CPTPP Tariff Phaseout Schedule for Textiles and Apparel

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),  signed on March 8, 2018, is a new free trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Once the CPTPP enters into force, it will be one of the largest free trade agreements in the world and will provide enhanced market access to key Asian markets. Below is the detailed tariff phaseout schedule for textile and apparel products by CPTPP members:

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by Sheng Lu

Wage Level for Garment Workers in the World (updated in 2017)

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Statistics from the Public Radio International (PRI) show that garment workers in many parts of the world earn much less than the national average. Of the twenty-one countries investigated by PRI, the monthly wage for garment workers range widely from $1,864 (USA) to $194 (Sri Lanka).

However, a higher wage level in absolute term does not necessarily mean a more decent pay. For example, while garment workers in the US apparently earn much more than their peers in other parts of the world, the wage level nevertheless was only 51 percent of the U.S. national average wage. Likewise, while garment workers in Honduras earn only $650 each month, this amount was approximately 107 percent of the national average wage in the country.

For more information about the wage level for garment workers around the world, please explore the Fair-fashion Quiz created by PRI.

Automation Comes to Fashion

Video Discussion Questions:

#1 Why do you agree or disagree with the video that automation will post a significant challenge to garment workers in developing countries such as Bangladesh? How should policymakers react to the challenges?

#2 Can automation be a permanent solution to the social responsibility problem in the garment industry?

#3 In your view, how will automation affect the big landscape of apparel sourcing and the patterns of world textile and apparel trade?

#4 Why or why not do you anticipate a sizable return of apparel manufacturing to the United States if apparel production can be largely automated?

Additional reading: The robots are coming for garment workers. (WSJ, 2018)

Please feel free to share your views and join our online discussion!

US Continues to Lose Textile and Apparel Manufacturing Jobs in 2017

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It may disappoint those who are hoping a return of textile and apparel manufacturing jobs in the United States. But according to latest statistics from the Bureau of Labor Statistics (BLS), the U.S. textile industry (NAICS 313 and 314) and apparel industry (NAICS 315) respectively lost another 4,100 and 10,100 jobs in 2017.  Between January 2005 and December 2017, 44.2% and 56.3% of jobs in the U.S. textile and apparel sectors were gone.  

From the academic perspective, a sizable return of textile and apparel manufacturing job in the United States seems to be extremely unlikely given the nature of the U.S. and the global economy in the 21st century.

Notably, the rising import is found NOT a significant factor leading to the decline in employment in the U.S. textile industry (NAICS 313). As estimated by a US International Trade Commission study in 2016, imports were found only contributed 0.4 percent of the total 7.6 percent annual employment decline in the U.S. textile industry between 1998 and 2014. Instead, more job losses in the sector were caused by: 1) the improved productivity as a result of capitalization and automation (around 4.6 percent annually); and (2) the shrinkage of domestic demand for the U.S. made textiles (around 3.5 percent annually).

And consistent with the prediction of classic trade theories, as capital and technology abundant developed country, the United States, not surprisingly, continues to lose its comparative advantage in making labor-intensive apparel. Hypothetically, apparel “Made in the USA” may come back if apparel manufacturing can be substantially automated like textile manufacturing. However, net job creation in the sector as a result of automation is hard to tell. Additionally, most U.S. apparel companies heavily rely on global sourcing and non-manufacturing activities such as branding, marketing, and design today. Few companies still regard “manufacturing” a key competitive advantage or an area of strategic importance to invest in the future.

Related reading: Creating High-Quality Jobs in the U.S. Textile and Apparel Industry (UD Biden Institute)

Pattern of U.S. Textile and Apparel Imports (Updated: February 2018)

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The value of U.S. textile imports reached $25,706 million in 2017, up 7.2 percent from 2016 and 77.8 percent from 2000. The value of U.S. apparel imports reached $80,287 million in 2017, slightly down 0.5 percent from a year earlier and up 40.3 percent from 2000.  It is estimated that the value of U.S. textile and apparel imports could change between -2.2% and 7.6% and between -1.2% and 5.3% respectively in 2018.

