Julia K. Hughes is President of the United States Fashion Industry Association (USFIA), which represents brands, retailers, importers, and wholesalers based in the United States and doing business globally. She represents the industry in front of the U.S. government as well as international governments and stakeholders, explaining how fashion companies create high quality jobs in the United States and economic opportunities around the world.
An expert on textile and apparel trade issues, Julie has testified before Congress and the Executive Branch. She frequently speaks at international conferences including the China & Asia Textile Forum, Fashion Institute of Technology (FIT), Harvard University’s Bangladesh Development Conference, MAGIC, Prime Source Forum, Vietnam Textile Summit, and others.
Julie served as the first President and is one of the founders of the Washington Chapter of Women in International Trade (WIIT) and is one of the founders of the WIIT Charitable Trust. She also was the first President of the Organization of Women in International Trade (OWIT). In 1992, she received the Outstanding Woman in International Trade award and in 2008, the WIIT Lifetime Achievement Award. She also is a member of the International Women’s Forum.
Julia has an M.A. in International Studies from the Johns Hopkins School of Advanced International Studies and a B.S. in Foreign Service from Georgetown University.
The interview was conducted by Leah Marsh, a graduate student in the Department of Fashion and Apparel Studies at the University of Delaware. Leah’s research focused on exploring EU retailers’ sourcing strategies for clothing made from recycled textile materials and fashion companies’ supply chain and sourcing strategies.
Emma Zuckerman, a New Jersey native, graduated from the University of Delaware in 2016 with a degree in Apparel Design. During her time at UD, she actively participated in the FASH program and engaged in extracurricular activities related to her major. Emma conducted research on functional fashion with Dr. Martha Hall and held positions on the executive board, eventually becoming the President of Synergy Fashion Group in her senior year. She also founded a club dedicated to creating adaptive garments for children with disabilities. After graduation, Emma commenced her career in technical design with Under Armour (UA), accumulating six years of experience across various apparel categories and fabrications. She began in youth basketball, then transitioned through a range of products, from underwear to seamless leggings, woven jackets, and pants. In her later years at Under Armour, she played a significant role in the launch of Curry Brand and the introduction of UA’s first inline women’s basketball apparel line (non-uniform). Presently, Emma holds the position of Senior Technical Designer at Nike, where she contributes to the development of ACG and Nike SB product lines.
In her free time, Emma loves working on personal sewing, patterning, and draping projects. She also loves hiking, skateboarding, baking, swimming, and painting!
Disclaimer: The views expressed in this interview are those of Emma Zuckermanand do not reflect the views or positions of her employer or any affiliated organizations.
Sheng: What does a technical designer do? Can you walk us through your typical day as a technical designer? Also, what makes you love your job?
Emma:Technical designers work on developing clothing – we work with factory partners to take a style from a conceptual sketch to bulk production. For each style, we start by working with our design partners to understand their vision. We create detailed construction sketches, measurement charts, and sometimes original patterns, then compile those into a tech pack along with our designer’s garment sketch and a Bill of Materials outlining all garment components. A factory partner uses the information in that tech pack to make a sample to send back to us. We fit that sample with our team, cutting and pinning until we achieve the desired fit and aesthetic. The factory uses our feedback to create a second sample, and this process repeats until the style is finalized and approved for production. Throughout the process, we keep the tech pack up-to-date and ensure it accurately reflects the style we’re developing.
There are so many things I love about my job! The subjects of fitting and patterning are fascinating to me, and there will always be so much to learn about them. I love that throughout my career, there will be no limit to how much I can learn and how much my skills can grow. I exercise my creativity while also exercising the mathematical side of my brain, so my job is constantly challenging me in really interesting ways. I get to work with people around the world, learn about other cultures, backgrounds, and communication styles, and collaborate with amazingly talented teammates.
Sheng: How does a technical designer get involved in a fashion company’s sourcing process?
Emma: A technical designer’s level of involvement in the sourcing process varies from company to company, but it is always extremely helpful to work closely with our sourcing team. Since both technical designers and the sourcing team communicate with factories, we often check in with each other to make sure the information we’re sending is consistent. We (technical designers) can help provide feedback on factory capabilities and sample quality. Understanding the sourcing process helps us gain insight into why our sourcing partners allocate certain styles to specific factories (for example, a factory might have expertise with woven fabrics, outerwear, or embroidery; a style might qualify for a lower duty rate if sourced from a specific region; some factories may reach their maximum capacity for new styles more quickly than others).
