Regional Supply Chain Remains an Import Feature of World Textile and Apparel Trade

The full article is available HERE

Key findings:

The deepening of the regional production and trade network(RPTN) is a critical factor behind the increasing concentration of world textile and apparel exports. RPTN refers to the phenomenon that geographically proximate countries form a regional supply chain.

In general, three primary textile and apparel regional supply chains are operating in the world today:

Asia: within this regional supply chain, more economically advanced Asian countries (such asJapan, South Korea, and China) supply textile raw material to the less economically developed countries in the region (such as Bangladesh, Cambodia, and Vietnam). Based on relatively lower wages, the less developed countries typically undertake the most labor-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets around the world.

Europe: within this regional supply chain, developed countries in Southern and Western Europe such as Italy, France, and Germany, serve as the primary textile suppliers. Regarding apparel manufacturing in EU, products for the mass markets are typically produced by developing countries in Southern and Eastern Europe such as Poland and Romania, whereas high-end luxury products are mostly produced by Southern and Western European countries such as Italy and France. Furthermore, a high portion of finished apparel is shipped to developed EU members such as UK, Germany, France, and Italy for consumption.

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

Associated with these regional production and trade networks, three particular trade flows are important to watch:

First, Asian countries are increasingly sourcing textile inputs from within the region. In2017, close to 80 percent of Asian countries’ textile imports came from other Asian countries, up from around 70 percent in the 2000s.

Second, the pattern of EU intra-region trade for textile and apparel stays strong and stable. Intra-region trade refers to trade flows between EU members. In 2017, 55 percent of EU countries’ textile imports and 47 percent of EU countries’ apparel imports came from within the EU region. Over the same period, 68 percent of EU countries’ textile exports and 75 percent of their apparel exports also went to other EU countries.

Third, trade flows under the Western-Hemisphere textile and apparel supply chain are becoming more unbalanced. On the one hand, textile and apparel exporters in the Western-Hemisphere still rely heavily on the region. In 2017, respectively as much as 80 percent of textiles and 89 percent of apparel exports from countries in the Western Hemisphere went to the same region.  However, on the other hand, the operation of the Western-Hemisphere supply chain is facing growing competition from Asian suppliers. For example,  in 2017, only 24.8 percent of North, South and Central American countries’ textile imports and 15.7 percent of their apparel imports came from within the region, a record low in the past ten years.

Look ahead, it will be interesting to see how will the reaching and implementation of several new free trade agreements, such as CPTPP, RCEP, EU-Vietnam FTA, and the potential US-EU and US-Japan FTAs,  affect the regional pattern of world textile and apparel trade.

Recommended citation: Lu,S. (2018). How regional supply chains are shaping world textile and apparel trade. Just-Style. Retrieved from https://www.just-style.com/analysis/how-regional-supply-chains-are-shaping-world-textile-and-apparel-trade_id135021.aspx

How Has the Apparel Trade Flow Reacted to the Section 301 Tariff Action against China? (updated November 2018)

While apparel products are not subject to the Section 301 tariff yet, the trade action nevertheless has created huge market uncertainties for U.S. fashion brands and apparel retailers. Here is how the monthly trade flow of U.S. apparel imports has reflected the impacts of the U.S.-China tariff war:

First, U.S. companies did NOT stop importing from China. Seasonally adjusted data shows that between January and September 2018, the value of U.S. apparel imports from China decreased by 0.6 percent in volume and 0.05 percent in value year on year. Despite the decline, China remained the No.1 apparel supplier for the U.S. market in the first nine months of 2018, accounting for 32.3 percent market share in value and 41.3 percent shares in quantity, only marginally dropped by 1 and 0.7 percentage points from a year earlier respectively .

Second, apparel “Made in China” are becoming even cheaper. Notably, the average unit price of U.S. apparel imports from China dropped from $2.5/SME in 2016,$2.38/SME in 2017 to $2.36/SME in the first nine months of 2018. On the one hand, this result suggests that cost concern is not the most influential factor that drives U.S. companies to source less from China. However, it is also likely that Chinese exporters are intentionally reducing their price to keep their orders and overcome the challenges caused by the Section 301.

Third, there is no perfect replacement for “Made in China”. In response to the market uncertainty created by the Section 301 trade action, U.S. apparel importers are diversifying their sourcing base. That being said, it is difficult to identify a single largest beneficiary–notably, the market shares of apparel exports from Vietnam, Bangladesh, NAFTA, and CAFTA regions only marginally increased in the first nine months of 2018 compared with a year ago.

