The event was hosted by the Washington International Trade Association on October 9, 2024
Panelists
Ralph Carter, Staff Vice President, Regulatory Affairs, FedEx
Kim Glas, President & CEO, National Council of Textile Organizations; Commissioner, U.S.-China Economic and Security Review Commission
Melissa Irmen, Director of Advocacy, NAFTZ-National Association of Foreign-Trade Zones
John Pickel, Senior Director, International Supply Chain Policy, National Foreign Trade Council
Felicia Pullam, Executive Director, Office of Trade Relations, U.S. Customs and Border Protection
Ana Swanson, Trade and International Economics Reporter, The New York Times (Moderator)
Event summary: Competing views about de minims and its reform
Arguments supporting De Minimis: Proponents like Ralph from FedEx argue that de minimis reduces trade friction, drives international supply chain efficiency, and allows U.S. companies to offer competitive pricing through free returns and streamlined customs processes. Meanwhile, they argue that the de minimis supports low-income U.S. consumers and enables small U.S. businesses to remain competitive.
Criticism of De Minimis: Critics, including Kim Glas from the National Council of Textile Organizations (NCTO), argue that it undercuts U.S. manufacturers, especially in industries like textiles, by allowing cheap imports from countries like China, often bypassing tariffs and safety regulations. They also say that de minimis was unfair to U.S. retailers that pay millions of dollars of tariff duties. Additionally, there are significant concerns about the safety risks posed by counterfeit goods and dangerous products (e.g., fentanyl) entering under de minimis exemptions.
Challenges of dealing with de Minimis: Felicia from the U.S. Customs and Border Protection (CBP) emphasizes the strain on the agency’s resources due to the sheer volume of de minimis shipments—it surged from about 2.8 million shipments per day in fiscal year 2023 to close to 4 million shipments per day in fiscal year 2024. She highlighted challenges such as the often unreliable information the de minimis imports submitted and the outdated authorities that hinder CBP’s enforcement.
Equal treatment for U.S. Foreign Trade Zones: U.S. Foreign Trade Zones (FTZs) are designated areas within the United States that are considered outside U.S. customs territory for import duties. They allow businesses to import, store, assemble, manufacture, or process goods with deferred or reduced customs duties, which are only paid when goods leave the FTZ and enter U.S. commerce. Currently, U.S. FTZs do not benefit from the de minimis exemption, meaning goods imported directly into the U.S. from overseas warehouses can qualify for de minimis, but goods entering through U.S. FTZs do not.
Melissa Irmen from NAFTZ-National Association of Foreign-Trade Zones advocates for U.S. foreign trade zones to be given the same de minimis privileges as foreign warehouses, arguing that this would ensure better oversight and security while maintaining trade efficiency. Critics, however, say that expanding de minimis in this way would exacerbate the problem rather than fix it.
Reforming the De minimis: There is a push for comprehensive reform of the De minimis system, with proposals ranging from raising duties on certain products to eliminating the exemption altogether for specific categories of goods (e.g., textiles, products subject to Section 301 tariffs).
Particularly, in a face sheet released in September 2024, the Biden Administration announced it would address “the significant increased abuse of the de minimis exemption, in particular China-founded e-commerce platforms.” The announcement said the Biden Administration would issue a Notice of Proposed Rulemaking that would exclude from the de minimis exemption all shipments containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962. The announcement also called for Congress to pass new legislation to reform the de minimis rule comprehensively.
Michael Lambert is the Executive Director of Global Trade and Compliance at Urban Outfitters (URBN). He also serves as the Vice Chair of the Board of Directors of the United States Fashion Industry Association (USFIA).
Michael has spent over 30 years in the retail fashion business, primarily in the import/export and Customs compliance area. At URBN, Michael is responsible for Customs, Social, Vendor and Regulatory Compliance. Urban Outfitters has a global footprint, with stores in the U.S., Canada, Europe and the United Kingdom. Urban Outfitters designs and develops products throughout the world, working with a core vendor base across more than thirty countries. Prior to Urban Outfitters, Michael spent nine years with Limited Brands as head of their Import Planning department. He spent his last two years with Limited Brands in London, setting up Compliance activity for Limited Brands as they expanded overseas.
Michael has been a Licensed Customs Broker since 1998 and is a graduate of Pennsylvania State University, with a Bachelor of Arts in International Politics and Foreign Service.
About Emilie Delaye (Moderator)
Emilie Delaye is a 2024 UD entrepreneurship graduate and an incoming UD graduate student in fashion and apparel studies. Emilie is the recipient of the 2024 UD Alumni Association Alexander J. Taylor Sr. Awards for Outstanding Seniors.
Part I: Watch the following two videos on tariffs—one from an economic perspective and the other from a political perspective.
Part II: Check the respective tariff rate for the following products by copying and pasting the HS code into the search box
Product 1 (men’s and boys’ overcoat, cotton): HS code 6101.20.00
Product 2 (cotton): HS code 5201.00.05
Product 3 (smartphone): HS code 8517.13.00
Discussion question: Based on the videos and your findings, how would you explain the differences in tariff rates for these products? Do you think tariffs are still necessary in the 21st century?
Speaker: Dr. Deborah Elms, Founder and Executive Director of the Asian Trade Centre and the President of the Asia Business Trade Association. The clip was part of the webinar “Asia’s Noodle Bowl Of Trade” (March 2023).
Background
The Asia-Pacific region includes several mega free trade agreements:
ASEAN (Association of Southeast Asian Nations) is a regional intergovernmental organization comprising ten countries in Southeast Asia (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam). In 2022, ASEAN members have a combined nominal GDP of $3.6 trillion and a population of 671.6 million.
CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is a free trade agreement signed by 11 countries in the Asia-Pacific region, including Japan, Malaysia, Vietnam, Australia, Singapore, Brunei, New Zealand, Canada, Mexico, Peru, and Chile. The CPTPP covers a market of 495 million people with a combined GDP of $13.5 trillion in 2021. The United States was originally a participant in the Trans-Pacific Partnership (TPP) negotiations, but in January 2017, former US President Trump withdrew the US from the agreement. The Biden administration has indicated no interest in rejoining CPTPP. Additionally, China is actively seeking to join CPTPP (as of March 2024).
RCEP (Regional Comprehensive Economic Partnership) is a free trade agreement signed by 15 countries in the Asia-Pacific region, including China, Japan, South Korea, Australia, New Zealand, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam. In 2021, RCEP members collectively represented a market of 2.3 billion people with a combined GDP of $26.3 trillion. India was an RCEP member but withdrew from the agreement due to concerns about import competition with China.
IPEF (Indo-Pacific Economic Framework for Prosperity) is a US-led economic cooperation framework that aims to “link major economies and emerging ones to tackle 21st-century challenges and promote fair and resilient trade for years to come.” IPEF is NOT a traditional free trade agreement, and it does not address market access issues like tariff cuts. Instead, IPEF includes four pillars: trade, supply chains, clean economy, and fair economy. IPEF members in the Asia-Pacific region include the United States, Japan, Australia, New Zealand, South Korea, India, Fiji, Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The IPEF is designed to be flexible, meaning that IPEF partners are not required to join all four pillars. For example, India chooses not to join the trade pillar of the framework. In 2021, IPEF countries collectively represented a market of 2.1 billion people with a combined GDP of $23.3 trillion. The potential economic impact of IPEF remains too early to tell.
Notably, ASEAN, CPTPP, RCEP, and IPEF members play significant roles in the world textile and apparel trade. Specifically:
ASEAN and RCEP members have established a highly integrated regional textile and apparel supply chain. For example, a substantial portion of ASEAN and RECP members’ textile imports came from within the region.
ASEAN and RCEP members’ supply chain connection with China has substantially strengthened over the past decade. In contrast, the US barely participated in Asia-based textile and apparel supply chains. For example, other than CPTPP, the US accounted for less than 2% of ASEAN, RCEP, and IPEF members’ textile imports in 2022.
ASEAN and RCEP members also hold significant market shares in the world textile and apparel exports (over 50%). Meanwhile, the US and EU are indispensable export markets for ASEAN and RCEP members.
Because of the inclusion of the United States, IPEF represented one of the world’s largest apparel import markets (i.e., 33.7% in 2021, measured in value). Similarly, in 2022, about 26% of US apparel imports came from current IPEF members. Should IPEF address market access issues, it could offer significant duty-saving opportunities for textile and apparel products.
Additionally, the UK’s membership in CPTPP may have a limited direct impact on the textile and apparel sector, at least in the short to medium terms. For example, current CPTPP members only accounted for about 6% of the UK’s apparel imports in 2022.
#1 Respondents reported growing sourcing risks of various kinds in 2024, from navigating an uncertain U.S. economy, managing forced labor risks, and responding to shipping and supply chain disruptions to facing rising geopolitical tensions and trade protectionism.
Over half of the respondents ranked “Inflation and economic outlook in the U.S.” and “Managing the forced labor risks in the supply chain” as their top business challenges in 2024.
The issues of “Shipping delays and supply chain disruptions” and “Managing geopolitics and other political instability related to sourcing” have newly emerged among respondents’ top five concerns in 2024.
About 45 percent of respondents rated “Protectionist trade policy agenda in the United States” as a top five business challenge this year, a jump from only 15 percent in 2023.
#2 U.S. fashion companies leverage sourcing diversification to respond to the growing sourcing risks and market uncertainty in 2024.
Nearly 70 percent of large-sized companies with 1,000+ employees reported sourcing from ten or more countries, significantly higher than the 45-55 percent range in the past few years. It also has become more common for medium to small-sized companies with fewer than 1,000 employees to source apparel from six or more countries in 2024 than in the past.
