restrictions on specific Chinese goods to suing China at the World Trade Organization (WTO). However, despite these efforts, most US concerns about China’s “unfair” trade practices remain unsolved.
When former US President Donald Trump took office, he was particularly upset about the massive and growing US trade deficits with China, which hit a record high of $383 billion in 2017. In alignment with the mercantilism view on trade, President Trump believed that the vast trade deficit with China hurt the US economy and undermined his political base, particularly with the working class.
On August 14, 2017, President Trump directed the Office of the US Trade Representative (USTR) to probe into China’s trade practices and see if they warranted retaliatory actions under the US trade law. While the investigation was ongoing, the Trump administration also held several trade negotiations with China, pushing the Chinese side to purchase more US goods and reduce the bilateral trade imbalances. However, the talks resulted in little progress.
President Trump lost his patience with China in the summer of 2018. In the following months, citing the USTR Section 301 investigation findings, the Trump administration announced imposing a series of punitive tariffs on nearly half of US imports from China, or approximately $250 billion in total. As a result, for more than 1,000 types of products, US companies importing them from China would have to pay the regular import duties plus a 10%-25% additional import tax. However, the Trump administration’s trade team purposefully excluded consumer products such as clothing and shoes from the tariff actions. The last thing President Trump wanted was US consumers, especially his political base, complaining about the rising price tag when shopping for necessities. The timing was also a sensitive factor—the 2018 congressional mid-term election was only a few months away.
President Trump hoped his unprecedented large-scale punitive tariffs would change China’s behaviors on trade. It partially worked. As the trade frictions threatened economic growth, the Chinese government returned to the negotiation table. Specifically, the US side wanted China to purchase more US goods, reduce the bilateral trade imbalances and alter its “unfair” trade practices. In contrast, the Chinese asked the US to hold the Section 301 tariff action immediately.
However, the trade talks didn’t progress as fast as Trump had hoped. Even worse, having to please domestic forces that demanded a more assertive stance toward the US, the Chinese government decided to impose retaliatory tariffs against approximately $250 billion US products. President Trump felt he had to do something in response to China’s new action. In August 2019, he suddenly announced imposing Section 301 tariffs on a new batch of Chinese products, totaling nearly $300 billion. As almost everything from China was targeted, apparel products were no longer immune to the tariff war.With the new tariff announcement coming at short notice, US fashion brands and retailers were unprepared for the abrupt escalation since they typically placed their sourcing orders 3-6 months before the selling season.
Nevertheless, Trump’s new Section 301 actions somehow accelerated the trade negotiation. The two sides finally reached a so-called“phase one” trade agreementin about two months. As part of the deal, China agreed to increase its purchase of US goods and services by at least $200 billion over two years, or almost double the 2017 baseline levels. Also, China promised to address US concerns about intellectual property rights protection, illegal subsidies, and forced technology transfers. Meanwhile, the US side somewhat agreed to trim the Section 301 tariff action but rejected removing them. For example, the punitive Section 301 tariffs on apparel products were cut from 15% to 7.5% since implementing the “phase one” trade deal.
Trump lost the 2020 presidential election, and Joe Biden was sworn in as the new US president on January 20, 2021. However, the Section 301 tariff actions and the US-China “phase one” trade deal stayed in force.
Debate on the impact of the US-China tariff war
Like many other trade policies, the US Section 301 tariff actions against China raised heated debate among stakeholders with competing interests. This was the case even among different US textile and apparel industry segments.
On the one hand, US fashion brands and retailers strongly oppose the punitive tariffs against Chinese products for several reasons:
First, despite the Section 301 tariff action, China remained a critical apparel sourcing base for many US fashion companies with no practical alternative. Trade statistics show that four years into the tariff war, China still accounted for nearly 40 percent of US apparel imports in quantity and about one-third in value as of 2021. According to the latest data, in the first ten months of 2022, China remained the top apparel supplier, accounting for 35% of US apparel imports in quantity and 22.2% in value. Studies also consistently find that US fashion companies rely on China to fulfill orders requiring a small minimum order quantity, flexibility, and a great variety of product assortment.
Second, having to import from China, fashion companies argued that the Section 301 punitive tariffs increased their sourcing costs and cut profit margins. For example, for a clothing item with an original wholesale price of around $7, imposing a 7.5% Section 301 punitive tariff would increase the sourcing cost by about 5.8%. Should fashion companies not pass the cost increase to consumers, their retail gross margin would be cut by 1.5 percentage points. Notably, according to the US Fashion Industry Association’s 2021 benchmarking survey, nearly 90 percent of respondents explicitly say the tariff war directly increased their company’s sourcing costs. Another 74 percent say the tariff war hurt their company’s financials.
Third, as companies began to move their sourcing orders from China to other Asian countries like Vietnam, Bangladesh, and Cambodia to avoid paying punitive tariffs, these countries’ production costs all went up because of the limited production capacity. In other words, sourcing from everywhere became more expensive because of the Section 301 action against China.
Further, it is important to recognize that fashion companies supported the US government’s efforts to address China’s “unfair” trade practices, such as subsidies, intellectual property rights violations, and forced technology transfers. Many US fashion companies were the victims of such practices. However, fashion companies did not think the punitive tariff was the right tool to address these problems effectively. Instead, fashion brands and retailers were concerned that the tariff war unnecessarily created an uncertain and volatile market environment harmful to their business operations.
“While NCTO members support the inclusion of finished products in Section 301, we are seriously concerned that…adding tariffs on imports of manufacturing inputs that are not made in the US such as certain chemicals, dyes, machinery, and rayon staple fiber in effect raises the cost for American companies and makes them less competitive with China.”
Mitigate the impact of the tariff war: Fashion Companies’ Strategies
The first approach was to switch to China’s alternatives. Trade statistics suggest that Asian countries such as Vietnam and Bangladesh picked up most of China’s lost market shares in the US apparel import market. For example, in 2022 (Jan-Nov), Asian countries excluding China accounted for 51.2% of US apparel imports, a substantial increase from 41.2% in 2018 before the tariff war. In comparison, about 16.4% of U.S. apparel imports came from the Western Hemisphere in 2021 (Jan-Nov), lower than 17.0% in 2018. In other words, no evidence shows that Section 301 tariffs have expanded U.S. apparel sourcing from the Western Hemisphere.
The second approach was to adjust what to source from China by leveraging the country’s production capacity and flexibility. For example, market data from industry sources showed that since the Section 301 tariff action, US fashion companies had imported more “Made in China” apparel in the luxury and premium segments and less for the value and mass markets. Such a practice made sense as consumers shopping for premium-priced apparel items typically were less price-sensitive, allowing fashion companies to raise the selling price more easily to mitigate the increasing sourcing costs. Studies also found that US companies sourced fewer lower value-added basic fashion items (such as tops and underwear), but more sophisticated and higher value-added apparel categories (such as dresses and outerwear) from China since the tariff war.
China is no longer treated as a sourcing base for low-end cheap product
More apparel sourced from China target the premium and luxuary market segments
Related, US fashion companies such as Columbia Sportswear leveraged the so-called “tariff engineering” in response to the tariff war. Tariff engineering refers to designing clothing to be classified at a lower tariff rate. For example, “women’s or girls’ blouses, shirts, and shirt-blouses of man-made fibers” imported from China can tax as high as 26.9%. However, the same blouse added a pocket or two below the waist would instead be classified as a different product and subject to only a 16.0% tariff rate. Nevertheless, using tariff engineering requires substantial financial and human resources, which often were beyond the affordability of small and medium-sized fashion companies.
Third, recognizing the negative impacts of Section 301 on US businesses and consumers, the Office of the US Trade Representative (USTR) created a so-called “Section 301 exclusion process.” Under this mechanism, companies could request that a particular product be excluded from the Section 301 tariffs, subject to specific criteria determined at the discretion of USTR. The petition for the product exclusion required substantial paperwork, however. Even companies with an in-house legal team typically hire a DC-based law firm experienced with international trade litigation to assist the petition, given the professional knowledge and a strong government relation needed. Also of concern to fashion companies was the low success rate of the petition. The record showed that nearly 90 percent of petitions were denied for failure to demonstrate “severe economic harm.” Eventually, since the launch of the exclusion process, fewer than 1% of apparel items subject to the Section 301 punitive tariff were exempted. Understandably, the extra financial burden and the long shot discouraged fashion companies, especially small and medium-sized, from taking advantage of the exclusion process.
In conclusion, with USTR’s latest announcement, the debate on Section 301 and the outlook of China as a textile and apparel sourcing base will continue. Notably, while economic factors matter, we shall not ignore the impact of non-economic factors on the fate of the Section 301 tariff action against China. For example, with the implementation of the Uyghur Forced Labor Prevention Act (UFLPA), only about 10% of US cotton apparel imports came from China in the first ten months of 2022 (latest data available), the lowest in a decade. As the overall US-China bilateral trade relationship significantly deteriorated in recent years and the friction between the two countries expanded into highly politically sensitive areas, the Biden administration could “willfully” choose to keep the Section 301 tariff as negotiation leverage. Domestically, President Biden also didn’t want to look “weak” on his China policy, given the bipartisan support for taking on China’s rise.