Technical designers work most closely with our sourcing partners during costing conversations. Factories send cost sheets for every style at several key points during development. These cost sheets break down every element that contributes to the final cost of making the garment, from materials to trims, to time spent. One major role of a sourcing partner (or, at some companies, a product developer) is to process these cost sheets and advise the rest of the team on how much cost needs to be saved, and/or what steps can be taken to save cost, to ensure the style is profitable. Technical designers can use our garment construction and patterning expertise to effectively contribute to these conversations (which leads nicely into the next question)!
Sheng: We know production cost is a critical sourcing factor for fashion brands and retailers. From a technical designer’s perspective, what factors affect garment production and its sourcing costs? What strategies can be employed to manage these costs, beyond labor wages?
Emma: So many factors affect production cost – at the top of my mind are material cost (for fabric yardage and individual trims like zippers) and cut/make time (which includes labor cost and factory overhead). Material usage and cut/make time are both factors that technical designers can heavily influence during costing conversations with our design and sourcing teams.
Material usage: Marker efficiency refers to the amount of fabric used per garment compared to the amount wasted. The more closely pattern pieces can fit together, the less space for fabric scraps between them and the more efficient a marker will be. A technical designer can use their patterning experience to advise pattern shapes that will contribute to marker efficiency. For example, adding or removing a seam may allow pattern pieces to fit more closely together. Choosing where and when to engineer print placements – for example, matching stripes across a seam – will also impact the way pattern pieces can be arranged and, therefore, how efficient a marker can be. An efficient marker will both save cost and minimize fabric waste.
More on material usage, and cut/make time: Each construction choice contributes to the final cost of making the garment. For example, when it comes to finishing seam allowances, binding a seam allowance will take longer and use more material than an overlock stitch. For that reason, binding a seam allowance will also be more expensive. As garment construction experts, we lead conversations about style details, the time it will take to construct them, and other options that could potentially save time and material. This helps our team make informed choices that consider both cost and aesthetics.
Sheng: What are your thoughts on the trend of fashion companies using more sustainable materials like recycled cotton in their products?
Emma: I support fashion companies making an effort toward more sustainable & ethical production, and using recycled materials is an important step. Fabric with recycled fiber content can be more expensive and more difficult to source than traditional fabric, which may discourage some companies from moving in that direction. I’m hopeful that this trend will continue and that as it gains popularity, fabric with recycled fiber content will become easier to source over time.
Speaking of ethical production, I also would like to see fashion industry brands take additional steps toward a more earth-positive and people-positive existence, including:
Considering local labor laws, worker wages, and working conditions when selecting factories
Implementing garment repair programs to extend the lifecycle of their styles
Improving accuracy of demand planning to reduce excess inventory and/or considering donation or upcycling of excess inventory
Expanding size ranges and accurately grading sizes to fit well on plus-sized consumers
Moving away from gendering clothing as “men’s” or “women’s;” during sample development, checking that samples fit well on lots of body types (including individuals who have had gender-affirming care, individuals who haven’t, individuals who may be wearing gender affirming garments like binders)
Diversifying the company workforce at every level, from entry-level to leadership to c-suite
Expanding representation in advertising campaigns to reflect the diversity of global consumers
Supporting nonprofit agencies whose work aligns with company values
Some companies are doing a great job of fulfilling some, most, or all of the items on my above wish list, but we know that the fashion industry has a long way to go when it comes to impacting our earth and our societies positively. I think it’s our job as newer fashion industry professionals to speak up about all of this and start to push our industry in a better direction.
Sheng: What other key industry trends will you closely monitor in 2023?
Emma: I am so interested in the increased use of 2D and 3D patterning software. Programs such as Gerber, Optitex, Clo, and Browzwear are already changing the design and development process in fascinating ways. Experience in any of these programs has already become a very valuable asset for job applicants. I’m curious whether garments will ever be sold to consumers based only on 3D renderings, and if body scanning will become a more mainstream part of the shopping process.
I’m also curious how the increased use of 2D and 3D patterning software will impact more traditional design processes, like paper patterns and draping. Will these arts be preserved? Are there types of apparel that will always need to be draped or patterned physically? Will students 20 years from now still learn to pattern and drape the way we did, or will these skills be fully computer-based?
Sheng: Any reflections on your experiences at UD and FASH? what advice would you offer current students preparing for a career in fashion after graduation?
Emma: I feel so lucky to have had the experience that I did at UD and within the FASH program. I learned so much in my patterning, draping, collections, textiles, and sourcing classes (big shoutout to Dr. Lu!) that has stayed with me and helped me find success in my current job.