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Because the United States is no longer a major apparel manufacturer but one of the largest apparel consumption markets in the world, apparel products accounted for 75.7 percent of total U.S. textile and apparel imports in 2017, followed by made-up textiles (17.4 percent), fabrics (5.7 percent) and yarns (1.2percent). This structure has remained stable over the past decade.

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The U.S. imported apparel from as many as 150 countries in 2017. Meanwhile, the Herfindahl index declined from 0.17 in 2010 to 0.15 in 2017, suggesting that overall the U.S. apparel import market is becoming less concentrated. This result is consistent with some recent studies, which show that U.S. fashion brands and retailers continue to diversify their sourcing bases gradually. Specifically, all top apparel suppliers to the United States in 2017 (by value) were developing countries and most of them are located in Asia, including China (33.7 percent), Vietnam (14.4 percent), Bangladesh (6.3 percent), Indonesia (5.7 percent), India (4.6 percent) and Mexico (4.5 percent).

On the other hand, despite the uncertain prospect of the renegotiation of the North American Free Trade Agreement (NAFTA), the U.S. apparel imports from Mexico and Canada enjoyed a robust growth of 5.3 percent and 7.7 percent respectively in 2017 from a year earlier. The result confirms the increasing importance of “speed to market” in U.S. fashion apparel companies’ sourcing decisions and the growing popularity of “near-sourcing.”

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U.S. textile and apparel imports are also becoming even cheaper. For example, U.S. apparel imports in 2017 on average was only 81.1 percent of the price in 1990 and the price of imported fabrics cut nearly by half over the same period.

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Additionally, U.S. apparel imports overall mirror the pattern of apparel retail sales in the U.S. market. This pattern reflects the fact that the performance of the U.S. economy is the leading factor shaping the size of demand for imported apparel. Notably, between 2010 and 2017, the value of U.S. apparel imports grew relatively faster than the value of U.S. apparel retail sales (3.2 percent vs 3.1 percent annually on average). The result suggests that a growing share of apparel products consumed in the United States now come from overseas.

Data source: Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce

By Sheng Lu

Additional reading: Lu, S. (2018). Four key patterns in U.S. apparel imports. Just-Style

Is It Necessary to Cut Trade Deficit and Achieve Trade Balance?

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While the Trump Administration is seeking to reduce the U.S. trade deficit and achieve a more “balanced trade” with its trading partners, a newly-released World Economic Forum (WEC) paper questions the necessity and economic rationale of doing so. As argued by the paper:

First, a country’s trade balance is NOT a measurement of its international commercial success. Neither is the case that “imports are bad and exports are good. “Instead, the paper says that “it is more accurate to think of imports as the benefits of trade, and exports as the cost that needs to be paid to obtain these benefits.”

Second, it is a misconception that “trade deficits cause a reduction in employment and production and trade surplus increase them.” Rather, imports could  increase because of an increase in domestic income thereby increasing the aggregate demand. Empirical studies also overwhelmingly find that rapid economic growth and larger trade deficit are associated with faster employment growth in the United States in history (see the graphs above).

Third, as the supply chain goes global, a tax on imported inputs can reduce rather than promote a country’s exports, particularly manufacturing goods (for example high tariffs on imported fabrics will reduce the price competitiveness of clothing exports). Likewise, trade barriers could disrupt production and reduce domestic employment in both the “protected” industries and those downstream sectors that use their outputs.  

Fourth, primarily trade balance is a function of a country’s national saving and investments, not of trade policies. In other words, trade policies, such as higher tariffs and quantitative restrictions, will have no impact on a country’s trade balance. Interesting enough, countries like Singapore which maintain fairly low trade barriers, run a trade surplus equal to as high as 20% of its GDP. In comparison, India was one of the most highly protected economies in the early 1990s when it experienced unsustainable large trade deficits. Further, there is a dynamic balance between a country’s trade balance and exchange rate: in an open economy, reducing a country’s imports could lead to an appreciation of its currency and eventually hurt its exports as well.     

What is your view on the trade deficit and trade balance? Why do you agree or disagree with the arguments of the WEC paper? Do you find any evidence that challenges the findings of the paper? Please feel free to leave your comments.