This article provided a comprehensive review of the world textiles and clothing trade patterns in 2021 based on the newly released data from the World Trade Statistical Review 2022 and the United Nations (UNComtrade). Affected by the ongoing pandemic and companies’ evolving production and sourcing strategies in response to the shifting business environment, the world textiles and clothing trade patterns in 2021 included both continuities and new trends. Specifically:
Pattern #1: As the world economy recovered from COVID, the world clothing export boomed in 2021, while the world textile exports grew much slower due to a high trade volume the year before. Specifically, thanks to consumers’ strong demand, world clothing exports in 2021 fully bounced back to the pre-COVID level and exceeded $548.8bn, a substantial increase of 21.9% from 2020. The apparel sector is not alone. With economic activities mostly resumed, the world merchandise trade in 2021 also jumped 26.5% from a year ago, the fastest growth in decades.
In comparison, the value of world textiles exports grew slower at 7.8% in 2021 (i.e., reached $354.2bn), lagging behind most sectors. However, such a pattern was understandable as the textile trade maintained a high level in 2020, driven by high demand for personal protective equipment (PPE) during the pandemic.
Nevertheless, the world textiles and clothing trade could face strong headwinds down the road due to a slowing world economy and consumers’ weakened demand. Notably, amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide. Likewise, the World Trade Organization (WTO) forecasts that the growth of world merchandise trade will be cut to 3.5% in 2022 and down further to only 1% in 2023. As a result, the world textiles and clothing trade will likely struggle with stagnant growth or a modest decline over the next two years.
Pattern #2: COVID did NOT fundamentally shift the competitive landscape of textile exports but affected the export product structure. Meanwhile, some long-term structural changes in world textile exports continued in 2021.
Specifically, China, the European Union (EU), and India remained the world’s three largest textile exporters in 2021, a pattern that has stayed stable for over a decade. Together, these top three accounted for 68% of the world’s textile exports in 2021, similar to 66.9% before the pandemic (2018-2019). Other textile exporters that made it to the top ten list in 2021 were also the same as a year ago and before the pandemic (2018-2019).
Meanwhile, the growth rate of the top ten textile exporters varied significantly in 2021, ranging from -5.5% (China) to 47.8% (India). The demand shift from PPE to apparel-related yarns and fabrics was a critical contributing factor behind the phenomenon. For example, China’s PPE-related textile exports decreased by more than $33bn (or down 43%) in 2021. In contrast, the world knit fabric exports (SITC code 655) surged by more than 30% in 2021, led by India (up 74%) and Pakistan (up 72%). Nevertheless, as consumers’ lifestyles almost reached a “new normal,” we could expect the textile export product structure to stabilize soon.
On the other hand, as a trend already emerged before the pandemic, middle-income developing countries continued to play a more significant role in textile exports, whereas developed countries lost market shares. For example, the United States, Germany, and Italy led the world’s textile exports in the 2000s, accounting for more than 20% of the market shares. However, these three countries’ shares fell to 12.8% in 2019 and hit a new low of 11.3% in 2021. In comparison, middle-income developing countries like China, Vietnam, Turkey, and India have entered the development stage of expanding textile manufacturing. As a result, their market share in the world’s textile exports rose steadily. These countries also achieved a more balanced textiles/clothing export ratio over the years, meaning more textile raw materials like yarns and fabrics can be locally produced instead of relying on imports. For example, Vietnam, known for its competitive clothing products, achieved a new high of $11.5bn in textile exports in 2021 and ranked sixth globally. Vietnam’s textiles/clothing ratio also doubled from 0.15 in 2005 to 0.37 in 2021. It is not unlikely that Vietnam’s textile exports may surpass the United States over the next few years.
Pattern #3: Countries with large-scale production capacity stood out in world clothing exports in 2021. Meanwhile, clothing exporters compete to become China’s alternatives, but there seems to be no clear winner yet.
Consumers’ surging demand and COVID-related supply chain disruptions significantly impacted the world’s clothing export patterns in 2021. As fashion brands and retailers were eager to find sourcing capacity, countries with large-scale production capacity and relatively stable supply enjoyed the fastest growth in clothing exports. For example, except for Vietnam, which suffered several months of COVID lockdowns, all other top five clothing exporters enjoyed a more than 20% growth of their exports in 2021, such as China (up 24%), Bangladesh (up 30%), Turkey (up 22%), and India (up 24%).
As another critical trend, many international fashion brands and retailers have been trying to reduce their apparel sourcing from China, driven by various economic and non-economic factors, from cost considerations and trade tensions to geopolitics. Notably, despite its strong performance in 2021, China accounted for only 23.1% of US apparel imports in 2022 (January to September), much lower than 36.2% in 2015. Likewise, China’s market shares in the EU, Japanese, and Canadian clothing import markets also fell over the same period, suggesting this was a worldwide phenomenon.
With reduced apparel sourcing from China, fashion companies have actively sought alternative sourcing destinations, but the latest trade data suggests no clear winner yet. For example, Vietnam and Bangladesh, the two most popular candidates for “Next China,” accounted for 6.5% and 5.7% shares in the world’s clothing export in 2021, still far behind China (32.1%). Interestingly, from 2015 to 2021, the world’s top four largest clothing exporters next to China (i.e., Bangladesh, Vietnam, Turkey, and India) did not substantially gain new market shares. Instead, China’s lost market was filled by “the rest of the world.”
Additionally, recent studies show that many fashion companies have switched back to the sourcing diversification strategy in 2022 as managing risks and improving sourcing flexibility become more urgent priorities. In other words, the world’s clothing export market could turn more “crowded” and competitive in the coming years.
Pattern #4: Regional supply chains remain critical features of the world textiles and clothing trade. Several factors support and shape the regional textiles and clothing trade patterns. First, as clothing production often needs to be close to where textile materials are available, many developing clothing-producing countries rely heavily on imported textile materials, primarily from more advanced economies in the same region. Second, through lowered trade barriers, regional free trade agreements also financially encouraged garment producers, particularly in Asia, the EU, and Western Hemisphere (WH), to use locally or regionally made textile materials. Further, fashion companies’ interest in “near-shoring” supported the regional supply chain, and related textiles and clothing trade flows between neighboring countries.
The latest trade data indicated that Asia’s regional textiles and clothing trade patterns strengthened further despite supply chain chaos during the pandemic. Specifically, in 2021, as many as 82% of Asian countries’ textile imports came from within Asia, up from 80% in 2015. China, in particular, has played a more prominent role as a leading textile supplier for other Asian clothing-exporting countries. For example, more than 60% of Vietnam’s textile imports came from China in 2021, a substantial increase from 23% in 2005. The same pattern applied to Pakistan, Cambodia, Bangladesh, and the Association of Southeast Asian Nations (ASEAN) members.
In January 2022, the Regional Comprehensive Economic Partnership (RCEP), a mega free trade agreement involving all major economies in Asia, entered into force. The tariff cut and very liberal rules of origin of the agreement will hopefully drive Asia’s booming regional textiles and clothing trade and further deepen its regional economic integration.
Besides Asia, the regional textiles and clothing trade pattern in the EU (or the so-called Intra-EU trade) was also in good shape. In 2021, 50.8% of EU countries’ textile imports and 37% of clothing imports came from other EU members. This pattern has changed little over the past decade, thanks to many EU countries’ commitment to maintaining local textiles and clothing production rather than outsourcing.
In comparison, the Western Hemisphere (WH) textile and apparel supply chain (e.g., clothing made in Mexico or Central America using US or regionally made textiles) seemed to struggle in recent years. As of 2021, only 20% of WH countries’ textile imports came from within WH, down from 26% in 2015. Likewise, WH countries (mainly the US and Canada) just imported 14.6% of clothing from WH in 2021, down from 15.3% in 2015 and much lower than their EU counterparts (37% in 2021). It will be interesting to see whether US and Canadian fashion companies’ expressed interest in expanding near-shoring may reverse the course.
Furthermore, the regional textiles and clothing trade patterns in Sub-Saharan Africa (SSA) are also worth watching. Compared with Asia and the EU, SSA clothing producers used much fewer locally-made textiles (i.e., stagnant at around 11% only from 2011 to 2021), reflecting the region’s lack of textile manufacturing capability. Most trade programs with SSA countries, such as the US-led African Growth and Opportunity Act (AGOA) and EU’s Everything But Arms (EBA) program, adopt liberal rules of origin for clothing products, allowing third-party textile input to be used. It can be studied whether such liberal rules of origin somehow disincentivize building SSA’s own textile manufacturing sector or are still essential given the reality of SSA’s limited textile production capacity.
Question: What does a typical day look like during your AAFA internship?