Nearly 80 percent of respondentsplan to source from the same number of countries or even more countries through 2026, aiming to mitigate sourcing risks more effectively. However, their approaches differ at the firm level—some U.S. fashion companies plan to work with fewer vendors, while others intend to source from more.
#3 Managing the risk of forced labor in the supply chain continues to be a top priority for U.S. fashion companies in 2024.
U.S. fashion companies have adopted a comprehensive approach to comply with UFLPA and mitigate forced labor risks. On average, each surveyed company has implemented approximately six distinct practices across various aspects of their business operations this year, up from an average of five in 2023.
More than 90 percent of respondents say they are “Making more efforts to map and understand our supply chain, including the sources of fibers and yarns contained in finished products.” Notably, nearly 90 percent of respondents report mapping their entire apparel supply chains from Tier 1 to Tier 3 in 2024, a significant increase from about 40 percent in the past few years.
More than 80 percent of respondents say they “intentionally reduce sourcing from high-risk countries” in response to the UFLPA’s implementation. Another 75 percent of respondents explicitly state that their company has “banned the use of Chinese cotton in the apparel products” they carry.
About 45 percent of respondents have been actively “exploring sourcing destinations beyond Asia to mitigate forced labor risks.” However, this year, fewer respondents (i.e., under 10 percent) plan to cut apparel sourcing from Asian countries other than China directly, implying a more targeted and balanced approach to mitigating risks and meeting sourcing needs.
Based on field experience, respondents call for greater transparency in U.S. Customs and Border Protection (CBP)’s UFLPA enforcement, specifically in shipment detention and release decisions and in targeted entities and commodities information. Respondents also suggested that CBP reduce repeated detentions, focus on “bad actors” only, clarify enforcement on recycled cotton, and continue to partner with U.S. fashion companies on UFLPA enforcement.
#4 U.S. fashion companies remain deeply concerned about the deteriorating U.S.-China bilateral relationship and plan to further “reduce China exposure” to mitigate risks.
A record 43 percent of respondents sourced less than 10 percent of their apparel products from China this year, compared to only 18 percent in 2018. Likewise, nearly 60 percent of respondents no longer use China as their top apparel supplier in 2024, much higher than the 25-30 percent range before the pandemic.
Respondents rated China as economically competitive as an apparel sourcing base compared to many of its Asian competitors regarding vertical manufacturing capability, relatively low minimum order quantity (MOQ) requirements, flexibility and agility, sourcing costs, and speed to market. However, non-economic factors, particularly the perceived high risks of forced labor and geopolitical tensions, are driving U.S. fashion companies to move sourcing out of China. This trend applies to surveyed U.S. fashion companies selling products in China.
Nearly 80 percent of respondents plan to reduce their apparel sourcing from China further over the next two years through 2026. Consistent with last year’s results, large-size U.S. fashion companies with 1,000+ employees currently sourcing more than 10 percent of their apparel products from China are among the most eager to “de-risk.”
#5 U.S. fashion companies are actively exploring new sourcing opportunities, with a particular focus on emerging destinations in Asia and the Western Hemisphere.
This year, more respondents reported sourcing from India (89 percent utilization rate) than from Bangladesh (86 percent utilization rate) for the first time since we began the survey. Also, nearly 60 percent of respondents plan to expand apparel sourcing from India over the next two years, exceeding the planned expansion from any other Asian country.
For the second year in a row, three non-Asian countries made it to the top ten most utilized apparel sourcing destination list in 2024, including Guatemala (ranked 7th), Mexico (ranked 7th), and Egypt (ranked 10th). All three countries also witnessed an improved utilization rate in 2024 compared to last year’s survey results.
This year, a new record 52 percent of respondents plan to expand apparel sourcing from members of the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), over the next two years, up from 40 percent in 2023. However, most U.S. fashion companies consider expanding near-shoring from the Western Hemisphere as part of their overall sourcing diversification strategy. For example, nearly ALL companies that plan to increase sourcing from CAFTA-DR over the next two years also plan to increase sourcing from Asia.
75 percent of respondents identified the “lack of sufficient access to textile raw materials” as the main bottleneck preventing them from sourcing more apparel from CAFTA-DR members. Respondents say the local manufacturing capability for yarns and fabrics using fiber types other than cotton and polyester, such as spandex, nylon, viscose, rayon, and wool, was modest or low in the CAFTA-DR region, even when including the United States.
The U.S.-Mexico-Canada Trade Agreement (USMCA) entered into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). Within the context of expanding nearing-shoring from the Western Hemisphere, in 2024, about 65 percent of respondents reported sourcing from Mexico and Canada (or USMCA members), a noticeable increase from about 40 percent in 2019-2020. About 36 percent of respondents say their companies “expanded apparel sourcing from USMCA members because of the agreement.”
#6 Respondents underscore the importance of immediate renewal of AGOA before its expiration in September 2025 and extending the agreement for at least another ten years.
This year, respondents reported sourcing from seven AGOA members or countries in Sub-Saharan Africa (SSA), including Lesotho, Ethiopia (note: lost AGOA eligibility in 2022), Kenya, Madagascar, Mauritius, Tanzania, and Ghana, an increase from four countries in 2023, and six countries in 2022. Most respondents sourcing from AGOA in 2024 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.
Over 86 percent of respondents support renewing AGOA for at least another ten years, and none object to the proposal. This reveals U.S. fashion companies’ strong support for the trade preference program and the non-controversial nature of continuing this agreement.
Over 70 percent of respondentssay another 10-year renewal of AGOA is essential for their company to expand sourcing from the region.
About 30 percent of respondents reported that they had already held back sourcing from AGOA members due to the pending renewal of the agreement and associated policy uncertainty. This figure could increase to half of the respondents if AGOA is not renewed by the end of 2024.
Another 30 percent of respondents indicate that keeping the flexible rules of origin in AGOA, such as the “third country fabric provision” for least-developed members, is essential for their company to source from the region.
Other topics the report covered 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 2024 regarding sourcing cost, speed to market, flexibility & agility, minimum order quantity (MOQ), vertical integration and local textile manufacturing capability, social and environmental compliance risks and geopolitical risks (assessed by respondents)
Respondents’ detailed sourcing portfolio in 2024 for garments and textile materials (i.e., yarns, fabrics and accessories)
Respondents’ latest strategies to mitigate forced labor risks in the supply chain and fashion companies’ suggestions for CBP’s UFLPA enforcement based on field experience
U.S. fashion companies’ latest social responsibility and sustainability practices related to sourcing
U.S. fashion companies’ trade policy priorities in 2024
About the study
This year’s benchmarking study was based on a survey of executives from 30 leading U.S. fashion companies from April to June 2024. The study incorporated a balanced mix of respondents representing various businesses in the U.S. fashion industry. Approximately 80 percent of respondents were self-identified retailers, 60 percent were self-identified brands, 41 percent were importers/wholesalers, and 3 percent were manufacturers.
The survey respondents included large U.S. fashion corporations and medium-sized companies. Around 80 percent of respondents reported having over 1,000 employees; the rest (20 percent) represented medium-sized companies with 100-999 employees.
Question 1: We know that nearly 98% of clothing consumed in the U.S. is imported. Can you give our students a quick overview of U.S. Customs and Border Protection (CBP)’s role in regulating international trade, particularly textiles and apparel products?
CBP’s Office of Trade facilitates legitimate trade, enforces U.S. trade laws, and protects the United States economy to ensure consumer safety and create a level playing field for American businesses.
CBP is responsible for regulating clothing and/or textiles products imported into the United States, ensuring that all trade aspects of the importation are correct at the time of entry. These include, but are not limited to the classification, valuation, country of origin markings, and qualification for preferential duty treatment under a free trade agreement and/or program.
Textiles and wearing apparel are recognized as a Priority Trade Issue as codified in the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015. As such, this issue is one of the primary drivers for risk-informed investment of CBP resources as well as our enforcement and facilitation efforts. This includes the selection of audit candidates, special enforcement operations, outreach, review of free trade agreements and/or trade preference programs claims, and regulatory initiatives.
Question 2: Ensuring no forced labor in the supply chain is a top priority for U.S. fashion companies. Specifically, the Uyghur Forced Labor Prevention Act (UFLPA) officially came into force in June 2022. For our students who may not be familiar with the UFLPA, what essential information should they know about this legislation and the issue of forced labor? Additionally, could you recommend any helpful online resources?
CBP is the leading federal agency in the enforcement of forced labor laws and the UFLPA. The agency achieves this through two approaches – the first is through forced labor investigations and issuance of Withhold Release Orders (WROs) and Findings, which require CBP to prevent the release of goods made with forced labor into the U.S. commerce. The second is through the implementation of the UFLPA rebuttable presumption.
CBP enforces U.S. law on forced labor within Section 307 of the Tariff Act of 1930, which says any “goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country” by convict or forced labor is not permitted entry into U.S. commerce.
In 2016, the U.S. Government enacted the Trade Facilitation and Trade Enforcement Act (TFTEA), which removed the “consumptive demand” clause that was in the original statute. This change allowed CBP to set up its own investigative unit, where CBP receives allegations of forced labor, investigates them using the 11 indicators of forced labor, and issues WROs or Findings when applicable. CBP issues a WRO if there is a reasonable suspicion of forced labor conditions by a particular foreign manufacturer, and it issues a Finding if there is probable cause that forced labor conditions exist.
The relatively recent UFLPA establishes a rebuttable presumption that any goods made wholly or in part from the Xinjiang Uyghur Autonomous Region (XUAR) are prohibited from entry into U.S. commerce, as they are presumed to be made with forced labor unless the importer can provide clear and convincing evidence the goods are not made from forced labor or sourced from the XUAR.