I have so much advice! If you’re looking for a career in technical design, practice any patterning software you can access as much as you can. As you begin applying to jobs, try to reach out to contacts at the companies you’re applying to (even if it means sending a random LinkedIn message to a fellow UD grad, or asking a professor/another student to help connect you with someone). Start your career with curiosity and an open mind – you will learn so much on the job that isn’t covered in school. Try to find a mentor, or several mentors, who’ve had work experiences similar to yours. A mentor who you can trust and rely on for advice makes a huge difference when work gets challenging. Speaking of which – work does get challenging, and that’s okay! Work on learning to identify situations that you can work through and learn from (which are hugely beneficial to your personal growth and career development), compared to work environments that are more consistently unhealthy or not providing what you need (which are an indication that it’s time to make a change). If you have coworkers you trust, sharing salary information openly is a great way to make sure everyone’s skills and contributions are being valued appropriately.
Enjoy your time in college and in the FASH program. I miss it!
First, while US apparel imports gradually recovered, the import demand remained weak overall. For example, US apparel imports in July 2023 increased by 0.9% in value and 2% in quantity from June (seasonally adjusted). However, the trade volume still experienced a decrease of approximately 17-18% compared to the previous year. Meanwhile, the US consumer confidence index fell again in August 2023, suggesting the economic uncertainties are far from over. Notably, so far in 2023 (January to July), US apparel imports decreased by 22.3% in value and 28% in quantity from the previous year, the worst performance since the pandemic.
As a silver lining, the price of US apparel imports has stabilized, although inflation remains an issue for the US economy.
Secondly, because of the seasonal pattern, Asian countries were able to capture relatively higher market shares since June. For example, measured in value, China, ASEAN, and Bangladesh accounted for over 64% of total US apparel imports in July 2023, a notable increase from 61% in June and 58% in May 2023.
Nevertheless, US fashion companies continue diversifying their sourcing base to mitigate various supply chain risks and rising geopolitical tensions. For example, the HHI Index for US apparel imports dropped to 0.097 in the first seven months of 2023, which is lower than the 0.106 recorded in the same period the previous year (January to July 2022), indicating a greater diversity in the sources of imports.
Third, despite an apparent rebound in exports to the US, China continued to experience a further decline in its market share. For instance, in July 2023, China’s market share was more than 3 percentage points lower in value (27.2% in July 2022 vs. 24.1% in July 2023) and 2.5 percentage points lower in quantity (43.1% in July 2022 vs. 40.6% in July 2023). This marked the worst performance since April 2023. In other words, consistent with recent industry surveys, US fashion companies continue to reduce their China exposure given the adverse business environment.
Fourth, the latest data suggests that US apparel imports from CAFTA-DR members remain stagnant, and some critical problems, such as the underutilization of the agreement, even worsened. For example, about 9.5% of US apparel imports in value and 8.5% in quantity came from CAFTA-DR members in July 2023, lower than 10.2% and 9.0% in the previous year (i.e., July 2022). In absolute terms, US apparel imports from CAFTA-DR in 2023 were about 20% lower than in 2022.
Additionally, CAFTA-DR’s utilization rate (i.e., the value of imports claiming the duty-free benefits under CAFTA-DR divided by the total value of imports from CAFTA-DR) fell from 70.2% in 2022 (Jan to July) to a new low of 69.2% in 2023 (Jan to July). Likewise, the value of imports utilizing CAFTA-DR’s short supply decreased by more than 20%. Thus, how to leverage CAFTA-DR to meaningfully encourage more US apparel imports from the region, particularly in light of US fashion companies’ eagerness to reduce their exposure to China, calls for sustained efforts and probably new strategies.
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.
Hannah Laurits (second from the right) worked as a sourcing intern for Haddad Brands in New York City in the summer of 2023. In the picture, Hannah was visiting the company’s world class distribution center in New Jersey.
Hannah is passionate about adaptive clothing and making the fashion industry more inclusive and sustainable. She has participated in several related research projects, including working at UD’s Health and Innovation Lab and designing adaptive clothing for children with Down syndrome. Hannah’s master’s thesis explores U.S. retailers’ merchandising and business strategies for adaptive clothing. As a graduate instructor, Hannah teaches FASH133 (Foundations for Fashion Innovation), an important foundational course for FASH freshmen. Hannah is the recipient of the 2023 International Textiles and Apparel Association (ITAA) Sara Douglas Fellowship in recognition of her academic excellence and accomplishments.