Ally: I would arrive at American Apparel and Footwear Association (AAFA)’s beautiful DC office, take the elevator up to the third floor, greet the two other interns, and make my way over to my desk. For the policy interns, our typical day consisted of working on individual projects and attending committee meetings, such as the weekly Social Responsibility Committee call with member companies, environmental and product safety meetings, trade policy meetings, and others. We also took notes on hearings and events and paid particular attention to topics related to the apparel sector. For example, I listened in and took notes on Hill hearings, workshops hosted by the World Trade Organization (WTO), and International Labour Organization (ILO) meetings. Some additional internship projects included updating country sourcing profiles for AAFA member companies to use in their factory selection process and analyzing trade data.
A very exciting and beneficial component of the AAFA internship experience was being able to attend special industry events such as the Washington International Trade Association (WITA) dinner and AAFA’s Annual Traceability and Sustainability Conference in Pittsburgh, PA. The WITA dinner is often referred to as “Trade Prom” and is packed with a ‘Who’s Who of trade policy professionals–over 500 attendees each year. Volunteering at this event with the other AAFA and WITA interns was incredible. The AAFA 2022 Traceability and Sustainability Conference in Pittsburgh, PA was another highlight of my internship experience. The conference took place at the American Eagle corporate headquarters, which was very exciting to tour. I spent three days in Pittsburgh with the AAFA team and heard presentations from top leaders in the fashion sustainability space, which was a dream! Member retailers spoke about what their companies are working on, what key challenges the industry faces, and how brands can collectively make a difference. It was a truly inspiring event and a phenomenal networking opportunity. This was an experience I will never forget!
Question: Any major projects did you work on during your internship? What did you learn from the experiences?
Ally:One of the main projects I worked on during my internship was updating AAFA’s Sourcing Profiles for their member companies. These country-specific sourcing profiles include essential information relevant to apparel companies’ sourcing decisions, such as a country’s political situation, minimum wage, membership in trade agreements, and economic outlook. Updating these sourcing profiles allowed me to understand why fashion brands and apparel retailers choose to source from particular countries over others. Having this solid background knowledge of leading apparel-sourcing destinations helps me tremendously, especially given that I am very interested in pursuing a career in sourcing. Some other projects I worked on include analyzing the latest US import patterns for travel goods and creating a “Corporate Social Responsibility Checklist” for AAFA members.
Question: What insights did you learn about the fashion apparel industry from the internship? For example, the key issues the industry cares about or the challenges it faces.
Ally: Through this highly valuable internship with AAFA, I saw the fashion industry through a unique policy and “DC” perspective. A key issue the industry cares about is sustainability. For example, fashion companies are increasingly implementing more and more environmentally and socially responsible business practices. Many leading US apparel brands shared their perspectives on building a more sustainable and transparent fashion supply chain at AAFA’s Traceability and Sustainability Conference. Fashion companies are also investing in innovative new technologies to work toward a closed-loop, circular economy.
Another challenge the fashion industry faces today is improving the supply chain’s transparency. For example, the alleged forced labor in China’s Xinjiang region is a huge concern to US apparel companies. With the recent implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022, many US fashion brands and retailers are seeking advice on how to comply with this new law and minimize potential sourcing disruptions. Now, more than ever, apparel companies need to ensure they can map their supply chains all the way back to the very beginning, such as where they source their raw cotton.
There is also much interest among fashion companies in finding new sourcing destinations outside of China. For example, Sri Lanka sees this as an opportunity, as well as other developing countries such as Vietnam and Cambodia. We could see some notable shifts in US fashion companies’ sourcing patterns in the coming years.
Further, this Fall, I have been interning virtually at Worldwide Responsible Accredited Production (WRAP). WRAP is a non-profit organization headquartered in Arlington VA, with staff worldwide. WRAP certifies factories in the apparel, footwear, and sewn-products sector regarding their social responsibility performance. WRAP helps factories achieve this certification by conducting audits and working with factories directly to improve working conditions. AAFA and WRAP work closely with one another on numerous projects and industry events, and it has been wonderful to connect these two internship experiences. For example, I read and studied factory audit reports at WRAP. This allowed me to see fashion companies’ and auditors’ respective perspectives when examining a factory’s social compliance. Something that I took away from both internships is that garment factories could use auditing as an opportunity rather than a burden. By investing time and energy into improving factory working conditions and getting certified by a third-party organization, such as WRAP, a factory can attract more retailers, gain more business, and provide a better working environment for its workers.
Question: How do your learning experiences at FASH help with your internship? Any specific knowledge or skillsets do you find most critical?
Ally:My learning experiences in the UD’s FASH department were what influenced and inspired me to pursue the internship with AAFA and now with WRAP. FASH455 (Global apparel trade and sourcing), specifically, is what sparked my interest in apparel sourcing, supply chain, and trade. Before taking this class, I certainly had not thought about how free trade agreements affect the fashion industry. I found all the sourcing rules of origin such as “yarn-forward” and “fabric-forward” to be interesting and intriguing and I was eager to learn more. That is part of what led me to seek out these fashion opportunities in DC.
What I’ve learned through my time in the FASH department is that there are so many career directions a fashion merchandising degree can take you. Fashion is not all about runway shows and magazines- although those elements are very exciting. Many people often do not think about so many other aspects of the industry, like sourcing and trade. The fashion department at UD does a great job in providing students with a well-rounded education and improving students’ critical thinking skills, writing skills, data analytic skills, as well as other skills useful in preparing us for our future careers.
Being selected as a UD Summer Scholar during the Summer of 2021 was another fascinating and unique learning experience, which allowed me to begin researching an area of the fashion industry that I am most interested in–sustainability. Specifically, working with Dr. Lu, I researched US fashion retailers’ merchandising and marketing strategies for clothing made from recycled materials. I expanded the Summer Scholar’s research project into my master’s thesis which was recently published in the Journal of Fashion Design, Technology and Education. This is super exciting!
Choosing the University of Delaware and its fashion department for my education was the best choice I could have made. I have such positive memories such as my first business of fashion class with Professor Ciotti, my assortment planning and buying class with Professor Shaeffer, where we simulated working for a department store, and Dr. Cao’s sustainability and textile courses. Being Co-President of the Sustainable Fashion Club was also a highlight of my time in the FASH department. All of my coursework and experiences in the FASH department gave me the confidence needed to succeed in my internship and work experiences.
Question: What’s your plan after graduation?
Ally: I am currently nearing graduation from my Master’s program. I am on track to receive my Master’s degree in Spring 2023 (or earlier!). I am looking for full-time job opportunities in the realm of fashion sourcing, sustainability, and supply chain. I am hoping to live in either New York or DC after graduation, depending on what job opportunities become available. I am also keeping an open mind to other locations/job prospects. I am eager and excited to start my career in an industry that I am so passionate about, and I look forward to seeing where the future takes me!
The full interview, conducted by Modaes’ Editor-in-Chief, Iria P. Gestal, is available HERE (in Spanish). Below is an abridged translation.
Question: Fashion brands have reduced their exposure to China markedly in recent years. What has been the turning point?
Sheng: We could interpret fashion companies’ decisions in the context of their overall sourcing diversification strategy. Many companies want to diversify their sourcing base because of the ever-uncertain business environment, ranging from the continuation of the supply chain disruptions, and the Russia-Ukraine war, to the rising geopolitical tensions. As China is one of the largest sourcing bases for many fashion companies, reducing “China exposure” is unavoidable.
Question: Isn’t there a specific concern about sourcing from China?
Sheng: Definitely! The Uyghur Forced Labor Prevention Act (UFLPA), officially implemented in the summer of 2022, is a big deal. For example, back in 2017, around 30% of US cotton apparel came from China. However, because of the new law and concerns about the risk of forced labor, China’s market shares fell to only 10% as of August 2022. One well-known US brand selling jean products cut their sourcing from China to just 1% of the total.
Question: Is it possible that the apparel sector as a whole reaches that point?
Sheng: Whether we like it or not, it is still unlikely to get rid of China from the supply chain entirely in the short to medium terms. Notably, China continues to play a significant role as a supplier of raw textile materials, particularly for leading apparel-exporting countries in Asia like Vietnam, Bangladesh, and Cambodia. Diversifying textile raw materials sourcing will be a longer and more complicated process.
Question: Is the “China Plus One” strategy no longer enough?
Sheng: The “China Plus One” strategy does not necessarily mean companies only source from “two” countries. Instead, the phrase refers to companies’ sourcing diversification strategy, trying to avoid “putting all eggs in one basket.” However, neither is the case that fashion companies blindly source from more countries today. Notably, many companies attempt to leverage a stronger relationship with key vendors to mitigate sourcing risks and achieve more sourcing flexibility and agility. For example, fashion companies increasingly tend to work with the so-called “super vendors,” i.e., those with multiple country presence and vertical manufacturing capabilities.
Question: Some politicians have said that the war in Russia has been the “geopolitical awakening” of Europe. Has the same thing happened in fashion?