When goods are exported directly from the XUAR, CBP applies the rebuttable presumption and excludes the goods from entry. Importers then must prove by clear and convincing evidence that the goods are not made with forced labor before they can be released into U.S. commerce. For goods not imported directly from the XUAR, CBP evaluates the risk that the producer uses inputs from the XUAR in the production of the final product and will stop any shipments it deems as high risk of containing materials produced from the XUAR.
CBP is committed to identifying products made by forced labor and preventing them from entering the United States. CBP’s enforcement of 19 U.S.C. § 1307 supports ethical and humane trade while leveling the playing field for U.S. companies that respect fair labor standards. The UFLPA is a major shift for importers as it requires them to know their entire supply chains from the raw materials all the way to the end product and to ensure no materials made with forced labor are included at any step along the way. Information on all of these topics and many more are available on CBP’s Due Diligence in Supply Chains webpage.
Students can visit our Forced Labor webpage for updated information and resources on CBP’s efforts to prevent goods produced with forced labor from entering U.S. commerce. There is also a specific UFLPA webpage, which explains CBP’s roles and responsibilities and links to the UFLPA Entity List; an UFLPA Statistics Dashboard with information on the number of shipments stopped by CBP by fiscal year, industry, or country of origin; due diligence documents and reports; CBP’s Operational Guidance for Importers, frequently asked questions on UFLPA enforcement and the Department of Homeland Security (DHS) Strategy; and additional links to the DHS Forced Labor Enforcement Task Force Agency Related Resources.
Question 3: Our students are also intrigued by the so-called ‘de minimis rule,’ which has been a topic of heated debate in the news. Why was this rule proposed initially, and how does it relate to the fashion and apparel trade?
De minimis shipments, also referred to as Section 321 low-value shipments, are goods that are exempt from duty and tax under 19 U.S.C. § 1321(a)(2)(C) and 19 C.F.R. § 10.151. De minimis eligibility is based on the value of all goods imported by one person, in one day. The de minimis exemption allows CBP to pass, free of duty and tax, merchandise imported by one person on one day that has an aggregate fair retail value in the country of shipments of $800 or less. This provision was first enacted in 1938 to avoid administrative expense to the government from inspecting low-value goods disproportionate to the amount of revenue realized and was subsequently raised multiple times.
In 2015, CBP processed 139 million de minimis transactions. By 2023, this increased to more than 1 billion, representing a 662% growth in eight years. Now, in Fiscal Year 2024, nearly 4 million de minimis shipments arrive at CBP facilities for targeting, review, and potential physical examination each day. Although these packages are low value, they pose the same potential health, safety, and economic security risks as larger and more traditional containerized shipments.
As long as a good is not subject to duties, taxes or fees (such as anti-dumping/ countervailing duties, excise taxes such as those required for alcohol and tobacco products, or any interagency fees that have not been waived for informal entries), it is eligible for de minimis clearance.
Significant attention is being placed on the de minimis administrative process for new business models, such as those used by e-commerce and fast fashion companies, which leverage the de minimis process for direct-to-consumer shipments.
Question 4: Building on the previous question, in April 2024, the Department of Homeland Security (DHS) announced its new textile enforcement actions. How will CBP contribute to the new enforcement strategy?
CBP is responsible for the management, control, and protection of U.S. borders and ports of entry, acting on the frontline of textiles and trade agreements enforcement. The U.S. textile industry is a vital domestic industrial base for U.S. national security, health care, and economic priorities. U.S. textile production is the foundation of the western hemisphere textile and apparel co-production chain, representing over 500,000 U.S. jobs, 1.5 million western hemisphere jobs, and $39 billion in annual shipments. Members of the textile industry have raised concerns with CBP regarding a decline in business momentum affecting their ability to maintain productivity and jobs.
In response to these concerns, CBP is increasing its efforts to detect, interdict and deter illicit textiles trade and promote a level playing field for the domestic textiles industry given the ever-changing threat landscape and recent proliferation of allegations.
CBP is conducting coordinated and unified intelligence and data-driven operations to target and interdict textile imports that are not compliant with U.S. trade laws. Efforts include, but are not limited to, running special operations, carrying out Textile Production Verification Team visits at foreign factories and raw material providers, examining cargo, conducting compliance reviews and verifications, completing trade audits, and performing laboratory analysis on imported products with a heighted focus on imports that are subject to the U.S.-Mexico-Canada and Dominican Republic – Central America trade agreements, imported under the de minimis provision, and/or potentially in violation of forced labor laws, including the Uyghur Forced Labor Prevention Act.
You can learn more about CBP’s textile enforcement work in a recent CBP Reports video. You can also find information on our website.
Question 5: We know technology is significantly affecting and shifting how international trade is conducted. At CBP, there is an initiative called “21st Century Customs Framework.” Can you provide our students with more information about this program? For example, what is it about, what do you plan to achieve, and why does the program matter for fashion apparel companies?
The 21st Century Customs Framework (21CCF) is CBP’s effort to update its Title 19 authorities and underlying statutes, which have not seen comprehensive updates in more than 30 years.
Since 1993, trade volumes have increased dramatically, trade practices have changed, and new threats have emerged, which means CBP needs new tools and capabilities to do its job.
21CCF matters for fashion apparel companies in two key ways: (1) the framework identifies updates that would better enable CBP to facilitate lawful trade more efficiently, so that goods can get to consumers, warehouses, stores, and other destinations as quickly as possible; and (2) the framework identifies updates that would enable CBP to bolster detection and enforcement against goods that threaten the well-being of American businesses and consumers—counterfeits, goods produced with forced labor, anti-competitively priced goods, and goods that violate environmental or consumer safety laws.
For example, 21CCF includes concepts that would authorize CBP to furnish industry stakeholders with information generated by market platforms regarding compliance with intellectual property rights laws—such as product origin and manufacturer—in importations where intellectual property violations are suspected.
By sharing additional information with the private sector, CBP will be able to utilize its private sector partnerships to more readily identify illicit sellers using online marketplaces to import intellectual property rights-infringing goods into the United States.
Additionally, these proposed updates would better position the private sector to make more informed business decisions and eliminate high-risk actors from their supply chains.
Overall, in pursuing 21CCF, CBP envisions a trading system where legitimate goods move swiftly and securely; ethical production methods are used throughout the global supply chain; domestic industries compete on a level playing field; and the United States helps lead the world with innovative trade practices.
Private sector input has been instrumental throughout the development of the 21CCF statutory concepts, and the framework is now undergoing an interagency review process before eventually being cleared to be formally transmitted to Congress for consideration.
Question 6: As members of Generation Z, our students deeply care about fashion sustainability. Studies also show that fashion companies are increasingly concerned about climate change and its significant business implications. In your view, how can international trade contribute to sustainability and foster a more sustainable fashion industry? How might CBP support and assist in these efforts?
Sustainability in fashion concerns more than just addressing textiles or products. It involves the entire product lifecycle process, which includes the way the clothing is produced, consumed, and disposed of in landfills.
Sustainability in fashion encompasses a wide range of factors, including cutting carbon dioxide emissions, addressing overproduction, reducing pollution and waste, and supporting biodiversity.
CBP has a responsibility, as part of our mission, to keep people safe and protect the economy; that includes supporting the fashion industry. As noted, the fashion, textile, and apparel industries are crucial parts of the U.S. economy. The work CBP does is key in seizing suspect and potentially illegal fashion goods at the border, issuing penalties to bad actors, and protecting the health and safety of the American people.
Due to CBP’s direct influence over trade processes, we see ourselves as a facilitator across the government to start conversations about sustainability and where government can remove barriers or add value to existing environmental efforts in trade.
CBP has developed strategies aimed at promoting environmental sustainability within trade. CBP’s Green Trade Strategy, for instance, is designed to champion the reduction of pollution and waste while encouraging the adoption of green technologies and practices. Such initiatives reflect a broader commitment to advancing circularity, recycling, and reuse in the fashion industry that can enable fashion companies to produce and sell their products more sustainably.
CBP launched the Green Trade Strategy in 2022 to further enable CBP to fight the negative impacts of climate change and environmental degradation in the context of the trade mission.
The strategy focuses on four main pillars:
o Incentivize Green Trade; o Strengthen Environmental Enforcement Posture; o Accelerate Green Innovation; and o Improve Climate Resiliency and Resource Efficiency.
Thousands of CBP employees work toward making international trade more sustainable and transparent. The strategy touches every office and every employee at CBP.
With these four pillars, the strategy provides a framework for future action. Success requires buy-in and collaboration with all our stakeholders, including the fashion industry, and especially you, the future of fashion. We want your help because we cannot do this alone, and you offer unique perspectives that we need in order to fight and mitigate climate change.
Students who are interested in learning more about CBP’s green trade efforts can visit our Green Trade Strategy webpage.
Question 7: Additionally, some of our students are considering a career in international trade. What career opportunities at CBP might be a fit for our undergraduate and graduate students?
There are a number of paths for college students and recent graduates to gain experience and begin to build their careers at CBP, including our recent graduate programs and the Pathways Program.
Some positions that recent graduates can pursue include the following:
Administrative – CBP has administrative roles in various business functions, such as finance, budget, personnel, logistics, and asset management. Position titles include Staff Assistant and Management and Program Analyst.
Law Clerks – This role is for those with recent JDs that expect to pass the Bar Exam within 14 months.
Auditors – This is for students pursuing the auditor career (Interns) or those expecting to complete the required unit of Auditor courses (Auditor, GS-11).