During the summer of 2023, Hannah had the exceptional opportunity to work as a sourcing intern for Haddad Brandsin New York City. Below, she shared her reflections on this incredible internship experience.
Question: What does a typical day look like during your sourcing internship with Haddad?
Hannah: Each day, I would enter Haddad’s beautiful Manhattan office and make my way up to my desk on the 10th floor, which was home to the design and sourcing departments. I had the opportunity to sit next to my mentor and assist her in her day-to-day tasks as a Fabric and Trim Research &Development (R&D) Manager. This often consisted of maintaining fabric/trim development digital and physical libraries, creating new fabric swatch headers, entering fabric/trim data in PLM, partnering with Product Development to establish fabric and trim codes for PLM, and analyzing new fabric developments. I also assisted in collaborating and developing fabrications, finishes, and trims with our supply chain by communicating feedback via internal emails.
One thing that I really enjoyed was that each day consisted of working cross-functionally with the different teams. I helped prepare for and sit in on weekly fabric/trim development status meetings with the various Design teams where fabric/trim developments for the upcoming seasons were discussed and designers would make new fabric requests for their added styles. I also sat in on bi-weekly fabric/trim development status meetings with the Product Approval team to ensure the fabric samples from mills were up to standard for development. Here, I was able to help weigh in on fabrics and compare them to our standards to determine if they met our requirements or if they needed to be changed and how. Additionally, some days included meetings with various suppliers to discuss innovations in fiber, fabric, finish, and trim.
Being part of an internship that enabled me to perform meaningful work from day one, provided countless opportunities for personal growth, and exposed me to working with some of the most iconic global brands (e.g., Levi’s) was a truly fulfilling experience.
Question: Any major projects did you work on during your internship? What did you learn from the experiences?
Hannah:Each Haddad Legacy Intern was assigned and worked on a project for their department based upon a real business need. Based on my educational background and my passion for sustainability, my team outlined a project that would best fit. This involved researching innovative sustainable solutions and sourcing practices to further their sustainability efforts.
My research was not only conducted from outside sources but from internal ones as well. I felt an immense amount of support from all of the individuals who helped me accomplish this project and was excited to learn that they also are just as excited about sustainable practices as I am. At the end of the internship, each intern had the chance to present to senior management our individual projects. This experience taught me how to create a visually compelling presentation and relay large amounts of data concisely and effectively.
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.
Hannah:From my internship experience, I was able to see firsthand key topics important to the fashion/apparel industry; specifically, two areas caught my attention.
First, sustainability and social responsibility. Consumers and investors are seeking more sustainable products and better practices from the brands they love. Considering this, sustainability-forward brands are focused on maintaining their high values regarding these areas and keeping their practices aligned with them.
Second, the fashion industry is constantly seeking innovative technology solutions, including in the sourcing and supply chain areas. Technology is evolving faster than ever, helping create efficient solutions to drive the fashion industry forward. Technologies such as 3D printing, AI, laser cutting, and more are being used to improve the industry in various ways such as trend forecasting, supply chain, and consumer experience, just to name a few. Even regarding sustainability, many fashion brands are investing in or actively exploring new technology solutions to help them develop a more sustainable and ethical supply chain and improve sourcing transparency, traceability, and accountability.
Question: How do your learning experiences at FASH help with your internship? Any specific knowledge or skill sets do you find most critical?
Hannah:FASH had a great influence on my decision to pursue a sourcing internship with Haddad Brands. It was through the UD & FASH department’s Fashion Career Meetupthat I was able to connect with the amazing HR team at Haddad Brands and learn more about the company.
Specifically, it was FASH455 (Global Apparel Trade and Sourcing) that piqued my interest in the world of sourcing and provided foundational knowledge for my internship. Working in fabric research and development, on a daily basis, I referred back to key concepts from FASH215 (Fundamentals of Textiles I) and FASH220 (Fundamentals of Textiles II) on fiber, yarn, fabric, structures, color, and finish. Additionally, the FASH Social Responsibility and Sustainability certificate coursesplayed a unique role in my experience, helping me bring a sustainability forward perspective into my internship and providing a solid background to further build upon for my internship project.
Furthermore, the FASH department at UD excels at providing students with extensive foundational fashion industry knowledge. Not only is the course curriculum excellent, but so is the faculty who goes above and beyond to help foster student’s education and build critical professional skills.
Question: What’s your plan after graduation?