Sheng: Indeed! We say fashion is a “global sector” because companies “produce anywhere in the world and SELL anywhere in the world.” However, many fashion brands and retailers have had to leave Russia due to the war and geopolitics. The same could apply to China—for example, China’s zero-COVID policy has posed a dilemma for western fashion companies operating there—whether to stay or leave the country, which used to be regarded as one of the fastest-growing emerging consumer markets. Likewise, more and more fashion companies have chosen to develop “dual supply chains” in response to the geopolitical tensions between China and the West—“made in China for China” and “made elsewhere for the rest of the world/Western market.” However, we must admit that this is not an ideal way to optimize the global supply chain.
Question: Has the apparel sector been “naïve” until now, ignoring these risks?
Sheng: I do not think so. In fact, most fashion companies and their leaders closely watch world affairs. As I recall, some visionary companies started evaluating geopolitics’ supply chain implications last year. Indeed, a peaceful world with few trade barriers is an ideal business environment for fashion companies. Unfortunately, there are too many “black swans” to worry about these days. As another example, “friend-shoring,” meaning only trading with allies or “like-minded” countries, becomes increasingly popular today. This phenomenon is also the result of geopolitics. With the looming of a new cold war (or the winter is already here), fashion companies may need to use imagination and prepare for the “worst scenarios” to come.
Question: Is a textile and apparel supply without China a more expensive one?
Sheng: It depends on how to look at it. The most challenging part of “reducing China exposure” is the textile raw materials. But we could think outside the box. For example, my recent studies show that China is NOT the top supplier of clothing made from recycled textile materials. Instead, fashion companies are more likely to source such products locally from the US or EU, or Africa—like Jordan, Tunisia, and Morocco, because of the unique supply chain composition. In other words, sourcing more clothing made from recycled textile materials may help fashion companies achieve several long-awaited goals, such as diversifying sourcing base, expanding nearshoring, and reducing sourcing costs.
Notes & Comments: According to Secretary Yellen in her remarks in April 2022, “friend-shoring” refers to a commitment to work with countries that “have a strong adherence to a set of norms and values about how to operate in the global economy and about how to run the global economic system.”
The emergence of “friend shoring” could affect US apparel sourcing directly and profoundly. For example:
US fashion companies are strongly encouraged to reduce China exposure, diversify their sourcing base and move their supply chain back to the Western Hemisphere.
Geopolitics is given more weight in fashion companies’ sourcing decisions.
The Biden administration launched the Indo-Pacific Economic Framework (IPEF)to counter China’s influences and restore American leadership in the Indo-Pacific region. IPEF members include some critical apparel-producing countries such as Vietnam and India (however, India will not participate in the trade pillar negotiation). Meanwhile, almost all Asia-based IPEF members (except for India) have joined the Regional Comprehensive Economic Partnership (RCEP), a traditional free trade agreement led by China.
Trade policies continue to expand from “measures at the border” (e.g., tariffs and non-tariff barriers) to “measures behind the border.” For example, improving labor standards and combating climate change have become increasingly central to the Biden administration’s trade agenda. Likewise, trade policies are more often used to meet foreign policy goals or address national security concerns (e.g., the decision to keep the Section 301 and Section 232 tariffs).
However, the concept of “friend-shoring” is not without controversies. For example, many developing countries, especially the least developed ones (LDCs) could be left out or further marginalized as the US and the EU prioritize their trade ties with allies or strategic geographic regions. Others worry about the increasing “weaponization of trade” and the implications of “friend-shoring” for the future of globalization, trade liberalization, and the multilateral trading system.
Apparel is a $2.5 trillion global business, involving over 120 million workers worldwide and playing a uniquely critical role in the post-COVID economic recovery. The session intends to facilitate constructive dialogue regarding the progress, challenges, and opportunities of building a more resilient and sustainable fashion apparel supply chain in the Post-COVID world, which matters significantly to ALL stakeholders, from fashion brands, garment workers, and policymakers to ordinary consumers. The session will explore: 1) Why does building a more resilient and sustainable fashion apparel supply chain matter in the post-COVID world? What role can trade and trade policy play? 2) What significant progress has made the apparel supply chain more resilient and sustainable? What key challenges remain and why? 3) What needs to be done further to make the apparel supply chain more resilient and sustainable, particularly in the post-COVID world?
Panelists:
Dr. Arianna Rossi, Senior Research and Policy Specialist, International Labour Organization (ILO)
Ralph Kamphöner, Head of EU Office, Confederation of the German Textile and Fashion Industry
Dr. Sheng Lu, Associate Professor of Fashion and Apparel Studies, University of Delaware
Kekeli Ahiable, Advisor, Tony Blair Institute
Laura Husband, Just Style, Managing Editor (Moderator)
About the 2022 World Trade Organization (WTO) Public Forum
The 2022 WTO Public Forum, held from Sep 27 to 30, in Geneva, Switzerland) looked at how trade can contribute to post-pandemic economic recovery. The Forum examined, in particular, how trade rules can be strengthened, and government policies improved to create a more resilient, sustainable, and inclusive trading system. The Forum included three subthemes: Leveraging technology for an inclusive recovery, Delivering a trade agenda for a sustainable future, Framing the future of trade.
Patrick Fox, Senior Director, Customs and Trade Strategy, VF Corporation
Cen Williams, Hub Leader for Africa and Middle East region, PVH
Greg Poole, Chief Sourcing Officer, The Children’s Place
Background:
Trade preference programs provide duty-free US market access to selected exports of eligible developing countries. Unlike free trade agreements, all preference programs are unilateral, meaning they do not require reciprocal trade concessions.
There are five major trade preference programs enacted in the United States, including:
Generalized System of Preferences (GSP), which applies to developing countries as a whole. However, the US GSP program excludes most textile and apparel products due to import competition concerns. GSP expired on December 31, 2020 and Congress is working with stakeholders to renew the program.
Four trade preference programs that target specific regions, including the Andean Trade Preference Act (APTA), the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), the African Growth and Opportunity Act (AGOA), and the Haitian Opportunity through Partnership Encouragement (HOPE) Act. In 2021, about 2% of US apparel imports came from trade preference partners.
US trade preferences reflect both economic development and foreign policy goals. In addition to the economic benefits, eligibility criteria create incentives for beneficiary countries to support objectives such as adopting and enforcing internationally recognized worker rights, reducing barriers to investment, and enforcing intellectual property rights.
However, the trade preference program is not without controversies. For example, it is debatable whether the trade preference program effectively enhances the genuine export competitiveness of developing countries. Also, despite preferential duty benefits, US fashion companies often hesitate to source more from trade preference partners due to concerns about a lack of critical infrastructure, limited production capacity, and political instability.
First, US apparel imports enjoyed a decent growth but started to face softening demand.
Thanks to consumers’ spending, in the first half of 2022, US apparel imports went up 40% in value and 24% in quantity from a year ago.
However, due to US consumers’ weakening demand amid the economic downturn, the speed of import expansion is slowing down quickly. As an alert, the US consumer confidence index (CCI) fell to 54.8 in June 2022 (January 2019=100), the lowest since the pandemic. This result suggests that US consumers were increasingly worried about their household’s financial outlook and would hold back their discretionary clothing spending.
The month-over-month growth of US apparel imports dropped to only 2.6% in value and nearly zero in quantity in June 2022 from over 10% at the beginning of the year.
As the trajectory of the US economy remains highly uncertain in the medium term, we could expect many US fashion companies to turn more conservative about placing new sourcing orders in the second half of 2022 to control inventory and avoid overstock.
Second, fashion companies struggled with hiking apparel sourcing costs driven by multiple factors.
The price index of US apparel imports reached 103.9 in June 2022 (January 2019=100), a 3.1% increase from a year ago and the highest since 2019. USITC data further shows that, of the over 200 types of apparel items (HS Chapters 61 and 62) at the six-digit code level, nearly 70% had a price increase in the first half of 2022 from a year ago, including almost 40% experiencing a price increase exceeding 10 percent.
According to the 2022 Fashion Industry Benchmarking Study recently released by the US Fashion Industry Association (USFIA), 100 percent of respondents expect their sourcing costs to increase in 2022, including nearly 40 percent expecting a substantial cost increase from a year ago. Further, respondents say that almost everything has become more expensive this year, from textile raw materials, shipping, and labor to the costs associated with compliance with trade regulations.
To make the situation even worse, the more expensive “cost of goods” resulted in heavier burdens of ad valorem import duties for US fashion companies. USITC data shows that in the first five months of 2022, US companies paid $6,117 million in tariffs for apparel imports (HS Chapters 61 and 62), a significant increase of 42.9% from a year ago. Of these import duties paid by US companies, about 30% (or $1,804 million) resulted from the controversial US Section 301 action against Chinese imports. Because of the Section 301 tariff action, the average applied US tariff rate for apparel imports also increased from 17.2% in 2018 to 18.7% in the first half of 2022.
Even though the US retail price index for clothing reached 102.7 in June 2022 (January 2019=100), the price increase was behind the import cost surge over the same period. In other words, given the intense market competition and weaker demand, US fashion companies couldn’t pass the sourcing cost increase to consumers entirely.
Third, US fashion companies continued to diversify their sourcing base in 2022, which benefited large-scale suppliers in Asia.
The Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.11 in 2021 to 0.10 in the first half of 2022, suggesting that US apparel imports came from even more diverse sources. Similarly, the CS3 index, measuring the total market shares of the top three suppliers (i.e., China, Vietnam, and Bangladesh), fell below 50% in the first half of 2022, the lowest since 2018.
The Asia region remains the dominant source of apparel for US fashion companies: about 74.4% of US apparel imports came from Asian countries in the first half of 2022 (by value), which has stayed stable for over a decade.
One critical factor behind the apparent “contradictory” phenomenon is US fashion companies’ intention to reduce their “China exposure” further. Notably, considering all primary sourcing factors, from cost, speed to market, production flexibility, agility, and compliance risks, relatively large-scale Asian suppliers are the most likely alternatives to “Made in China.” Thus, the CR5 index excluding China (i.e., the market shares of Vietnam, Bangladesh, Indonesia, India, and Cambodia) increased from 40.7% in 2021 to 45.5% in the first half of 2022.
Fourth, US fashion companies’ evolving China sourcing strategy is far more subtle and complicated than simply “moving out of China.”
US fashion companies doubled their efforts to reduce sourcing from China in 2022, particularly in response to the newly implemented Uyghur Forced Labor Prevention Act (UFLPA) and the growing geopolitical risks. For example, measured in value, only 13.2% of US cotton apparel imports (OTEXA code 31) came from China in the first half of 2022, which fell from 14.4% a year ago and much lower than nearly 30% back in 2017.
Industry sources indicate that US fashion companies are “upgrading” what they source from China, possibly to offset the Section 301 punitive tariffs. The structural change includes importing less basic apparel items (e.g., tops and bottoms) and more sophisticated and higher-valued categories (e.g., dresses). Also, US fashion companies increasingly source from China for apparel items sold in the high-end market. For example, measured by the number of Stock Keeping Units (SKU), about 94% of apparel labeled “Made in China” sold in the US retail market targeted the value segment in 2018. However, of those apparel “Made in China” newly launched to the US retail market between January and July 2022, less than 2% were in the value segment. Instead, items targeting the higher-priced premium and mass market segments surged from 5% to 64%. Another 33% of “Made in China” were luxury apparel items. In other words, US fashion companies no longer see China as a sourcing base for cheap low-end products. Their sourcing decisions regarding China would give more consideration to non-price factors.
Fifth,US apparel imports from the free trade agreements and trade preference programs partners stayed relatively stable in 2022 but lacked growth.
Despite the growing enthusiasm among US fashion companies for expanding near sourcing from the Western Hemisphere, the trade volume stayed stagnant. For example, in the first half of 2022, members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) accounted for 8.8% of US apparel imports in quantity and 9.9% in value, lower than a year ago (i.e., 9.9% in quantity and 11.1% in value). Likewise, Mexico also reported lower market shares in the US apparel import market in 2022. The results remind us that encouraging more US apparel sourcing from free trade agreements and preference program partners should go beyond offering preferential duty treatment.
Product diversification is a critical area that needs improvement, particularly regarding Western Hemisphere sourcing. For example, results show that US apparel sourcing from CAFTA-DR and Mexico generally concentrated on basic items such as tops and bottoms. In comparison, Asian countries, such as China, Vietnam, and Bangladesh, could offer much more diverse categories of products. This explains why US fashion companies treat large-scale Asian countries as their preferred alternatives to “Made in China” rather than moving sourcing orders to CAFTA-DR or Mexico.
Even though the ultimate goal is to expand US apparel sourcing from the Western Hemisphere, we need to make more efforts to practically and creatively solve the bottleneck of textile raw material supply facing garment producers in the region.
Zara (UK) sells plain trench coats “Made in Myanmar”
The prospect of Myanmar as an apparel sourcing base has been a hot-button issue since the country’s 2021 military coup. Notably, the labor-intensive apparel sector remained one of Myanmar’s largest employers and accounted for more than 30% of the country’s total exports in 2021 (UNComtrade, 2022). However, the military coup had also resulted in substantial job losses and growing concerns about the working conditions in Myanmar’s apparel sector.
Nevertheless, fashion companies’ Myanmar apparel sourcing strategy seems to evolve in 2022 in response to the shifting business environment, particularly the inflation factor and the need to reduce “China exposure.” Specifically:
First, data from UNComtrade shows that fashion brands and retailers continued to source apparel from Myanmar in 2022, although the practice varied by country.
While Myanmar’s apparel export suffered a notable decline in 2021, it somehow bounced back in 2022 (Jan-May). Among its top apparel export markets, Myanmar’s market shares stayed stable in the EU and the US, and it enjoyed a remarkable increase in Japan (i.e., back to the level before the military coup).
That being said, Mynammar’s market shares in the leading apparel import markets (e.g., US, EU, and Japan) remain tiny (less than 5%). Likewise, fashion brands and retailers typically treat Myanmar as a supplementary sourcing base as part of their overall sourcing diversification strategy.
Meanwhile, Myanmar is gradually diversifying its export market after the military coup. For example, over 8.5% of Myanmar’s apparel exports went to other Association of Southeast Asian Nations (ASEAN) members in 2021, up from only 3.0% in 2020 and 2.7% in 2019.
As a developing country, Myanmar relies on imported textile raw materials for its apparel production. In 2021, 97.3% of Myanmar’s imported textiles came from Asia, including 72% from China.
Second, Myanmar’s apparel export performance is associated with the level of trade-related sanctions imposed by the importing countries.
US has imposed the most significant sanctions since Myanmar’s 2021 military coup, such as suspending the 2013 Trade and Investment Framework Agreement (TIFA) and issuing the Business Advisory for Burma in January 2022. Not surprisingly, US fashion brands and retailers are among the most cautious about sourcing from Myanmar after the military coup. For example, in the 2022 USFIA Industry Benchmarking Study released in July 2022, only about 9.4% of respondents reported sourcing from Myanmar, much lower than 19% in 2020 before the military coup.
In comparison, the EU continues to allow apparel exports from Myanmar to enjoy duty-free benefits under the Everything But Arms (EBA) program. Likewise, without facing major trade-related sanctions, Myanmar’s apparel exports to Japan remain qualified for duty-free benefits under the Generalized System of Preferences Program for Least Developed Countries (as of April 1, 2022).
Third, from the business perspective, fashion companies commonly use Myanmar as a low-cost sourcing destination for specialized product categories, particularly outwear.
Outwear is the single largest category of products fashion companies sourced from Myanmar (around 37%).In comparison, fashion companies typically source tops and bottoms from Bangladesh and Vietnam.
Also, industry sources indicate that, on average, outwear “Made in Myanmar” (around $70/piece) is priced much lower than those sourced from China (over $200/piece) and Vietnam (over $150/piece) in the retail market (EU, US, and Japan).
As fashion companies struggled with the hiking sourcing costs in 2022 and the pressure of reducing China exposure further, Myanmar remains a reasonable sourcing destination to fulfill certain orders from the business perspective.
This study offers valuable input and practical policy recommendations from U.S. apparel companies’ perspectives regarding expanding U.S. apparel sourcing from CAFTA-DR members. For the study, we consulted executives at 27 leading U.S.-based apparel companies (note: 85% report having annual revenues exceeding $500 million; over 95% have been sourcing apparel from the CAFTA-DR region for more than ten years).
The results confirm that expanding U.S. apparel sourcing from CAFTA-DR could be the best chance to effectively create more jobs in Central America and solve the root causes of migration there. To achieve this goal, we need to focus on four areas:
First, improve CAFTA-DR’s apparel production capacity and diversify its product offers.
As many as 92 percent of respondents report currently sourcing apparel from CAFTA-DR members.
Highly consistent with the macro trade statistics, the vast majority of respondents (i.e., 60 percent) place less than 10 percent of their company’s total sourcing orders with CAFTA-DR members.
Whereas respondents rate CAFTA-DR members overall competitive in terms of “speed to market,” they express concerns about CAFTA-DR countries’ limited production capacity in making various products. As a result, U.S. companies primarily source basic fashion items like T-shirts and sweaters from the region. These products also face growing price competition with many alternative sourcing destinations.
Improving CAFTA-DR’s production capacity and diversifying product offers would encourage U.S. apparel companies to move more sourcing orders from Asia to the region permanently.
Second, practically solve the bottleneck of limited textile raw material supply within CAFTA-DR and do NOT worsen the problem.
The limited textile raw material supply within CAFTA-DR is a primary contributing factor behind the region’s stagnated apparel export volume and a lack of product diversification.
Notably, respondents say for their apparel imports from CAFTA-DR members, only 42.9% of fabrics, 40.0% of sewing threads, and 23.8% of accessories (such as trims and labels) can be sourced from within the CAFTA-DR area (including the United States). CAFTA-DR’s textile raw material supply problem could worsen as the U.S. textile industry switches to making more technical textiles and less so for apparel-related fabrics and textile accessories.
Maintaining the status quo or simply calling for making the CAFTA-DR apparel supply chain more “vertical” will NOT automatically increase the sourcing volume. Instead, allowing CAFTA-DR garment producers to access needed textile raw materials at a competitive price will be essential to encourage more U.S. apparel sourcing from the region.