CBP prioritizes facilitating legitimate trade in textiles and wearing apparel and protecting the intellectual property rights of fashion and apparel brands as a part of its trade mission.
CBP employees help protect the wearing and apparel industry from counterfeit merchandise and other unfair or harmful trade practices.
Learn more about career opportunities at CBP on our careers page.
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Disclaimer: This interview is intended exclusively for educational purposes in the FASH455 class and shall not be considered an official policy statement of the U.S. Customs and Border Protection (CBP).
The prospect of Sub-Saharan Africa (SSA) as an apparel-sourcing base for U.S. fashion companies has been a growing heated debate. On the one hand, U.S. fashion companies, driven by increasing geopolitical concerns and other market factors, were eager to diversify apparel sourcing away from Asia. The SSA region was often regarded as one of the most popular alternative sourcing destinations thanks to its large population, relatively low labor costs, and shorter shipping distance to U.S. ports compared to most Asian. The African Growth and Opportunity Act (AGOA), a trade preference program enacted in 2000, in particular, allowed eligible apparel exports from SSA countries to enter the United States import duty-free, creating substantial financial incentives for U.S. fashion companies to source from the SSA region.
However, empirical trade data shows that U.S. apparel imports from SSA members have stagnated over the past decades without evident growth. Notably, with little change from 2010, SSA countries collectively accounted for only 1.8% of U.S. apparel imports in 2023, with no single SSA member achieving a market share of more than 1%. In contrast, over the same period, despite China’s declining market shares, the following five largest Asian suppliers—Vietnam, Bangladesh, India, Indonesia, and Cambodia—jointly accounted for 43.0% of U.S. apparel imports in 2023, a notable increase from 27.4% in 2010.
This study aims to evaluate SSA countries’ capacity to serve as an alternative apparel sourcing destination to Asian suppliers for US fashion companies. Specifically, the study examined the detailed product information of a total of 10,000 stock keeping units (SKUs) of clothing items sold in the U.S. retail market from January 2021 to December 2023. Half of these items were sourced from the six largest apparel-exporting countries in SSA: Lesotho, Kenya, Mauritius, Ethiopia, Madagascar, and Tanzania. Together, these countries accounted for over 96% of the value of U.S. apparel imports from the SSA region between 2021 and 2023. The remaining half came from China, Vietnam, Bangladesh, Cambodia, India, and Indonesia, the six largest Asian apparel exporters, which stably accounted for approximately 90% of U.S. apparel imports from Asia over the past decade.
Key findings:
First, the results revealed that U.S. fashion companies’ sourcing strategies for SSA countries appeared more subtle and complicated than simply treating the region as another low-cost sourcing destination, as suggested by previous studies. Instead, according to the results, U.S. fashion companies seemed to leverage SSA countries as suppliers of “niche products,” such as those relatively simple and basic apparel categories containing African cultural elements and targeting the luxury and premium market segment. Meanwhile, the demand for such products could be much smaller than regular apparel items sold in the value and mass market. This allows SSA countries to fulfill these smaller orders despite their limited production capacity, often family-owned or involving handmade processes.
Second, the study’s findings identified significant challenges for SSA countries serving as immediate alternatives to sourcing from Asia for U.S. fashion companies. While SSA countries could offer relatively low sourcing costs, the range of apparel products available for U.S. fashion companies to source from the SSA region remained significantly more limited than those from Asia. For example, results show that U.S. fashion companies preferred sourcing relatively basic and technologically simple categories like knitwear, T-shirts, and bottoms from SSA countries. However, imports from SSA countries offered more limited sizing and color choices and were less likely to include womenswear and relatively more sophisticated or specialized product categories such as outerwear and swimwear. As another example, U.S. apparel imports from SSA countries were primarily made of cotton and polyester, with less use of other fiber types, including nylon, rayon, viscose, wool, and those made from recycled textile materials (see table below).
Third, building on the previous point, the results call for new thinking on strengthening SSA countries’ genuine competitiveness as an apparel-sourcing destination. Over the past decades, trade preference programs such as AGOA have mainly focused on improving the price competitivenessof SSA countries’ apparel exports. However, as this study’s findings illustrate, AGOA and other trade preference programs seemed inadequate in assisting SSA countries in developing capacity beyond basic apparel categories and securing a sufficient variety of textile materials. As U.S. fashion companies have placed greater emphasis on factors beyond price in their sourcing decisions, such as flexibility, agility, sustainability, and vendors’ capability to make a wide variety of products, this could put SSA countries at even more significant disadvantages down the road to being considered alternatives to Asia for apparel sourcing.
The results also reminded us that AGOA’s liberal rules of origin, which allowed least-developed SSA countries to use textile materials from anywhere worldwide, cannot replace the crucial need to develop the local textile manufacturing capacity within the SSA region. Without a robust local textile manufacturing sector, SSA countries would encounter significant challenges in diversifying their product offerings to include more complex and versatile clothing categories, such as outerwear and women’s dresses. These categories typically require a wide variety of raw textile materials and accessories, making it highly impractical and inefficient to rely solely on imports for their supply.
On the other hand, the findings reveal the necessity of creating a stable and foreseeable business environment, such as the long-term renewal of AGOA, to attract more long-term investments in SSA. For example, investing in and strengthening SSA countries’ local supply of sustainable textile materials, such as recycled or organic fibers, could strategically enhance SSA countries’ competitiveness in meeting the increasing demand from U.S. fashion companies for sustainable apparel products.
The new punitive tariffs on Chinese steel and aluminum: The overcapacity problem in the steel industry globally could raise national security concerns. While the Biden Administration is more focused on outreach to allies and partners to address the issue collectively, the Trump Administration took a different approach with the Section 232 tariffs specifically targeting China. However, the impact of China-targeted measures could be muted due to the limited amount of US steel imported from China today. The next administration is expected to face the challenge of addressing global overcapacity in various industries. Like it or not, tariffs seem to be one of the few tools available to the US government to tackle these issues directly.
Currency debate: “Currency manipulation” refers to the deliberate actions taken by a country’s government or central bank to artificially influence the value of its currency in the foreign exchange market. When a foreign government deliberately lowers the value of its currency, it could result in more US imports from that country and hurt the price competitiveness of US exports. While currency manipulation has not been a significant concern in recent years, the recent strength of the US dollar against other currencies, such as the Japanese yen, Chinese yuan, and Vietnamese dong, may reignite debate over the issue. The Biden Administration struggles to fight high inflation using high-interest rates, making it extremely challenging to “devalue the US dollar” in a macro sense. In comparison, the second Trump administration could designate countries of concern as currency manipulators, followed by new retaliatory measures, including tariffs or other trade barriers.
Industrial policy and subsidy: The Biden administration has packaged industrial policy as a core pillar of “Bidenomics,” which has pledged more than $805 billion in new subsidies for semiconductor manufacturing and research, climate and energy investments, and infrastructure spending. In comparison, the Republicans would be more inclined to let market forces determine the outcome of these policies rather than funding them through the government. It is also likely that the second Trump administration will tighten certain rules related to foreign entities taking advantage of US tax credits. However, there could be coordinated investments and supply chain resilience efforts in Biden and Trump’s second term, such as tactical coordination to prevent global subsidy races and disruptions in supply chains.
Trade policy as a tool for other issues: Reviving the Trans-Pacific Partnership (TPP) or similar mid-2010s era trade agreements was slim during the Biden administration. Instead, the Biden administration prioritizes a climate and trade agenda, as evidenced by the launch of a new White House Climate and Trade Task Force. Biden administration will continue to prioritize investments in domestic production capacity while looking outward to use trade to support other non-trade objectives.
In comparison, the Trump administration was more aggressive in pushing back against protectionist trade measures against US products but also less optimistic about the willingness of other countries to engage in good-faith negotiations with the US. Further, Trump 2.0 will likely return to trade policies similar to his first term, including potential tariffs of up to 60% on Chinese imports and an across-the-board tariff of 10% on all imports. Further, there is bipartisan support for increasing tariffs on Chinese goods, considering the deteriorating bilateral relationship. However, a 10% global tariff on imports from countries like Switzerland and Ireland could be more controversial due to potential consumer price impacts and damage to US alliances.
Discussion questions:
Any of the aforementioned issues could potentially impact fashion apparel companies? Why?
In your view, is it preferable for the textile and apparel industry not to be a focus of US trade policy? Why?
What are your top 1-2 takeaways from the panel discussion?
#1: On April 5, 2024, the US Department of Homeland Security (DHS) released its new enhanced strategy to combat illicit trade and level the playing field for the American textile industry and the estimated over 500,000 US textile jobs*. *note: according to the Bureau of Labor Statistics, as of December 2023, the US textile and apparel manufacturing sector employed about 272,400 workers (seasonally adjusted), including 89.3K in NACIS313 textile mills, 95.6K in NAICS314 textile product mills and 87.5K in NAICS315 apparel manufacturing. As of December 2023, NAICS 4482 apparel retail stores employed about 850,000 workers (seasonally adjusted).
According to DHS, the new enforcement plan will focus on the following areas:
Cracking down on small package shipments to prohibit illicit goods from U.S. markets by improving screening of packages claiming the Section 321 de minimis exemption for textile, Uyghur Forced Labor Prevention Act (UFLPA), and other violations, including expanded targeting, laboratory and isotopic testing, and focused enforcement operations.
Conducting joint Customs and Border Protection (CBP)-Homeland Security Investigation (HIS)HSI trade special operations to ensure cargo compliance. This includes physical inspections; country-of-origin, isotopic, and composition testing; and in-depth reviews of documentation. CBP will issue civil penalties for violations of U.S. laws and coordinate with HSI to develop and conduct criminal investigations when warranted.