Hannah:I am currently working on wrapping up my master’s program and am on track to graduate in May 2024. I am seeking a full-time role that allows me to have a hand in developing products that have a positive impact on people and the planet. Potential roles include sustainability, social compliance, sourcing, product development, and product line management related to fashion apparel products. While I am originally from Delaware, I am hoping to relocate to a city on the East Coast such as NYC, Philadelphia, or Baltimore. However, I am open to considering job opportunities and locations beyond this scope. As my graduation approaches, I am eager to begin my career in the fashion apparel industry.
Meanwhile, I am actively seeking winter and spring internship opportunities in the greater Philadelphia area or remote positions to enhance my professional development.
#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.
Discussion questions (proposed by students in FASH455, spring 2023)
Based on the videos, does the flying geese concept still work today? Why?
Do you think Western fashion brands and retailers’ increasing emphasis on sustainability and social responsibility in apparel sourcing reduces Asian suppliers’ competitive disadvantage? Why or why not?
With Asian countries increasingly leveraging their labor advantages alongside advanced technologies, is the prospect of expanding nearshoring even less likely? What is your assessment?
What is your vision for the recycled clothing supply chain? Why or why not do you think Asian countries will continue to dominate?
On April 17, 2023, the US International Trade Commission (USITC) released a new report analyzing the trade and economic impact of the African Growth Opportunity Act (AGOA). The report fulfills the investigation request by the US House of Representatives Committee on Ways and Means in January 2022.
The full report is HERE. Below are the key findings regarding the apparel sector:
The African Growth and Opportunity Act (AGOA) matters significantly to Sub-Saharan African countries (SSA)’s apparel exports to the United States
AGOA has been the primary competitive advantage for SSA’s apparel exports to the United States. For example, US apparel imports from AGOA beneficiaries have risen from $953 million in 2001 to $1.4 billion in 2021 (note: up to $1.76 billion in 2022). More than 96.4% of these imports claimed AGOA’s duty-free benefits, including 98.8% utilized the “third-country fabric” provision.
While twenty countries were eligible for AGOA’s apparel provision, over 90% of US apparel imports from AGOA members in 2021 originated in five SSA countries: Kenya (31.5%), Madagascar (19.9%), Lesotho (20.6%), Ethiopia (18.3%), and Mauritius (5.1%).
AGOA benefits appear essential for SSA countries to maintain their apparel exports to the United States. USITC noted that in every case when a country lost AGOA eligibility between 2000 and 2021, there was a noticeable decrease in US apparel imports from that country, such as Rwanda and Madagascar. (note: according to OTEXA’s latest trade data, US apparel imports from Ethiopia, which lost its AGOA eligibility in 2022, dropped by 42% in the first two months of 2023 from a year ago, far worse than a 5.8% decrease of AGOA members as a whole.)
SSA garment manufacturers often find supplying the US apparel market a better fit than Europe, primarily because US brands tend to place orders for higher volume bulk basics, which allows workers to focus on a narrower set of skills.
The impact of AGOA on SSA’s apparel production and exports varied at the country level
Some SSA countries (e.g., Kenya and Lesotho) already had well-established apparel industries when AGOA was implemented in 2000. In contrast, other SSA countries (e.g., Madagascar, Ethiopia, Tanzania, and Ghana) received substantial investments from foreign-owned firms after AGOA was enacted, which helped jumpstart their apparel sectors.
USITC also identified two “unsuccessful” AGOA cases. For example, Mauritius was the largest AGOA beneficiary apparel supplier to the United States in 2000 but has since fallen to the fifth-largest in 2021, largely due to increased labor costs. Likewise, South Africa’s apparel export to the US was negatively affected by its disqualification from the “third-country fabric” provision under AGOA.
AGOA has had a limited impact on building an integrated regional textile and apparel supply chain in SSA
Currently, SSA countries primarily participate in the cut-and-sew operations of apparel based on imported textile raw materials from outside the region (mostly from Asia).
The USITC identified several challenges in building the local textile industry in SSA. For example, building a textile mill typically requires much higher investments (e.g., $200–300 million) than a garment factory (i.e., $25 million). Also, most SSA manufacturers cannot make the various types of yarns and fabrics in demand from U.S. buyers.
The dilemma is not new: Access to textile inputs from sources outside SSA is essential for garment manufacturers in SSA to meet the specifications of US buyers. However, relying on imported textile inputs reduces the incentives for investing in new textile production capabilities in SSA.
The USITC report found Mauritius an exception as it has developed a relatively competitive capability in producing cotton fabrics, which are supplied to garment factories in Madagascar. There is also some collaboration between cotton producers in Tanzania and Uganda and Kenya’s textile manufacturers.