Third, encourage more utilization of CAFTA-DR for apparel sourcing.
CAFTA-DR plays a critical role in promoting U.S. apparel sourcing from the region. Nearly 90 percent of respondents say the duty-free benefits provided by CAFTA-DR encourage their apparel sourcing from the region.
The limited textile supply within CAFTA-DR, especially fabrics and textile accessories, often makes it impossible for U.S. companies to source apparel from the region while fully complying with the strict “yarn-forward” rules of origin. As a result, consistent with the official trade statistics, around 31 percent of respondents say they sometimes have to forgo the CAFTA-DR duty-free benefits when sourcing from the region.
Respondents say the exceptions to the “yarn-forward” rules of origin, including “short supply,” “cumulation,” and “cut and assemble” rules, provide necessary flexibilities supporting respondents’ apparel sourcing from CAFTA-DR members. Around one-third of respondents utilize at least one of these three exceptions when sourcing from CAFTA-DR members when the products are short of meeting the strict “yarn-forward” rules of origin. It is misleading to call these exceptions “loopholes.”
Fourth, leverage expanded apparel sourcing to incentivize more investments in the CAFTA-DR region’s production and infrastructure.
U.S. apparel companies are interested in investing in CAFTA-DR to strengthen the region’s sourcing and production capacity. Nearly half of respondents explicitly say they will make investments, including “building factories or expanding sourcing or manufacturing capacities” in the CAFTA-DR region through 2026.
CAFTA-DR will be better positioned to attract long-term investments in its textile and apparel industry with a sound and expanded apparel sourcing volume.
In February and March of 2022, the Office of the United States Trade Representative (USTR) organized and hosted a series of four webinars on CAFTA-DR trade in textiles and apparel. The objective was to enhance stakeholder understanding of the textile and apparel provisions of CAFTA-DR and identify opportunities for increasing and diversifying two-way trade between the United States and CAFTA-DR partner countries.
Webinar 1: Trends and Opportunities in CAFTA-DR Textile and Apparel Trade
Webinar 2: Making Use of CAFTA-DR’s Rules of Origin for Apparel
Webinar 3: The CAFTA-DR Short Supply Mechanism: What It Is and How To Use It
Webinar 4: Understanding Customs Claims and Customs Verifications in CAFTA-DR
Note: According to the 2022 USFIA Fashion Industry Benchmarking Study, US fashion companies demonstrate new excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). More than 60 percent of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.
Respondents also say the exceptions to the “yarn-forward” rules of origin, such as the “short supply” and “cumulation” mechanisms, provide essential flexibility that encourages more apparel sourcing from CAFTA-DR members.
However, U.S. apparel sourcing from CAFTA-DR has yet to achieve its full potential. For example, measured in value, only 10.2% of US apparel imports came from CAFTA-DR members in May 2022 (and 9.7% year to date), almost no change from 10.6% in 2021. Meanwhile, the CAFTA-DR utilization rate for apparel imports was stagnant at about 75%-80% since 2015, meaning 20-26 percent of U.S. apparel imports from CAFTA-DR members did NOT claim preferential duty benefits every year.
U.S. fashion companies report significant challenges coming from the macro-economy in 2022, particularly inflation and rising cost pressures. However, most respondents still feel optimistic about the next five years.
Respondents rated “increasing production or sourcing costs” and “inflation and outlook of the U.S. economy” as their 1st and 3rd top business challenges in 2022.
As a new record, 100 percent of respondents expect their sourcing costs to increase in 2022, including nearly 40 percent expecting a substantial cost increase from a year ago. Further, almost everything has become more expensive this year, from textile raw materials, shipping, and labor to the costs associated with compliance with trade regulations.
Over 90 percent of respondents expect their sourcing value or volume to grow in 2022, but more modest than last year.
Despite the short-term challenges, most respondents (77 percent) feel optimistic or somewhat optimistic about the next five years. Reflecting companies’ confidence in their businesses, nearly ALL respondents (97 percent) plan to increase hiring over the next five years.
U.S. fashion companies adopt a more diverse sourcing base in response to supply chain disruptions and the need to mitigate growing sourcing risks.
Asia remains the dominant sourcing base for U.S. fashion companies—eight of the top ten most utilized sourcing destinations are Asia-based, led by China, Vietnam, Bangladesh, and India.
More than half of respondents (53 percent) report sourcing apparel from over ten countries in 2022, compared with only 37 percent in 2021.
Reducing “China exposure” is one crucial driver of U.S. fashion companies’ sourcing diversification strategy. One-third of respondents report sourcing less than 10% of their apparel products from China this year. In addition, a new record of 50 percent of respondents sources MORE from Vietnam than China in 2022.
Nearly 40 percent of respondents plan to “source from more countries and work with more suppliers” over the next two years, up from only 17 percent last year.
Managing the risk of forced labor in the supply chain is a top priority for U.S. fashion companies in 2022, especially with the new implementation of the Uyghur Forced Labor Prevention Act (UFLPA).
Over 95 percent of respondents expect UFLPA’s implementation to affect their company’s sourcing. Notably, more than 85 percent of respondents plan to cut their cotton-apparel imports from China, and another 45 percent to further reduce non-cotton apparel imports from the country.
Most respondents (over 92 percent) do NOT plan to reduce apparel sourcing from Asian countries other than China. However, nearly 60 percent of respondents also would “explore new sourcing destinations outside Asia” in response to UFLPA.
Mapping and understanding the supply chain is a critical strategy adopted by U.S. fashion companies to address the forced labor risks in the supply chain. Almost all respondents currently track Tier 1 and 2 suppliers. With the help of new traceability technologies, 53 percent of respondents have started tracking Tier 3 suppliers this year (i.e., those manufacturing yarn, threads, and trimmings), a substantial increase from 25-36 percent in the past.
There is considerable new excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Respondents also call for more textile raw sourcing flexibility to encourage apparel sourcing from the CAFTA-DR region.
CAFTA-DR plays a more significant role as a sourcing base. About 20 percent of respondents place more than 10% of their sourcing orders from the region, doubling from 2021.
Over the next two years, more than 60 percent of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.
CAFTA-DR is critical in promoting U.S. apparel sourcing from the region. Around 80 percent of respondents took advantage of the agreement’s duty-free benefits when sourcing apparel from the region this year, up from 50—60 percent in the past.
Respondents say the exceptions to the “yarn-forward” rules of origin, such as the “short supply” and “cumulation” mechanisms, provide essential flexibility that encourages more apparel sourcing from CAFTA-DR members.
Respondents say improving textile raw material supply is critical to encouraging more U.S. apparel sourcing from CAFTA-DR members. Particularly, “allowing more flexibility in souring fabrics from outside CAFTA-DR” and “improving yarn production capacity and variety within CAFTA-DR” are the top two priorities.
U.S. fashion companies strongly support another ten-year renewal of the African Growth and Opportunity Act (AGOA). Meanwhile, Ethiopia’s loss of AGOA eligibility discourages U.S. apparel sourcing from the ENTIRE AGOA region.
As much as 75 percent of respondents say another ten-year AGOA renewal will encourage more apparel sourcing from the region and making investment commitments.
However, despite the tariff benefits and the liberal rules of origin, respondents express explicit concerns about the region’s lack of competitiveness in speed to market, political instability, and having an integrated regional supply chain.
Ethiopia’s loss of AGOA benefits had a notable negative impact on sourcing from the country AND the entire AGOA region. Notably, no respondent plans to move sourcing orders from Ethiopia to other AGOA beneficiaries.
The event is hosted by the Association of Southeast Asian Nations (ASEAN) Secretariat.
About the webinar: This webinar seeks to understand the opportunities offered by the Regional Comprehensive Economic Partnership (RCEP) Agreement for the garment and textile industry in the region. Considering that the garment and textile industry involves a large number of MSMEs in its supply chain, it would be important to understand how MSMEs can utilise the RCEP Agreement to grow their business and further integrate themselves into the global supply chain, noting that RCEP members are critical apparel-sourcing country for many big global players in the industry.
The first part of the event includes three presentations. 1) textile and apparel trade patterns in the RCEP region and how to read RCEP’s detailed tariff phaseout schedule. 2) RCEP rules of origin for textiles and apparel; and 3) customs procedure
In the second half, three companies from Cambodia, Thailand, and Indonesia shared their perspectives about the potential impact of RCEP on their businesses.
Speakers:
Dr. Sheng Lu, Associate Professor, Department of Fashion and Apparel Studies, University of Delaware (presentation starts at 17m41s)
Mr. Chy Sotharith, Chief of Non-Tariff Measures and Export-Import Policy Bureau, Department of Export-Import, General Department of Trade Support Services, Ministry of Commerce, Cambodia
Ms. Suchaya Chinwongse, Former Expert of Rules of Origin, the Customs Department of Thailand
Mr. Prama Yudha Amdan, Head of Corporate Communications and PR, Assistant President Director Asia Pacific Fibers
Mr. Kaing Monika Deputy Secretary General of Garment Manufacturers Association in Cambodia (GMAC)
Mr. Jumnong Nawasmittawong, Executive Advisory Board to Textile Industry Club, The Federation of Thai Industries.