Better assessing risk by expanding customs audits and increasing foreign verifications. DHS personnel will conduct comprehensive audits and textile production verification team visits to high-risk foreign facilities to ensure that textiles qualify under the U.S.-Mexico-Canada Agreement (USMCA) or the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR). (note: As CBP noted, most US free trade agreements and trade preference programs have complex textiles and apparel-specific rules of origin requirements. CBP is “responsible for ensuring that the trade community complies with all statutory, regulatory, policy, and procedural requirements that pertain to importations under free trade agreements and other trade preference programs.”)
Building stakeholder awareness by engaging in an education campaign to ensure that importers and suppliers in the CAFTA-DR and USMCA region understand compliance requirements and are aware of CBP’s enforcement efforts.
Leveraging U.S. and Central American industry partnerships to improve facilitation for legitimate trade. (note: The Biden Administration aims to leverage textile and apparel trade as part of the solution to address “root causes of migration in Central America. According to the White House Fact Sheet released in March 2024, the Office of the U.S. Trade Representative and Central American Trade Agencies and textiles and apparel industry stakeholders will work together to build a directory with detailed profiles of manufacturing and sourcing companies in the region, including information on business practices and production capabilities, to facilitate transparent sourcing, and bolster the region’s supply chain.)
Expanding the Uyghur Forced Labor Prevention Act (UFLPA) Entity List to identify malign suppliers for the trade community through review of additional entities in the high-priority textile sector for inclusion in the UFLPA Entity List. (note: Once an entity is on this list, in general, it is prohibited from exporting its goods to the United States. Importers are required to ensure the supply chains of their imported products are free from entities on the Entity List).
#2: Several US textile and apparel industry stakeholders have publicly responded to DHS’s new strategy.:
“We strongly commend DHS for the release of a robust textile and apparel enforcement plan today. We also greatly appreciate Secretary Mayorkas’ personal engagement in this urgent effort and believe it’s a strong step forward to addressing pervasive customs fraud that is harming the U.S. textile industry.”
“The essential and vital domestic textile supply chain has lost 14 plants in recent months. The industry is facing severe economic harm due to a combination of factors, exacerbated by customs fraud and predatory trade practices by China and other countries, which has resulted in these devastating layoffs and plant closures. DHS immediately understood the economic harms facing the industry and deployed the development of a critical action plan.”
“The industry requests include
Ramped up textile and apparel enforcement with regard to Western Hemisphere trade partner countries, including onsite visits and other targeted verification measures to enforce rules of origin as well as to address any backdoor Uyghur Forced Labor Prevention Act (UFLPA) violations.
Increased UFLPA enforcement to prevent textile and apparel goods made with forced labor from entering our market, including in the de minimis environment.
Immediate expansion of the UFLPA Entity List, isotopic testing, and other targeting tools. Intensified scrutiny of Section 321 de minimis imports and a review of all existing Executive Branch authorities under current law to institute basic reforms to this outdated tariff waiver mechanism. “
“We appreciate the Department of Homeland Security (DHS)’s announcement today outlining enhanced enforcement activities to prevent illicit trade in textiles. Our members support 55 million (more than one in four) American jobs and invest considerable time and resources in their customs compliance programs. Many of our members are Tier 3 participants in Customs-Trade Partnership Against Terrorism (C-TPAT). They are trusted traders and meet the high standards required to receive that designation by U.S. Customs and Border Protection and DHS. Our members are on the front lines for ensuring that they have safe and secure supply chains.
“While DHS launches this enforcement plan, we urge it to partner with our associations and our associations’ members. A successful enforcement plan must include input from all stakeholders, clear communication with the trade, and coordinated activities with importers, especially if DHS finds illicit activity happening in the supply chain. The results of any illicit activities must be shared so that our members and other importers can act quickly to address the issue. As our members look to diversify their supply chains, especially back to the Western Hemisphere, we must make sure efforts are included to incentivize and not deter new investments.”
#3 Comments: Overall, the new DHS textile enforcement plan suggests several key US textile and apparel trade policy directions: 1) revisit the current de minimis rules that are used by many e-commerce businesses; 2) further strengthen the UFLPA and forced labor enforcement; 3) expand the Western hemisphere textile and apparel supply chain and encourage more US apparel sourcing from CAFTA-DR members; 4) scrutinize US apparel imports from China and imports from other Asian countries that heavily use textile raw material from China.
Discussion questions for FASH455 (please answer them all):
How do the perspectives of the US textile industry and US fashion brands and retailers diverge concerning CBP’s new strategy? What are the areas in which they share common ground?
Building on the previous question, how can the difference between the US textile industry and US fashion brands and retailers be explained regarding their response to DHS’s new enforcement strategy?
As a sourcing manager for a major US apparel brand with global operations, how do you plan to adjust your company’s sourcing practices in light of DHS’s new strategy? You can list 1-2 detailed action plans and provide your analysis.
Background
The U.S. Customs and Border Protection (CBP) is an agency within the Department of Homeland Security (DHS), responsible for “regulating and facilitating international trade, collecting import duties, enforcing U.S. trade laws, and protecting the nation’s borders.”
Homeland Security Investigations (HSI) is also a division within the Department of Homeland Security (DHS), responsible for “investigating transnational crime and threats, specifically those criminal organizations that exploit the global infrastructure through which international trade, travel and finance move.”
Speaker: Katherine Tai (U.S. Trade Representative, Office of the U.S. Trade Representative)
Presider: Michael Froman (President, Council on Foreign Relations; Former U.S. Trade Representative, 2013-17)
Excerpt from the conversation
Worker-Centric US trade policy
Question from FROMAN: “Back in the old days, there was a notion that since the U.S. market is relatively open—we don’t have that much protection here, the average applied tariff is about 3 ½ percent—that if we were able to reduce barriers to other countries disproportionately we could export more made by U.S. workers, and that export-related jobs paid more than non-export related jobs, and that we could use access to our market as a way of getting other countries to reform their labor practices and raise their standards, which would create a more level playing field. That theory is sort of out of vogue at the moment. But, tell me, can you envisage what an agreement that is worker-centric looks like that reduces barriers or increases trade?”
Response from TAI: “The percentage of (U.S.) exports to GDP is around 10 percent—maybe 11 or 12 percent. So it’s not very high. Some of our—some of our trading partners have very, very high exports as a proportion of GDP (e.g., 25 percent)…So you just have to put that (trade liberalization) into context. I think you also have to think about the fact of the balance of exports and imports…”
“We’re trying to create and maintain jobs, and good jobs, at home… so then the question becomes not what do I have to pay you to do X, Y, or Z, but how can we put the forces of our cooperation together? What does the deal look like where we are building our middle classes together? And I think that the worker pieces then come in, along with the environment pieces, as something that I shouldn’t have to pay you to do, but as something that you should want to do…”
“Traditionally we’ve kept our scorecard by, you know, how many trade agreements you finished and how many you’ve gotten across the finish line… Our progress lies very much in how the conversation has fundamentally shifted. That the conversation now is very much focused on supply chain resilience, on equity, and how not to leave those within our economies behind further, how not to leave those developing countries behind further.”
Digital trade
Question from FROMAN: “For a long time, the U.S. had a position around the free flow of data across borders, not taxing digital products across borders… given the fact that the U.S. economy is probably—certainly the leader in all things digital, what does it mean for us to move away from defending these principles that have been so core to what we’ve tried to do before?”
Response from TAI: “So in early 2000s that we’re negotiating (digital trade)… It’s called the e-commerce chapter. And it’s the e-commerce chapter in several iterations of FTAs (free trade agreements)…And I think that that makes sense if you think about what the digital economy looked like in the early 2000s. It really was about e-commerce…At the time—thought about e-commerce digital trade provisions as largely facilitative provisions. The flow of data was there, and we wanted to safeguard the flow of data to facilitate traditional trade transactions, the movement of goods across borders, the analogy to services we used also in digital.”
“In 2024, one of the things that you realize is that the flow of data, the decisions around where data needs to be stored, how it needs to be handled, has—on much, much different dimensions because over this period of time, in fact, in the digital economy the data is no longer just about facilitating traditional types of transactions. The data has become the commodity in and of itself. The data is now what has value. The ability to accumulate that data and for vast amounts of data then to be combined with computing power to create things like generative AI and large language models, it starts to give you a sense, just as a normal trade negotiator, that there are much, much bigger equities at stake in what we might be doing in our trade negotiations…It’s not just about facilitating trade, but around how we regulate data and how we regulate the companies that accumulate, harvest, and trade in this data is something that we need to resolve and advance before we can thoughtfully and responsibly engage in trade negotiations to figure out what the limits are in terms of what we should be doing, and what the goals are for what we should be doing with our trading partners… what underlies the digital economy and our digital existences, and just thinking about what the rules should be for how that data is handled, who has rights to that data, and then the international components around trade and prosperity but also trade and national security.”
Tradeoffs in trade policy
Question from FROMAN: “Trade is a great area to talk about tradeoffs. We hate being overly dependent on China for basic goods. We also hate inflation and higher cost of living. The actions taken to deal with the first one will likely exacerbate the second one… How do you talk about that tradeoff with communities around the country? And do you make explicit that, yes, you’re going to pay more at Walmart for this for that, but we’re going to become less dependent on China as a result?”