US fashion companies generally see SSA as a promising emerging sourcing destination
Apparel producers in SSA are less established in global apparel value chains than manufacturers in other parts of the world. Therefore, it is not uncommon that fashion brands and retailers “work more directly with SSA apparel manufacturers to ensure product quality, particularly for new or expanding product lines.”
Most SSA garment factories only have cut, make, and trim (CMT) capability and rely on imported textile materials arranged by fashion brands and retailers.
USITC found that US companies increasingly import man-made fiber (MMF) apparel from AGOA members to benefit from greater import duty savings. (note: US tariff rates for MMF apparel were typically higher than those made with natural fibers like cotton. On the other hand, however, it’s worth noting that SSA countries generally have more competitive advantages in producing cotton apparel products than in producing MMF apparel).
SSA countries also have advantages over their Asia competitors. For example, “a shipment takes about 15–18 days to travel from the port in Lomé to the East Coast of the United States. From China or Bangladesh, lead times range from 40–50 days.”
Many fashion brands “have expressed interest in sourcing from greenfield factories with fewer legacy challenges posed by compliance and environmental impacts.”
US fashion companies’ sourcing diversification strategy to avoid risk exposure also contributed to the expansion of their apparel imports from AGOA members.
Uncertainty of AGOA renewals hurt US apparel imports from SSA
Apparel companies typically make sourcing decisions 12–18 months in advance. This practice underscores the importance of renewing AGOA early rather than granting extensions only within two to nine months of expiration, as in the past.
The USITC report mentioned, “Without the assurance of the “third country fabric” provision, many US apparel companies sourced from AGOA beneficiaries reported holding back orders from the region.”
More can be done to leverage SSA’s cotton production better
Cotton growing is widespread across about thirty SSA countries. SSA accounts for about 7 percent of the world’s cotton production, the fifth-largest globally.
However, most SSA cotton is sold to international buyers and exported to Asian mills that process it into yarns and fabrics. In contrast, the consumption of domestic cotton in SSA is limited.
The SSA cotton industry produces high-quality, “sustainable” cotton that can be used in several high-value end products sold globally. However, because of a lack of mechanization, SSA cotton production struggles to increase supply to meet demand.
Also, cotton-growing regions in SSA tend to be poorer and less politically stable than other parts of the region.
Discussion questions:
Based on the blog post and class discussions, how competitive or attractive are AGOA members as apparel-sourcing destinations for US fashion companies, especially compared with suppliers from Asia and the Western Hemisphere?
Based on the blog post, what improvement can be made to make AGOA or any problems that need to be addressed?
Any other thoughts related to the patterns of apparel trade and sourcing based on the blog post?
UFLPA establishes a rebuttable presumption that “any goods, wares, articles, and merchandise mined, produced, or manufactured whollyor in part in the Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China, or produced by certain entities,” are not allowed to enter the United States based on Section 307 of the Tariff Act of 1930. In other words, generally, importers have to provide evidence demonstrating that the factories or entities involved in the production of their imported products have no connection to XUAR or are not involved in any forced labor practices in XUAR.
UFLPA affects not only US imports directly from China but also products from other countries. Notably, China is a critical textile raw material supplier for many leading apparel exporting countries in Asia, and over 90% of cotton “made in China” comes from XUAR.
According to the US Customs and Border Protection (CBP), from June 2022 to April 2023, about 345 “textiles, apparel and footwear” shipments from mainland China ($13.45 million), 263 shipments from Vietnam ($13.3 million), 4 shipments from Sri Lanka ($1.64 million) and 46 shipments from other countries ($1.16 million) were affected by UFLPA enforcement.
Background: What sets Shein and Temu’s sourcing strategies apart from other US fashion brands?
Leading US fashion companies have increasingly turned to sourcing diversification to reduce supply chain risks and market uncertainties. For example, industry surveys and firm-level analyses consistently found that prominent US fashion brands and retailers typically source from more than 10-20 countries. Notably, “reducing China exposure” is a growing trend among US fashion companies, given the concerns about the rising US-China trade tensions and geopolitics.
Instead, Temu and Shein are notable for their reliance on Chinese suppliers, with Temu primarily shipping products directly from China rather than US-based distribution centers. This business model may be explained by two factors.
One is to leverage China’s strengths in making apparel products with greater varieties and smaller quantities. In other words, while countries like Bangladesh and Cambodia may be better suited for sourcing large orders, “Made in China” can remain overall price competitive for a wide range of products requiring a smaller minimum order quantity. In this way, China can offer greater flexibility to Temu, which intends to manufacture various products while controlling costs.