Additionally, it remains unclear whether the section 301 trade action has benefited U.S. textile and apparel manufacturing. Data shows that in the first ten months of 2018, the production index (2012=100) of textile manufacturing in the United States slightly increased from 92.8 in 2017to 94.3. However, over the same period, the index of apparel manufacturing decreased from 73.6 to 72.4.

Looking ahead, the volume of US textile and apparel imports from China is likely to increase in the short run since U.S. importers are eager to complete their sourcing orders before the new tariff hit.  Usually, companies place sourcing orders several months ahead of the selling season. However, it will be interesting to see if the trade data in the first half of 2019 will reveal the negative impact of the Section 301 action on China’s apparel exports to the U.S. market.

Data source: Office of Textiles and Apparel (OTEXA), US Department of Commerce

by Sheng Lu

Why is the used clothing trade such a hot-button issue?

Shannon Brady and Sheng Lu (2018). Why is the used clothing trade such a hot-button issueJust-Style

Key Findings:

First, the world used clothing trade has grown significantly over the past ten years. Statistics from the United Nations show that the value of world used clothing trade (HS code 630900) has quickly increased from $1.8bn in 2006 to $3.7bn in 2016, an increase of 106 percent. Between 2006 and 2016, the value of world used clothing trade enjoyed a 7.6 percent compound annual growth rate (CAGR), which was almost double the pace of 3.4 percent CAGR for new clothing trade (HS chapters 61 and 62) over the same period.

Second, the world used clothing trade flow is highly unbalanced. On the one hand, the developed economies are the dominant suppliers of used clothing to the world. In 2016, nearly 40 percent of the world’s used clothing exports came from three countries alone: the United States (15 percent), the United Kingdom (13 percent) and Germany (11 percent). Data also shows that the European Union and the United States together stably accounted for as much as 65 percent of the value of world clothing exports between 2006 and 2016. The other country worth mentioning is China, which is quickly becoming another leading used clothing exporter in the world. In 2016, China’s used clothing exports totaled US$218m from only US$0.32m in 2006, an increase of more than 684 percent!

On the other hand, most of the world used clothing exports end up sold in the developing countries, especially the least developed ones. For example, in 2016, Sub-Saharan Africa (SSA) as a whole imported approximately 20 percent of the world’s used clothing, far more than any other regions in the world. By value, the top three individual importers of used clothing in 2016 are all developing countries as well, namely Pakistan (6.0 percent), Malaysia (5.8 percent) and Ukraine (4.9 percent).

Third, trade policies regulating used clothing trade often raise controversies. While trade barriers on new clothing attract much of the public attention, the used clothing trade is facing even heavier and trickier restrictions of various kinds. The World Trade Organization (WTO) data shows that in 2016 the average applied tariff rate for used clothing imports was 19.3 percent, higher than 15.4 percent of new clothing (HS Chapters 61 and 62). Of the total 180 countries covered by the WTO tariff database, 115 (or 64 percent) set an equal or higher tariff rate for used clothing than the new one. Further, it is not rare to see extremely high import tariff rates and other quantitative restrictions applied to used clothing trade. For example, in 2016 the applied most-favored-nation (MFN) ad valorem equivalent tariff rate for used clothing was as high as 356.9 percent in Uzbekistan, 167.3 percent in Zimbabwe, 149.2 percent in South Africa, 116.8 percent in Rwanda and 100 percent in Vietnam.

After all, because of the complicated social, economic and political factors involved, how to regulate and manage used clothing trade remains a key challenge facing the world community.

Patterns of Canada’s Apparel Sourcing and Trade

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The full article is available HERE

Key findings:

First, Canada is one of the largest and fastest growing apparel import markets in the world. Data from the UN Comtrade show that the value of Canada’s apparel imports totaled $10.7bn in 2017, which ranked the fifth in the world, only after the European Union (EU), the United States, Japan, and Hong Kong.

Second, the Asian region as a whole is the dominant apparel supplier for Canada. Measured in value, as much as 80.9 percent of Canada’s apparel imports in 2017 came from Asia. Specifically, China (40.6 percent), Bangladesh (11.1 percent), Cambodia (8.1 percent) and Vietnam (7.7 percent) were the top individual supplier for Canada in 2017, and all of them are located in Asia. Meanwhile, Canadian apparel companies are gradually diversifying their sourcing base: the Herfindahl Index (HHI), a commonly adopted measure of market concentration, declined from 0.3 in 2010 to 0.19 in 2017.