Response from TAI: “That today, we know that we have critical dependencies and vulnerabilities that are actually bad from a national security and just a geopolitical standpoint. For every sector where we feel that we are critically vulnerable to another country and, say, China in particular, I think that it creates a sense of angst and insecurity that is destabilizing for the world economy and, frankly, for the world… if you look at it from a more holistic, medium-term perspective, supply chain diversity and supply chain resilience is actually a management tool for inflation… “
“For as long as there are concentrated pockets for production and supply—and this is internationally, but this is also the logic behind taking on dominant players in our economy—for as long as you have that kind of dominance, you’re going to have in the hands of certain players the ability to distort the market and to take advantage of that dominance by jacking up prices, whether it’s shrinkflation, or greedflation, or in the international context economic coercion… if you think about the tradeoff as between today and tomorrow, it’s not zero-sum at all. And in fact, these changes are ones that we need to be able to manage, not being faced with the same risks over and over and over again.”
US trading partners
Comment from TAI: “when you talk about some evolution in our (trade policy) approach, I just want to be clear, the evolution in our approach is about what should be in those things, what should be in those agreements, what should be in the exercises and the cooperation that we undertake with our partners. This is not a walking away from those partners, at all…You’ll see how much time I spend in Brussels, how much time I’ve spent in Asia, and the Indo-Pacific over the course of the last three years. And you’ll see that the prioritization of our like-minded partners, our traditional partners if you will, is still very much there.”
Tariffs
Comment from TAI: “What is really important to appreciate about tariffs is that they’re a tool. They’re a tool that can be used in constructive ways… They’re a tool, at least for us, in trade remedies… They are a tool for remedying unfair trade. I actually kind of like the way the Europeans describe these types of tools—dumping, countervail. They call them trade defense instruments.”
“What I also want to reflect is that trade policy and economic policy isn’t just tariffs… we have kept a lot of the tariffs, because we see strategic value in those tariffs in this exercise of building up the middle class and reinvigorating American manufacturing and the American economy… it needs to take the tariffs as a tool, the investments as another tool to help reinforce, policies that support and empower all workers, and to encourage our partners to be supporting and empowering their workers, and then also promoting economic vitality, opportunity through the enforcement of our competition laws…”
Textile industry strategic or not?
Comment from TAI: “You know, there are things that are more strategic, things that maybe we feel like are less strategic or not strategic. But, you know, I think that is actually a really, really important question. And it’s a hard one—what’s strategic and what isn’t? We clearly did not think that surgical masks—surgical, you know, medical-grade gloves and ventilators were that strategic. And so we let that go wherever it was going to go. And in the early days of the pandemic, boy, did that hurt us a lot. So, you know, one of the—one of the stories that came out of the pandemic was all of our—all of our textile manufacturers, you know, were told your industry is not that strategic. They’d been told it for a long time. And yet, we know that it is important. It’s politically important. And USTR has for a very long time had a textiles office and textiles negotiator…it was that textiles industry, what we still have, that was able to repurpose their capabilities and to step up, and to actually start producing some of these things that we were really deficient in during the pandemic, and to save us. So I think that where you draw the lines on strategic and nonstrategic… It’s not necessarily obvious.”
Video discussion questions [For students in FASH455, please address at least two of the following questions in your response]
#1: Tai emphasizes the importance of creating and maintaining good jobs at home and building middle classes together with trading partners. How can the textile and apparel trade contribute to the goal?
#2: Reflecting on the textile industry’s response during the pandemic, Tai raises questions about what industries are considered strategic and the implications of such categorizations. How should policymakers determine which industries are strategic, and what criteria should be used in making these decisions?
#3: How has the role of data evolved in trade discussions, and what are the potential challenges in regulating data in international trade agreements? What are the implications of digital trade governance on today’s fashion business?
#4: Tai discusses the strategic importance of supply chain diversity and resilience. How might diversifying supply chains contribute to national security and economic stability, and what are the challenges in achieving this diversification? Please use the textile and apparel sector as an example.
#5: Any other reflections, thoughts, or feedback on the conversation?
First, affected by the macro economy, US apparel import volume in 2023 suffered the most significant decline since the pandemic. Specifically, US apparel imports decreased by 22% in quantity and value in 2023 compared to 2022, with none of the top ten suppliers experiencing positive growth.
Nevertheless, after several months of straight decline, US apparel imports finally bounced back in December 2023. Thanks to the holiday season and a gradual improvement of the US economy, seasonally adjusted US apparel imports in December 2023 were about 4.5% higher in quantity and 4.2% higher in value than the previous month. Highly consistent with trends, the US Consumer Confidence Index (CCI) increased from 67.2 in November to 76.4 in December (January 2019=100), suggesting US households turned more confident about their financial outlook and willing to spend. That being said, the latest January 2024 International Monetary Fund (IMF) forecasts still predicted the US GDP growth would slow down from 2.5% in 2023 to 2.1% in 2024. Thus, whether the US apparel import volume could continue to maintain growth after the holiday season remains a big question mark.
Second, while the pace of sourcing cost increases has slowed, the costs and financial pressure facing US fashion companies are far from over. Specifically, as of December 2023, the price index of US apparel imports stood at 106 (January 2019=100), almost no change from January 2023. However, two emerging trends are worth watching. One is the declining US apparel retail price index since August 2023, which means US fashion companies may have to sacrifice their profits to attract consumers to the store. The second trend is the surging shipping costs as a result of the recent Red Sea shipping crisis, which were not reflected in the December price data. According to J.P. Morgan, during the week of January 25, 2024, the container shipping rates from China to the US West Coast and East Coast saw a significant spike of around 140% and 120% from November 2023, respectively. Even worse, there is no sign that the Red Sea crisis will soon be solved. Therefore, 2024 could pose another year of financial challenges for many US fashion companies.
Third, diversification remained a pivotal trend in US fashion companies’ sourcing strategy in 2023. For example, the Herfindahl–Hirschman index (HHI), a commonly used measurement of market concentration, went down from 0.105 in 2022 to 0.101 in 2022, suggesting that US apparel imports came from even more diverse sources.
Notably, measured in value, only 71.6% of US apparel imports came from Asia in 2023, the lowest in five years. Highly consistent with the US Fashion Industry Association’s Benchmarking Survey results, OTEXA’s data reflected companies’ intention to diversify their sourcing away from Asia due to increasing geopolitical concerns, particularly the rising US-China strategic competition.
However, it should be noted that Asia’s reduced market share did not benefit “near-shoring” from the Western hemisphere much. For example, in 2023, approximately 14.6% of US apparel imports originated from USMCA and CAFTA-DR members, nearly the same as the 14.3% recorded in 2022. Instead, US apparel imports outside Asia and the Western Hemisphere jumped to 11.4% in 2023 from 9.8% a year ago. Some emerging EU and African suppliers, such as Turkey, Romania, Morocco, and Tunisia, performed relatively well in the US market in 2023, although their market shares remained small. We could highly expect the sourcing diversification strategy to continue in 2024 as many companies regard the strategy as the most effective to mitigate various market uncertainties and sourcing risks.
Fourth, US fashion companies continued reducing their China exposure as much as possible, but China will remain a key player in the game. On the one hand, about 20.0% of US apparel imports in value and 25.9% in quantity came from China in 2023, both hit a new low in the past decade. Recent studies also show that it became increasingly common for China to no longer be the largest source of apparel imports for many US fashion companies.
However, China remains highly competitive in terms of the variety of products it offers. For example, the export product diversification index, calculated based on trade data at the 6-digit HTS code level (Chapters 61 and 62), shows that few other countries can match China’s product variety. Likewise, product level data collected from industry sources indicates that China offered far more clothing styles (measured in Stock Keeping Units, SKUs) than its competitors in 2023. According to the results, rather than identifying 1-2 specific “next China,” US fashion companies appeared to leverage “category killers”—for example, utilizing Vietnam as a sourcing base for outerwear, underwear, and swimwear; India for dresses, and Bangladesh for large-volume basic knitwear items.
Related to this, another recent study found that the top five largest Asian suppliers next to China, including Vietnam, Bangladesh, Indonesia, India, and Cambodia, collectively can offer diverse product categories almost comparable to those from China in the US market.
Fifth, trade data reveals early signs that US fashion companies are gradually reducing sourcing cotton apparel products from Asia because of the implementation of the Uyghur Forced Labor Prevention Act (UFLPA). Notably, when concerns about cotton made by Xinjiang forced labor initially emerged in 2018, US fashion companies quickly shifted sourcing orders for cotton apparel (OTEXA code 31) from China to other Asian countries. However, UFLPA’s enforcement increasingly targets imports from Asian countries other than China due to the highly integrated regional textile and apparel supply chain and Asian countries’ heavy reliance on textile inputs from China. Consequently, Asia (excluding China) accounted for a declining share in the total imports of US cotton apparel in 2023.
Meanwhile, affected by UFLPA’s enforcement, only 11.8% of US cotton apparel imports came from China in 2023, marking a further decline from 13% in 2022 and reaching a new low for the past decade. China also deliberately decreased the percentage of cotton apparel in its total apparel exports to the US market, dropping from nearly 40% in 2017 to only 25% in 2023. In comparison, cotton apparel consistently represented about 45% of total US apparel imports during the same period.
Additionally, while there was no substantial increase in the volume of US apparel imports from CAFTA-DR members, as a silver lining, the utilization of the trade agreement improved. In 2023, about 19.2% of US apparel imports claimed duty-free benefits under US free trade agreements and trade preference programs, a notable increase from 17.7% in 2022. Most such imports came under CAFTA-DR (45.4%) and USMCA (19.7%).
Meanwhile, in the first 12 months of 2023 (latest OTEXA data), about 70.2% of US apparel imports came from CAFTA-DR members claimed the duty-free benefit, up from 66.6% the same period a year ago. Particularly, 65.4% of US apparel imports under CAFTA-DR complied with the yarn-forward rules of origin in 2023, a notable increase from 61.3% in 2022. Another 2.6% of imports utilized the agreement’s short supply mechanism, which also went up from 2.3% in 2022. The results could reflect an ever more integrated regional textile and apparel supply chain among CAFTA-DR members due to increasing investments made in the region in recent years. However, there is still much that needs to be done to effectively increase the volume of US apparel imports from the region.