Another possible reason is to take advantage of the “de minimis rule.” Under US customs law, specifically the Trade Facilitation and Trade Enforcement Act of 2015, import duties are generally waived for goods with a value of $800 or less per person per day. Therefore, Temu’s shipping from China to US consumers is likely to be eligible for the benefits.
Discussion question: What shall we do about Shein?
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.
The session intends to facilitate constructive dialogue regarding the latest progress, challenges, and opportunities for achieving more sustainable and socially responsible apparel sourcing in the Post-COVID world. The session will offer a unique opportunity to hear directly from leading fashion brands and retailers regarding 1) fashion companies’ latest sourcing practices against the evolving business environment and their impacts on due diligence; 2) fashion companies’ new efforts and innovative projects to achieve more sustainable and socially responsible apparel sourcing; 3) opportunities and challenges to further improve sustainability and social responsibility in apparel sourcing in the post-COVID world. In addition, the session will be highly relevant and informative to all stakeholders in the fashion apparel business community, civil society, international organizations, academia, and policymakers.
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.”
Mango is a fashion company based in Barcelona, Spain that was founded in 1984 by brothers Isak Andic and Nahman Andic. The company has grown significantly since its inception and now has over 2,700 stores in 109 countries worldwide. Mango is known for its trendy and high-quality clothing, which is targeted toward young women.
One of the critical factors in Mango’s success has been its ability to stay current and relevant in the fast-paced fashion world. The company regularly collaborates with top designers and influencers to create unique and fashionable collections that appeal to its target audience. Mango also closely monitors emerging trends and adapts its collections accordingly.
Besides clothing, Mango also offers accessories, such as bags, shoes, jewelry, and a home collection. The company has a solid online presence, with an e-commerce website that allows customers to shop from anywhere in the world.
In December 2022, Mango announced the Sustainable 2030 strategy, which “aims to move towards the full traceability and transparency of its value chain, in order to continue with the process of auditing its suppliers and ensuring that appropriate working conditions are being fulfilled for the workers in the factories the company works with around the world.” As part of the strategy, Mango will “focus its efforts on moving towards a more sustainable collection, prioritizing materials with a lower environmental impact and incorporating circular design criteria, so that by 2030 these will predominate in the design of its products and all its fibers will be of sustainable origin or recycled.”
Mango’s Apparel Sourcing Strategies (as of December 2022)
First, Mango adopted a sophisticated global sourcing network for its apparel products. Specifically, Mango’s apparel supply chain involves 1,878 Tier 1, Tier 2, and Tier 3 factories in 29 countries worldwide. About 31% of these factories produce garments (Tier 1), 19% supply fabrics (Tier 2), and 49% provide textile raw materials like yarns and accessories (Tier 3). Further, about 407 factories (or 21%) have vertical production capability (e.g., making both finished garments and textile inputs).
Second, like many EU fashion companies, near-shoring from the EU and Turkey is a critical feature of Mango’s apparel sourcing strategy. For example, about 44.8% of Mango’s Tier 1 garment suppliers were EU based (including Turkey), whereas Asia suppliers only accounted for 54%. Likewise, about 34% of Mango’s Tier 2 fabric suppliers and nearly half of its Tier 3 yarn and accessories suppliers were also EU based. The result reflects the EU’s intra-region textile and apparel trade patterns, supported by the region’s relatively complete textile and apparel supply chain. In comparison, US fashion companies typically source more than 80% of finished garments from Asia, and most of these garments also use Asia-based textile raw materials.
Third, measured by the number of suppliers, Mango’s top Tier 1 apparel production bases include Turkey (187 factories), China (176 factories), India (135 factories), and Italy (107 factories). Industry sources further indicated that between 2021 and 2022, Mango primarily sourced from Turkey and India for Tops (69% and 78%, respectively). Mango’s imports from China and Italy were more diverse in product categories (e.g., dresses, outwear, bottoms, and swimwear). On the other hand, Mango’s apparel imports from Italy were much higher priced ($107 retail price on average) than those from the other three countries ($38-41 retail price on average).
Fourth, the factory size and vertical production capabilities of Mango’s suppliers seem to vary by region. Notably, Mango’s Asia-based suppliers are more likely to be large-sized (with 1,000+ employees) and offer vertical production (e.g., making both finished garments and textile input). Mango’s Africa and America-based suppliers were relatively small-sized or lacked vertical integration.