The latest trade data shows that in the first four months of 2022, US apparel imports increased by 40.6% in value and 25.9% in quantity from a year ago. However, the seemingly robust import expansion is shadowed by the rising market uncertainties.
Uncertainty 1: US economy. As the US economic growth slows down, consumers have turned more cautious about discretionary spending on clothing to prioritize other necessities. Notably, in the first quarter of 2022, clothing accounted for only 3.9% of US consumers’ total expenditure, down from 4.3% in 2019 before the pandemic. Likewise, according to the Conference Board, US consumers’ confidence index (CCI) dropped to 106.4 (1985=100) in May 2022 from 113.8 in January 2022, confirming consumers’ increasing anxiety about their household’s financial outlook.
Removing the seasonal factor, US apparel imports in April 2022 went up 2.8% in quantity and 3.0% in value from March 2022, much lower than 9.3% and 11.9% a month ago (i.e., March 2022 vs. February 2022). The notable slowed import growth reflects the negative impact of inflation on US consumers’ clothing spending. According to the Census, the value of US clothing store sales marginally went up by 0.8% in April 2022 from a month ago, also the lowest so far in 2022.
Apparel import price index
Uncertainty 2: Worldwide inflation. Data from the Bureau of Economic Analysis shows that the price index of US apparel imports reached 103.1 in May 2022 (May 2020=100), up from 100.3 one year ago (i.e., a 2.8% price increase). At the product level (i.e., 6-digit HS Code, HS Chapters 61-62), over 60% of US apparel imports from leading sources such as China, Vietnam, Bangladesh, and CAFTA-DR experienced a price increase in the first quarter of 2022 compared with a year ago. The price surge of nearly 40% of products exceeded 10 percent. As almost everything, from shipping, textile raw materials, and labor to energy, continues to soar, the rising sourcing costs facing US fashion companies are not likely to ease anytime soon.
The deteriorating inflation also heats up the debate on whether to continue the US Section 301 tariff action against imports from China. Since implementing the punitive tariffs, US fashion companies have to pay around $1 billion in extra import duties every year, resulting in the average applied import tariff rate for dutiable apparel items reaching almost 19%. Although some e-commerce businesses took advantage of the so-called “de minimis” rule (i.e., imports valued at $800 or less by one person on a day are not required to pay tariffs), over 99.8% of dutiable US apparel imports still pay duties.
Uncertainty 3: “Made in China.” US apparel imports from China in April 2022 significantly dropped by 26.7% in quantity and 24.6% in value from March 2022 (seasonally adjusted). China’s market shares also fell to a new record low of 26.3% in quantity and 16.8% in value in April 2022. The zero-COVID policy and new lockdown undoubtedly was a critical factor contributing to the decline. Fashion companies’ concerns about the trajectory of the US-China relations and the upcoming implementation of the new Uyghur Forced Labor Prevention Act (UFLPA) are also relevant factors. For example, only 10.5% of US cotton apparel imports came from China in April 2022, a further decline from about 15% at the beginning of the year. Given the expected challenges of meeting the rebuttable presumption requirements in UFLPA and the high compliance costs, it is not unlikely that US fashion companies may continue to reduce their China exposure.
As US fashion companies source less from China, they primarily move their sourcing orders to China’s competitors in Asia. Measured in value, about 74.8% of US apparel imports came from Asia so far in 2022 (January-April), up from 72.8% a year ago. In comparison, there is no clear sign that more sourcing orders have been permanently moved to the Western Hemisphere. For example, in April 2022, CAFTA-DR members accounted for 9.3% of US apparel imports in quantity (was 10.8% in April 2021) and 10.2% in value (was 11.4% in April 2021).
Uncertainty 4: Shipping delays. Data suggests we are not out of the woods yet for shipping delays and supply chain disruptions. For example, as Table 2 shows, the seasonable pattern of US apparel imports in March 2022 is similar to January before the pandemic (2017-2020). In other words, many US fashion companies still face about 1.5-2 months of shipping delays. Additionally, several of China’s major ports were under strict COVID lockdowns starting in late March, including Shanghai, the world’s largest. Thus, the worsened supply chain disruptions could negatively affect the US apparel import volumes in the coming months.
Kekeli Ahiableis a private sector development Advisor with the Tony Blair Institute’s Industrialisation Practice. Working with industry leaders over the past 10 years, she has facilitated business and job creation opportunities in the trade infrastructure, supply chain, and manufacturing sectors across four continents.
In her current technical support role at TBI, she manages the Institute’s regional textile and apparel (T&A) project which aims to support the development of a best in class, sustainable, and circular cotton-to-apparel manufacturing hub across five West African countries.
She holds a Master of Public Policy (MPP) from the University of Oxford, with a focus on trade policy and economic development.
Interview Part:
Sheng: Thank you so much for speaking with us, Kekeli. First of all, would you please tell us a little about the Tony Blair Institute for Global Change (TBI) and your involvement with the textile and apparel (T&A) industry in West Africa?
Kekeli: Sure! The Tony Blair Institute for Global Change (TBI) is a not-for-profit organization that offers strategic advice and practical support to political leaders and governments so they can deliver reforms that raise standards and transform lives. Our work includes advising on a range of sectors including industrialization, energy, and technology. We currently work in 17 African countries.
Since 2019, we have been working with several governments in West Africa – specifically Cote d’Ivoire, Ghana, and Togo – to support the development of a best-in-class and sustainable textile and apparel sector that meets the needs of British, European, and North American retailers and consumers.
Our role has centered around supporting our partner governments to:
prepare for doing business; work with them to develop relevant sector strategy & review policy, etc.
design attractive investment incentives
attract interest in the region from relevant fashion trade actors
For instance, we facilitated a week-long investor roadshow to the three countries in 2019, with participation from three of the largest global apparel brands together with their mills and manufacturers (with a combined turnover of over US$ 70 billion). This was co-sponsored under the banner of Amcham Hongkong.
Covid-19 naturally impacted our physical scoping events and so we moved the conversations to virtual roundtable forums. Last December, eight of the UK’s biggest retailers, plus several European retailers, attended a session we organized, led by Rt Hon. Tony Blair. Representatives from the three main governments and other non-governmental groups involved in developing textiles and apparel in the region were also present to engage in discussion with the investors. We have also worked with the American Apparel and Footwear Association (AAFA) and the United States Fashion Industry Association (USFIA) to update US brands and retailers on West Africa’s potential as a nearshore sourcing destination for the North American market.
In summary, TBI is very much to help create top-of-mind awareness about West Africa’s suitability to grow a viable T&A sourcing hub and ultimately facilitate investment into the priority countries.
Sheng: What is the current state of the textile and apparel (T&A) industry in West Africa? What are the key development trends? How about the impact of COVID?
Kekeli: West Africa’s T&A market is rapidly expanding. Although considered nascent when compared to Asia’s more developed markets, its many greenfield opportunities also mean there are fewer legacy challenges to contend with. This offers a ripe opportunity for investors and manufacturers to start from an almost clean slate, which is crucial as the apparel industry makes strides toward a more environmentally sustainable footprint.
The region also has numerous natural and competitive advantages for textiles and apparel manufacturing and has seen increased interest from global actors, brands, manufacturers, infrastructure developers, development finance institutions, etc., over the last few years.
Key development trends
Recognizing shifting patterns in global T&A trade and the immense value in domestic processing of abundantly available raw materials, West African governments are demonstrating an ambition to harness their competitive advantages and expand their T&A sectors.
The governments of Cote d’Ivoire, Ghana, and Togo especially, are walking the talk. Togo’s agile government closed a ground-breaking €200 million investment deal with Arise IIP, in August 2020. The deal included building a 400-hectare eco-industrial park dedicated to textiles and apparel manufacturing. Apart from the park, the Arise group is investing into vertically integrated (fiber to fashion) knit apparel units which will start commercial operations in mid-2023.
Ghana has the most advanced industrial base of the three highlighted countries and hosts DTRT Apparel, which has been running its operation in Ghana for the past 7 years and is currently the largest apparel exporter from West Africa. As a further boost towards vertical integration, in March, they partnered on a co-creation deal with the International Finance Corporation (IFC) to jointly develop setting up a synthetic fabric mill in the region. Meanwhile, Northshore Apparel, another garment actor, recently began constructing a 10,000-worker garment factory in Ghana. To attract more foreign direct investment (FDI), the government is drafting a new T&A sector policy and incentive framework under the UK’s Foreign, Commonwealth & Development Office (FCDO) funded £16 million-pound JET Programme.
In a similar vein, Cote d’Ivoire, Africa’s second-largest cotton seed grower, is carrying out sector reforms and strategy development aimed at facilitating the domestic transformation of at least 50% of their annual cotton output.
Altogether, it is an exciting time to be developing the T&A sector in West Africa. We are excited to contribute towards this vision to create a best in class, vertical and sustainable manufacturing hub in the region, and help to create 500k direct and indirect jobs.