Third, the NAFTA-region remains an important apparel-sourcing base for Canada, but its overall influence is in decline. Measured in value, the United States and Mexico were the 6th and 9th top apparel supplier for Canada in 2017 respectively. However, facing the competition from Asia, the United States and Mexico combined accounted for only 6.4 percent of Canada’s apparel imports in 2017, a significant drop from 9.8 percent back in 2007.

Fourth, free trade agreements and trade preference programs provide duty-saving opportunities for apparel sourcing in Canada. In 2017, Canada applied an average tariff rate of 17.1 percent on imports of knitted apparel (HS Chapter 61) and 15.9 percent on woven apparel (HS chapter 62). As of August 2018, Canada has 17 free trade agreements (FTAs) and trade preference programs (TPAs) in force, offering preferential or duty-free market access to Canada. Traditionally, a substantial portion of Canada’s FTA partners come from the Western Hemisphere, such as Chile, Costa Rica, Colombia, Peru, Honduras, and Panama. However, in recent years, Canada has been actively negotiating and reaching new FTAs with countries in Asia (such as South Korea, India, and Japan) and Europe (including the European Union and Ukraine). 

Compared with the United States, in general, Canada adopts more liberal rules of origin (RoO) for apparel products. Quite a few Canada FTAs allow companies to source yarns or even fabrics from anywhere in the world – with the finished products still enjoying duty-free treatment when exported to Canada.

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China’s Changing Role in the World Textile and Apparel Supply Chain (updated October 2018)

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Following the steps of many countries in history, China is gradually shifting its role in the world textile and apparel supply chain. While China unshakably remains the world’s largest apparel exporter, its market shares measured by value fell from 38.6 percent in 2015 to 33.7 percent in 2017.  China’s market shares in the world’s top three largest apparel import markets, namely the United States, EU, and Japan, also indicate a clear downward trend in the past five years. This result is consistent with several recent survey studies, which find that fashion brands and retailers are actively seeking alternative apparel sourcing bases to China. Indeed, no country, including China, can forever keep its comparative advantage in making labor-intensive garments when its economy becomes more industrialized and advanced.

However, it is also important to recognize that China is playing an increasingly important role as a textile supplier for apparel-exporting countries in Asia. For example, measured by value, 47 percent of Bangladesh’s textile imports came from China in 2017, up from 39 percent in 2005. We observe similar trends in Cambodia (up from 30 percent to 65 percent), Vietnam (up from 23 percent to 50 percent), Pakistan (up from 32 percent to 71 percent), Malaysia (up from 25 percent to 54 percent), Indonesia (up from 28 percent to 46 percent), Philippines (up from 19 percent to 41 percent) and Sri Lanka (up from 15 percent to 39 percent) over the same time frame. 

So maybe the right question to ask in the future is: how much value of “Made in China” actually contains in Asian countries’ apparel exports to the world?

China’s Textile and Apparel Factories Today

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Related readings: 

Are Textile and Apparel “Made in China” Losing Competitiveness in the U.S. Market? (updated October 2018)

A fact-checking review of trade statistics in 2017 of a total 167 categories of textile and apparel (T&A) products categorized by the Office of Textiles and Apparel (OTEXA) suggests that T&A products  “Made in China” still have no near competitors in the U.S. import market. Specifically, in 2017:

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  • Of the total 11 categories of yarn, China was the top supplier for 3 categories (or 27.3%);
  • Of the total 34 categories of fabric, China was the top supplier for 26 categories (or 76.5%);
  • Of the total 106 categories of apparel, China was the top supplier for 87 categories (or 82.1%);
  • Of the total 16 categories of made-up textiles, China was the top supplier for 11 categories (or 68.8%);

In comparison, for those Asian T&A suppliers regarded as China’s top competitors:

  • Vietnam was the top supplier for only 5 categories of apparel (less than 5% of the total);
  • Bangladesh was the top supplier for only 2 categories of apparel (less than 2% of the total)
  • India was the top supplier for 1 category of fabric (2.9% of the total), 1 category of apparel (1% of the total) and 5 categories of made-up textiles (41.7% of the total)

Notably, China not only was the top supplier for many T&A products but also held a lion’s market shares. For example, in 2017:

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  • For the 26 categories of fabric that China was the top supplier, China’s average market shares reached 40.5%, 22 percentage points higher than the 2nd top suppliers for these categories
  • For the 87 categories of apparel that China was the top supplier, China’s average market shares reached 52.4%, 36 percentage points higher than the 2nd top suppliers for these categories.
  • For the 11 categories of made-up textiles that China was the top supplier, China’s average market shares reached 58%, 43 percentage points higher than the 2nd top suppliers for these categories.