Textiles and apparel “Made in the USA” have gained growing attention in recent years amid the increasing supply chain disruptions during the pandemic, the rising geopolitical tensions worldwide, and consumers’ increasing interest in sustainable apparel and faster speed to market. Statistics from the U.S. Bureau of Economic Analysis showed that U.S. textile and apparel production totaled nearly $28 billion in 2022, a record high in the most recent five years. Meanwhile, unlike in the old days, a growing proportion of textiles and apparel “Made in the USA” are sold overseas today. For example, according to the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce, U.S. textiles and apparel exports exceeded $24.8 billion in 2022, up nearly 12% from ten years ago.
By leveraging U.S. Department of Commerce Office of Textiles and Apparel (OTEXA)’s “Made in U.S.A. Sourcing & Products Directory,” this study explored U.S. textiles and apparel manufacturers’ detailed production and export practices. Altogether, 432 manufacturers included in the directory as of October 1, 2023, were analyzed. These manufacturers explicitly mentioned making one of the following products: fiber, yarn, fabric, garment, home textiles, and technical textiles.
Key findings:
First, U.S. textile manufacturers exhibit a notable geographic concentration, whereas apparel manufacturers are dispersed throughout the country. Meanwhile, by the number of textile and apparel manufacturers, California and North Carolina are the only two states that rank in the top five across all product categories, showcasing the most comprehensive textile and apparel supply chain there.
Second, U.S. textile and apparel manufacturers have a high concentration of small and medium-sized enterprises (SMEs). Highly consistent with the macro statistics, few textile and apparel manufacturers in the OTEXA database reported having more than 500 employees. Particularly, over 74% of apparel and nearly 60% of home textile manufacturers are “micro-factories” with less than 50 employees.
Third, U.S. textile and apparel manufacturers have limited vertical manufacturing capability. A vertically integrated manufacturer generally makes products covering various production stages, from raw materials to finished products. Results show that only one-third of U.S. textile and apparel manufacturers in OTEXA’s database reported making more than one product type (e.g., yarn or fabric). Meanwhile, specific types of vertically integrated production models are relatively popular among U.S. textile and apparel manufacturers, such as:
Apparel + home textiles (5.8%)
Fabric + technical textiles (5.1%)
Yarn + fabric (3.9%)
However, the lack of fabric mills (N=38 out of 432) appears to be a critical bottleneck preventing the building of a more vertically integrated U.S. textile and apparel supply chain.
Fourth, it is not uncommon for U.S. textile and apparel manufacturers to use imported components. Specifically, among the manufacturers in the OTEXA database, nearly 20% of apparel and fabric mills explicitly say they utilized imported components. In comparison, given the product nature, fiber and yarn manufacturers had a lower percentage using imported components (11%). Furthermore, smaller U.S. textile and apparel manufacturers appear to be more likely to use imported components. For example, whereas 20% of manufacturers with less than 50 employees used imported input, only 10.2% of those with 50-499 employees and 7.7% with 500 or more employees did so. The results indicate the necessity of supporting SME U.S. textile and apparel manufacturers to access textile input through mechanisms such as the Miscellaneous Tariff Bill (MTB).
Fifth, many US textile and apparel manufacturers have already explored overseas markets. Specifically, factories making textile products reported a higher percentage of engagement in exports, including fiber and yarn manufacturers (68.4%), fabric mills (78.9%), and technical textiles producers (69.1%). In comparison, relatively fewer U.S. apparel and home textile producers reported selling overseas.
Sixth, U.S. textile and apparel manufacturers’ export markets are relatively concentrated. Specifically, as many as 72% of apparel mills and 57% of home textiles manufacturers in the OTEXA database reported selling their products in less than two markets. These manufacturers also have a high percentage of selling to the U.S. domestic market. Likewise, because of the reliance on the Western Hemisphere supply chain, more than half of U.S. fiber and yarn manufacturers reported only selling in two markets or less. In comparison, reflecting the global demand for their products, U.S. technical textile manufacturers had the most diverse markets, with nearly 40% exporting to more than ten countries.
Seventh, while the Western Hemisphere remains the top export market, many U.S. textile and apparel manufacturers also export to Asia, Europe, and the rest of the world. For example, nearly half of U.S. textile and apparel manufacturers in OTEXA’s database reported exporting to Asia, and over 60% of U.S. technical textile manufacturers sold their products to European customers.
Additionally, over half of U.S. textile and apparel mills engaged in exports leveraged U.S. free trade agreements (FTAs). U.S. textile mills, on average, reported a higher percentage of using FTAs than apparel and home textile manufacturers. As most U.S.-led FTAs adopt the yarn-forward rules of origin, the results suggest that while such a rule may favor the export of U.S. textile products, its effectiveness and relevance in supporting U.S. apparel exports could be revisited.
Moreover, in line with the macro trade statistics, U.S. textile and apparel manufacturers in the OTEXA database reported a relatively high usage of USMCA, given Mexico and Canada being the two most important export markets. In comparison, U.S. textile and apparel manufacturers’ use of CAFTA-DR was notably lower, even for fiber and yarn manufacturers (37%) and fabric mills (33.3%).
by Kendall Ludwig, Miranda Rack and Sheng Lu
Picture above: On December 13, 2023, Kendall Ludwig and Miranda Rack, FASH 4+1 graduate students and Dr. Sheng Lu, had the unique opportunity to present the study’s findings to senior U.S. trade officials from OTEXA and the Office of the U.S. Trade Representative (USTR) in Washington DC, including Jennifer Knight (Deputy Assistant Secretary for Textiles, Consumer Goods and Materials), Laurie-Ann Agama (Acting Assistant US Trade Representative for Textiles), Maria D’Andrea-Yothers (Director of OTEXA), Natalie Hanson (Deputy Assistant US Trade Representative for Textiles) and Richard Stetson (Deputy Director of OTEXA).
Check the Udaily article that features the research project and the presentation (February 2024).
In December 2023, Just-Style consulted a panel of industry experts and scholars in its Outlook 2024–what’s next for apparel sourcing briefing. Below is my contribution to the report. Welcome any comments and suggestions!
What’s next for apparel sourcing?
Apparel sourcing is never about abrupt changes. However, fashion companies’ sourcing practices, from their crucial sourcing factors and sourcing destinations to operational priorities, will gradually shift in 2024 in response to the evolving business environment.
First, besides conventional sourcing factors like costs, speed to market, and compliance, fashion companies will increasingly emphasize flexibility and agility in vendor selection. One driving factor is economic uncertainty. For example, according to leading international organizations such as the World Bank and the International Monetary Fund (IMF), the world economy will likely grow relatively slowly at around 2.6%-3% in 2024. However, it is not uncommon that the economy and consumers’ demand for clothing could perform much better than expected. This means companies need to be ready for all occasions. Likewise, geopolitical tensions, from the Russia-Ukraine war and the US-China decoupling to the military conflict in the Middle East, could cause severe supply chain disruptions anytime and anywhere. Thus, fashion companies need to rely on a more flexible and agile supply chain to address market uncertainties and mitigate unpredictable sourcing risks.
Secondly, it will be interesting to watch in 2024 to what extent fashion companies will further reduce their exposure to China. On the one hand, it is no surprise that fashion companies are reducing finished garments sourcing from China as much as possible. However, fashion brands and retailers also admit that it is difficult to find practical alternatives to China in the short to medium terms regarding raw textile materials and orders that require small runs and great variety. Meanwhile, investments from China are flowing into regions considered alternative sourcing destinations, such as the rest of Asia and Central America. These new investments could complicate the efforts to limit exposure to China and potentially strengthen, not weaken, China’s position in the apparel supply chains. And stakeholders’ viewpoints on “investments from China” appear even more subtle and complicated.
Third, regulations “behind the borders” could more significantly affect fashion companies’ sourcing practices in 2024, particularly in sustainability-related areas. While sustainability is already a buzzword, fashion companies must deal with increasingly complex legal requirements to achieve sustainability. Take textile recycling, for example. The enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) on recycled cotton, the US Federal Trade Commission’s expanded Green Guides, the EU’s extended producer responsibility (EPR) program and its strategy for sustainable textiles, and many state-level legislations on textile waste (e.g., California Textile Recycling Legislation) may all affect companies’ production and sourcing practices for such products. Fashion companies’ sourcing, legal, and sustainability teams will need to work ever more closely to ensure “sustainable apparel” can be available to customers.
Apparel industry challenges and opportunities
In 2024, a slow-growing or stagnant world economy will persist as a significant challenge for fashion companies. Without sourcing orders from fashion brands and retailers, many small and medium-sized manufacturers in the developing world may struggle to survive, leaving garment workers in a precarious financial situation. China’s economic slowdown could worsen the situation as many developing countries increasingly treat China as an emerging export market. With shrinking domestic demand, more “Made in China” apparel could enter the international market and intensify the price competition.
Another challenge is the rising geopolitical tensions and political instability in major apparel-producing countries. For example, while a broad base supports the early renewal of the African Growth and Opportunity Act (AGOA), which will expire in 2025, the reported human rights violations in some essential apparel exporting countries in the region could complicate the renewal process in US Congress. Likewise, even though the Biden administration is keen to encourage fashion companies to expand sourcing from Central America, political instability there, from Nicaragua to Haiti, makes fashion companies hesitant to make long-term sourcing commitments and investments. Furthermore, 2024 is the election year for many countries, from the US to Taiwan. We cannot rule out the possibility that unexpected incidents could trigger additional instability or even new conflict.