Impact of COVID
Most existing garment manufacturers pivoted to producing PPE for both domestic and international markets. For instance, DTRT is making this a permanent feature of their production, although orders have resumed from their traditional apparel buyers.
We have also witnessed a stronger resolve from governments to support their domestic T&A manufacturing sectors’ growth. The Togo deal, for instance, happened at the height of covid lockdowns. Some countries also offered waivers on value-add tax for their textile and apparel manufacturers and used the time to restructure their labor codes to meet international standards.
Sheng: How to understand West African countries’ competitiveness as an apparel-sourcing base for western fashion companies?
Kekeli: First, there is an immense opportunity to vertically integrate the T&A manufacturing value chain. The region produces around 1.5 million metric tons of cotton annually, which represents about 60% of Africa’s total output and 15% of global exports. The vast majority of this is exported unprocessed. Farming methods feature rain-fed irrigation with harvest done by handpicking, leading to 80% being labeled as preferred, sustainable cotton under Better Cotton Initiative (BCI) and Cotton made in Africa (CmiA) standards.
Secondly, its geographical location means it offers a natural nearshore market to Europe and US markets – literally less than two weeks away from Europe by sea.
Note: transit times are shorter depending on the shipping line. Transit references for the US are New York and Charleston, Antwerp and Hamburg for Europe, and Hangzhou for China/Asia. Source: Freightos, Bollore Africa Logistics interviews
Other benefits include an abundant trainable labor force, cost savings to manufacturers under favorable trade instruments like African Growth and Opportunity Act (AGOA), EU’s Economic Partnership Agreement (EPA)/Everything But Arms (EBA) program, etc., as well as consolidated political stability in all three countries. Moreover, there is strong potential for developing a circular textile economy facilitated by green manufacturing and initiatives like our West Africa Regeneration Zone (WARZ) initiative, on which TBI is collaborating with key brands and figures from the industry.
Apart from the main retail regions, there is a growing online retail market in Africa – estimated to increase to $75 billion by 2025 with projected $3.4 trillion aggregate GDP under African Continental Free Trade Area (AfCFTA). As we have seen with recent moves to the continent by Twitter, Google, and others, there is large scope for fashion retailers to use manufacturing in West Africa as a launchpad into this growing continental market, with free movement of goods and services under AfCFTA.
These are attractive propositions for buyers and manufacturers looking to diversify their supply chains and leave a greener carbon footprint in the process.
Sheng: It is of concern that used clothing exports from developed countries to Africa hurt the local textile and apparel industry. What is your assessment?
Kekeli: That is correct. The reality is that there is strong consumer demand for second-hand clothing, due to the cheap prices and readily available clothing for re-use. This is the main reason why the supply chains are routing the bales to other markets, including Africa. Most consumers in Africa rely heavily on the second-hand clothing markets. In this configuration, it is difficult for local players to compete and attract the same consumers’ appetites.
Moreover, this is quite complex, especially in an era of global value chains and [free] trade pacts that enjoin countries to offer some levels of reciprocity in their trade relations. Governments wishing to partake in international trade cannot simply ban imports of goods to protect their local industries. It is, therefore, crucial to explore practical win-win solutions.
For instance, there is a fast-growing global market for fabrics made from recycled materials as brands and manufacturers are taking steps to make their footprint greener. Receiver countries of second clothes could develop other business opportunities from the materials that arrive, with funding from relevant partners. Take Ghana as an example – its Kantamanto market, arguably the world’s largest reuse, repair, and upcycle market, process hundreds of tons of clothing each week. A large percentage of what comes to the market however ends up as landfilled waste due to various reasons.
One remedy is recycling, which ploughs back the many unsold and non-reusable clothes into the textile manufacturing economy. This not only reduces the need for virgin fibers but with the scale envisioned for the West Africa T&A manufacturing project, it increases the fabric feedstock available for domestic Cut, Make, Trim (CMT) manufacturers thus supporting to differentiate the region as a destination for circular apparel sourcing. Managed properly, we envision this would have positive spillover effects on the domestic market. At TBI, we published a piece on tackling Ghana’s textile waste which can be read here for a deeper dive into the subject.
Sheng: How does the textile and apparel industry in West Africa embrace sustainability?
Kekeli: The strongest aspect is from an environmental perspective. With rain-fed irrigation, around 80% of the region’s cotton is labeled as preferred cotton. Vertically integrating the cotton value chain by processing within one geographical area supports a lower carbon footprint of each final product.
West Africa’s geographical proximity to main buyer markets also increases its environmental sustainability credentials as a nearshore market.
Moreover, circularity is part of the culture in this part of the world – people reuse and pass on clothes to other family relations after use, with very little going to waste. We see an opportunity to scale this with the West Africa regeneration (WARZ) initiative. The WARZ initiative aims to support the development of a sustainable and circular textile and apparel supply base in West Africa where post-consumer textile waste is recycled at scale and becomes feedstock for making new apparel. This would be underpinned by disruptive recycling and traceability technology.
In our role as non-vested convenors and facilitators, we have convened a consortium of international and domestic stakeholders to develop a pilot project in Ghana, which is the world’s number two importer of second-hand clothing. Preliminary scoping puts the entire project size at over US$500 million with the potential to generate over 60K jobs along the value chain over the next 5-10 years. The following image depicts the initial concept for the regeneration zone project:
Relatedly, to demonstrate emerging support at the continental level, the African Development Bank recently approved the establishment of a €4 million Africa Circular Economy Facility to drive integration of the circular economy into African efforts to achieve nationally defined contribution targets.
Sheng: How important are trade preference programs like the African Growth and Opportunity Act (AGOA) to the development of the textile and apparel industry in West Africa? Do you think AGOA should be extended after 2025? Should the agreement keep the liberal “third-country fabric” rules of origin? Why or why not?
Kekeli: Trade preference programs are extremely important to facilitate the growth of Africa’s manufacturing and export capacity. As fundamentals like infrastructure tend to be less developed on the continent, preferential regimes like AGOA serve as a key enabler for manufacturing FDI. The T&A industries in countries like Kenya, Lesotho, and Madagascar have grown tremendously in the past few years thanks to AGOA’s tariff-free concessions. West Africa’s T&A industry is now in the beginning stages of development and needs an extension of AGOA to grow.
I believe in the short-medium term, maintaining third-country fabric rules is also crucial (note: Third-country fabric rules allow for apparel made with fabrics sourced from outside the AfCFTA/Sub-Saharan Africa region to qualify for duty-free access). The simple reason is that West Africa’s cotton value chain needs support to develop. While countries have ambitions for vertical integration by processing cotton within the region, these backward linkages will take time to develop.
A phase-out period may be negotiated to further incentivize accelerating the move towards domestic production of fibers that qualify to be used by CMT manufacturers in the [sub]-region.
Sheng: What does the African Continental Free Trade Area (AfCFTA) mean for the textile and apparel industry in West Africa?
Kekeli: The AfCFTA pact aims to form the world’s largest free trade area by connecting almost 1.3bn people across 54 African countries. The goal is to create a single market for goods and services to deepen the economic integration of Africa, with a combined GDP of around $3.4 trillion.
Historically, the most developed world regions have been those that have figured out and developed strong regional value chains. The EU, which is the world’s largest regional trade agreement (RTA) by value has over 64% of trade taking place within the regional block. Similar cases pertain in the US-Mexico-Canada (USMCA) and the Association of Southeast Asian Nations (ASEAN) free trade areas.
Intra-Africa trade on the contrary is currently under 20%, with strong potential for growth. Trade figures show that when African countries trade with each other, it is mostly intermediate or finished goods, which naturally have more value. The goal is to encourage more of this.
Textiles and apparel development in West Africa has strong potential to become a flagship example of what AfCFTA implementation could practically look like. In the next couple of years, I envision fabrics from Cote d’Ivoire, Benin, being exported to Ghana duty-free to feed apparel factories, designers from Cote d’Ivoire offering their expertise across the sub-region with no restrictions on their movement, textiles from Ghana being traded in Nigeria, etc. The possibilities are truly endless.
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 $16.59 billion in 2021, 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 in the 3rd quarter. Notably, as of December 2021, U.S. textile production had returned to its pre-COVID level.
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 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 2021 to December 2021, the total employment in the two sectors increased by 4.5% and 4.2%, respectively (Seasonally adjusted). However, the employment level remains much lower than the pre-COVID level (benchmark: December 2019).
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.”
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 ways:
Trade volume fell and yet fully recovered: 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. Further, thanks to consumers’ robust demand, the value of US apparel imports enjoyed a remarkable 27.4% growth in 2021 from a year ago and but was still 2.5% short of the level in 2019.
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; the trade deficit expanded to $975 million in 2021. 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 necessarily 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: More than 70% of U.S. textile and apparel export went to the Western Hemisphere in 2021, a pattern that has stayed stable over the past decades (OTEXA, 2022). 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.
FASH455 Global Apparel & Textile Trade and Sourcing 