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Furthermore, T&A “Made in China” are demonstrating even bigger price competitiveness compared to other suppliers in the U.S. market. For example, in 2017, the unit price of apparel “Made China” was only 74% of the price of “Made in Vietnam” (in 2015 was 80%), 86% of “Made in Bangladesh” (in 2015 was 93%), 85% of “Made in Mexico” (in 2015 was 90%) and 86% of products by members of CAFTA-DR (in 2012 was 98%).

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Last but not least, the U.S.-China tariff war apparently has NOT affected China’s textile and apparel exports to the United States significantly. From January to August this year, China’s apparel exports to the U.S. declined by 1% in value and 0.3% in quantity from a year earlier, but China’s textile exports to the U.S. increased by 12.3% in value and 7.2% in quantity.  China’s market shares in the U.S. market also remains overall stable.

Are the results surprising? How to explain China’s increasing price competitiveness despite its reported rising labor cost? What’s your outlook for the future of China as a sourcing destination for U.S. fashion brands and retailers? Please feel free to share your views. 

Suggested citation: Lu, Sheng. (2018). Are Textile and Apparel “Made in China” Losing Competitiveness in the U.S. Market? (updated October 2018). Retrieved from https://shenglufashion.com/2018/10/28/are-textile-and-apparel-made-in-china-losing-competitiveness-in-the-u-s-market-updated-october-2018/ 

WTO Reports World Textile and Apparel Trade in 2017

Statistical review of world textile and apparel trade in 2018 is now available

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According to the newly released World Trade Statistical Review 2018 by the World Trade Organization (WTO), the current dollar value of world textiles (SITC 65) and apparel (SITC 84) exports totaled $296.1bn and $454.5bn respectively in 2017, increased by 4.2% and 2.8% from a year earlier. This is the first time since 2015 that the value of world textile and apparel exports enjoyed a growth.

Textiles and apparel are not alone. Driven by rising demand for imports globally, the current dollar value of world merchandise exports also grew by 4.7% in 2017–its most robust growth in six years, to reach $17.43 trillion. Particularly, the ratio of trade growth to GDP growth finally returned to its historic average of 1.5, compared to the much lower 1.0 ratio recorded in the years following the 2008 financial crisis.

China, European Union (EU28), and India remained the world’s top three exporters of textiles in 2017. Altogether, these top three accounted for 66.3% of world textile exports in 2017, up from 65.9% in 2016. All the top three also enjoyed a faster-than-average export growth in 2017, including 5.0% of China, 5.8% of EU(28) and 5.9% of India. The United States remained the world’s fourth top textile exporter in 2017, accounting for 4.6 percent of the shares, the same as a year earlier.

Regarding apparel, China, the European Union (EU28), Bangladesh and Vietnam unshakably remained the world’s top four largest exporters in 2017. Altogether, these top four accounted for as much as 75.8% of world market shares in 2017, which was higher than 74.3% a year earlier and a substantial increase from 68.3% back in 2007.

Continuing with the emerging trend in recent years, China is exporting less apparel and more textiles to the world. Notably, China’s market shares in world apparel exports fell from its peak—38.8% in 2014 to a record low of 34.9% in 2017. Meanwhile, China accounted for 37.1% of world textile exports in 2017, which was a new record high. It is important to recognize that China is playing an increasingly critical role as a textile supplier for many apparel-exporting countries in Asia. Measured by value, 47% of Bangladesh’s textile imports came from China in 2017, up from 39% in 2005. We observe similar trends in Cambodia (up from 30% to 65 %), Vietnam (up from 23 % to 50 %), Pakistan (up from 32 % to 71 %), Malaysia (up from 25 % to 54 %), Indonesia (up from 28 % to 46 %), Philippines (up from 19 % to 41 %) and Sri Lanka (up from 15 % to 39 %) over the same period.

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Additional readings: 
Lu, S. (2018). Changing trends in world textile and apparel trade. Just-Style.
Lu, S. (2018). How regional supply chains are shaping world textile and apparel trade. Just-Style.