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.
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.
The EU region as a whole remains one of the world’s leading producers of textile and apparel (T&A). The EU’s T&A production value totaled EUR135.6 bn in 2019, down around 6% from a year ago (Note: Statistical Classification of Economic Activities or NACE, sectors C13, and C14). The EU’s T&A output value was divided almost equally between textile manufacturing (EUR69.4bn) and apparel manufacturing (EUR66.2bn).
Regarding textile production, Southern and Western EU, where most developed EU members are located, such as Germany, France, and Italy, accounted for nearly 60% of EU’s textile manufacturing in 2020. Further, of EU countries’ total textile output, the share of non-woven and other technical textile products (NACE sectors C1395 and C1396) has increased from 20.2% in 2011 to 23.2% in 2019, which reflects the ongoing structural change of the sector.
Apparel manufacturing in the EU includes two primary segments: one is the medium-priced products for consumption in the mass market, which are produced primarily by developing countries in Eastern and Southern Europe, such as Poland, Hungary, and Romania, where cheap labor is relatively abundant. The other category is the high-end luxury apparel produced by developed Western EU countries, such as Italy, UK, France, and Germany.
It is also interesting to note that in Western EU countries, labor only accounted for 20.3% of the total apparel production cost in 2019, which was substantially lower than 30.1% back in 2006. This change suggests that apparel manufacturing is becoming capital and technology-intensive in some developed Western EU countries—as companies are actively adopting automation technology in garment production.
Because of their relatively high GDP per capita and the size of the population, Germany, Italy, the UK, France, and Spain accounted for nearly 60% of total apparel retail sales in the EU in 2021. Such a market structure has stayed stable over the past decade. Also, reflecting local consumers’ preference, EU apparel brands overall outperform non-EU brands in the EU retail market.
Intra-region trade is an essential feature of the EU’s textile and apparel industry. Despite the increasing pressure from cost-competitive Asian suppliers, statistics from UNComtrade show that of the EU region’s total textile imports in 2019, as much as 53.8% were in the category of intra-region trade. However, it could result from increased PPE imports from Asia, EU countries’ Intra-region trade% for textiles dropped to 40% in 2020.
Meanwhile, about one-third of EU countries’ apparel imports came from other EU members during 2019-2020. In comparison, close to 98% of apparel consumed in the United States was imported over the same period, of which more than 75% came from Asia (Eurostat, 2022; UNComtrade, 2022).
Regarding EU countries’ textile and apparel trade with non-EU members (i.e., extra-region trade), the United States remained one of the EU’s top export markets and a vital textile supplier (mainly for technical and industrial textiles). Meanwhile, Asian countries, led by China, and Bangladesh, served as the dominant apparel sourcing base outside the EU region for EU fashion brands and retailers. Turkey was another important apparel sourcing base for EU fashion companies. There is no sign that COVID-19 has shifted the trade pattern.
Additionally, Vietnam was EU’s sixth-largest extra-region apparel supplier in 2020 (after China, Bangladesh, Turkey, India, and Cambodia), accounting for 4% in value. The EU-Vietnam Free Trade Agreement which took effect in August 2020, could encourage more EU apparel sourcing from the country in the long run.
According to the European Apparel and Textile Federation (Euratex), the EU textile and apparel industry continued to recover from COVID-19. For example, the value of textile and apparel output has already reached its pre-pandemic level by the end of 2022. However, Euratex warns that the EU textile and apparel industry still faces significant challenges from a slowed economy, hiking energy costs as a result of the Russia-Ukraine war, and high inflation.
Video 3: Vietnam’s textile and apparel industry amid the pandemic
Video 4: How H&M’s Recycling Machines Make New Clothes From Used Apparel in Hong Kong
Discussion questions:
How are textiles and apparel “Made in Asia” changing their face? What are the driving forces of these changes?
Based on the video, why or why not do you think the “flying geese model” is still valid today?
How to understand COVID-19’s impact on Asia’s textile and apparel industry? What strategies have been adopted by garment factories in Asia to survive the pandemic? What challenges do they still face?
What is your evaluation of Asia’s competitiveness as a textile and apparel production and sourcing hub over the next five years? Why? What factors could be relevant?
Anything else you find interesting/intriguing/thought-provoking/debatable in the video? Why?
Note: Everyone is welcome to join our online discussion. For students in FASH455, please address at least two questions. Please mention the question number # (no need to repeat the question) in your comment.
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.
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.
FASH455 Global Apparel & Textile Trade and Sourcing 