On the positive side, it is encouraging to see fashion companies continue to invest in new technologies to improve their operational efficiency in apparel sourcing. Digital product passports, 3D product design, PLM, blockchain, Generative AI, and various supply chain traceability tools are among the many technologies fashion companies actively explore. Fashion companies hope to leverage these tools to improve their supply chain transparency, strengthen relationships with key vendors, reduce textile waste, accelerate product development, and achieve financial returns.
It is also a critical time to rethink and reform fashion education. In addition to traditional curricula like apparel design and merchandising, we need more partnerships between the apparel industry and educational institutions to expose students to the real world. More direct engagement with Gen Z will also benefit fashion companies tremendously, allowing them to understand their future core customers and prepare qualified next-generation talents.
Beth Hughes serves as the Vice President of the American Apparel and Footwear Association (AAFA), responsible for supporting the association’s efforts on international trade and customs issues. Beth oversees AAFA’s Trade Policy Committee, as well as AAFA’s Customs Group. Beth is also the spokesperson of the Coalition for Economic Partnership in the Americas (CEPA), a group of prominent American companies, and manufacturers committed to advancing regional trade and employment opportunities in the Western Hemisphere.
Before joining AAFA, Beth served for six years as senior director of international affairs at the International Dairy Foods Association. Beth earned a Bachelor of Arts degree in political science at George Washington University and received a Master of Arts in international affairs from Florida State 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.
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.
Argument: The U.S. textile manufacturing industry has been a winner of globalization
Comment #1: While it is true that many Americans lost their jobs due to the increase in trade, there are more benefits to both importing and exporting rather than the mercantilist view of trade. Increasing trade and globalization, especially during the Clinton administration, was an opportunity to develop strong relationships with other nations. The value of U.S. textile exports since 2000 has risen by 30% for yarn and 15% for fabric, after the establishment of agreements such as NAFTA. Additionally, one of the U.S. apparel manufacturers in the video used machinery for their production from Sweden. Without globalization and trade, they would not be able to use this high-tech equipment. All in all, U.S. textile manufacturing sector benefits from both importing and exporting goods.
Comment #2: Deeper down, the US textile sector seems to be winning in the long run. The squeeze that globalization has placed on them has allowed for innovation within the industry as they fight to stay relevant and compete with overseas goods. Operational slack such as high turnover jobs have been eliminated with automation, and US manufacturers gained a new branding niche that overseas companies do not: a US “personal touch.” Consumers may now be more willing to pay more for a garment just because it says it is made in the USA. USA-made clothing may now be perceived as higher quality and more scarce. The sentiment towards US-made goods and their quality could enact change to reduce overseas reliance, which is a win for US manufacturing in the long run. Additionally, globalization expands the export market for the US textile manufacturing sector.
Comment #3: As discussed in the video, there is a growing trend of reshoring and regionalization in some manufacturing sectors, including textiles. Some U.S. textile manufacturers have seized this opportunity to bring production back to the United States, capitalizing on the advantages of local supply chains, quality control, and speed to market. The video also shows how technology and automation can help streamline production processes and make manufacturing more competitive, even in higher-cost regions like the United States. US textile manufacturers have invested in innovation and automation, making them competitive in producing textiles with advanced features and properties in today’s global economy. It is globalization that is pushing the US textile industry to adopt these new technologies and continue improving its international competitiveness.”
Argument: the U.S. textile manufacturing industry has been a loser of globalization
Comment #4: One of the biggest arguments for globalization is the lower prices & affordability for the consumer. From this perspective, it seemed that the United States was a winner of globalization as a whole. However, when beginning to look at the consequences of moving production overseas, we not only see the textile manufacturing sector being affected, but we also see this impact disperse to the communities in America as well. When brands offshore and outsource production overseas for lower prices & labor, our very own US textile manufacturing industry is losing out on this business. It also forces this industry into a highly competitive environment that does not have equal “playing fields” and does not have insurance/protection in case environmental factors ruin crops. The US has clear labor laws and human rights policies (as well as increasing environmental policies), whereas their cotton-growing competitors, for instance, do not have to follow the same rules. This allows labor exploitation to decrease costs and makes US companies seem unappealing or less competitive.
Comment #5: Over the past few decades, the number of manufacturing jobs in the US textile industry has plummeted after companies began moving production overseas, specifically to countries like China, which have preferential treatment. These foreign facilities can produce things much faster and cheaper because the standards and regulations are completely different than those of the United States. Free trade does not consider these differences in labor and environmental laws, making it much less “free” than it claims. As countries overseas– specifically China and regions like Xinjiang– continue to not play by the rules, the US is forced to keep up by implementing things like the Toyota System…Americans want to be the best in manufacturing and globalization often gets in the way of this. With near-shoring, the US can reclaim high-quality, American-made garments while helping with job security and sustainability.
Comment #6: Overall, I believe that the U.S. textile manufacturing industry is a loser of globalization and international trade, mostly due to the competition from overseas. This competition includes more manufacturers from other countries, but also the competition of pricing since other oversea manufacturers are able to sell their cotton/textile materials at a lower price. Since the U.S. struggles to compete with these lower prices, they are forced to look for another way to have a competitive advantage in the textile manufacturing sector, such as lean manufacturing and technology improvements. At Carolina Cotton Works, Bryan Ashby shares how they have increased efficiency and use high-quality machines (note: imported) for their products. Although this sounds great, this also means that there are fewer workers.
Comment #7: Globalization creates a trade dependence on imports. It’s important we don’t depend on things for when things happen that we can’t predict like the pandemic where we can’t import anymore. Since there was a lack of local textile manufacturing and sourcing in the United States compared to what was being imported, there was less of a chance for technological advances and improvement in the United States textile manufacturing sector. Post Globalization, however, may be the chance for the United States to bring back the textile manufacturing sector momentum. I think this because the United States has seen the result of heavily relying on other countries for their cheap labor/sources, and this could add extra motivation for companies to want to figure out better alternatives in manufacturing in their own country.
Comment #8: I think currently the US is a loser to globalization only because brands want to get the product for cheap. I think brands think that would create more profit that way. However, I do believe we could get to a future where more things would be created in the US and wouldn’t have to pay that much in tariffs and other external prices. I think it would help boost people to work more. I think people are worried about making things in our country because of the relations we have with other countries.
Discussion questions:
Do you agree or disagree with any particular argument above? Any follow-up comments on the impact of globalization on the US textile manufacturing sector? What should government do with trade given the debates? Please feel free to share any additional thoughts.
For FASH455 students: Please share your reflections on the video. For example, how does the video illustrate the global nature of the textile and apparel industry today? How can we understand the impact of globalization on the many stakeholders involved in the textile and apparel supply chains? Do the textile and apparel trade patterns described in the video support or challenge the trade theories we discussed in class? According to the video, what are the debates and controversies related to apparel sourcing and trade? What is your view and proposed solutions?
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.
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.
#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.
A new study released by the Hinrich Foundation in July 2023 evaluated the impact of the implementation of the Uyghur Forced Labor Prevention Act (UFLPA) on Vietnam’s textile and apparel industry.
The study’s findings were based on interviews with “senior leaders and owners of Vietnam’s garment and textile small and medium-sized enterprises (SMEs).” (Note: However, the study didn’t specify when and how many interviews were conducted.) Below are the summarized key findings:
#1: Vietnam’s textile and apparel industry heavily uses cotton imported from China. As noted in the study, in 2021, China accounted for nearly 30% of Vietnam’s cotton imports (ranked #1, $1.48 billion out of total $4.99 billion imports), surpassing the US ($1.05 billion).
#2: Vietnam’s garment exports may contain Xinjiang cotton. According to the study, “Once the cotton arrives in Vietnam, international intermediary manufacturers create finished garments from semi-finished products to export globally, often using the same materials from banned Chinese suppliers. This results in the ‘laundering’ of Xinjiang cotton.”
#3: Vietnam textile and apparel SMEs report challenges in proving the origin of cotton in fabrics. For example, one respondent says, “Differentiating between cotton products coming from different sources is challenging as they might have been blended while being transported by sea. Suppliers from China, Vietnam, Bangladesh, India, and Pakistan may engage in this practice to falsely label Xinjiang cotton as coming from other locations to circumvent this act.”
#4: Vietnam’s textile and apparel SMEs say the UFLPA implementation has negatively affected their exports to the United States.
CBP’s statistics show that (current as of July 1, 2023), since UFLPA’s implementation in June 2022, a more significant amount of Vietnam’s textiles, apparel, and footwear were affected by law enforcement than those from China (e.g., $20 million vs.$16.2 million investigated and $3.53 million vs.$1.04 million denied access).
US fashion companies are sourcing LESS from Vietnam due to forced labor concerns. According to one respondent, “My company is producing apparel products for several US-based fashion brands and uses materials from China and exports to the US. Since UFLPA was in place in June 2022, they have ordered less from us. It seems that our partners feel pressure from the regulators, so they are looking for alternative risk-free suppliers.”
The surveyed SMEs also expect MORE of Vietnam’s textile and apparel exports to be investigated under the UFLPA enforcement down the road. Some SMEs commented that “it would be hard for US firms to rapidly find alternative suppliers in a short time, therefore more checks on Vietnamese cargoes are to be expected.”
The study acknowledges that “In the worst-case scenario, Vietnamese SMEs may lose market access if their American importers are unable to verify that the supply chain is free from inputs produced via forced labor.”
#5: UFLPA also increased the trade compliance costs of “Made in Vietnam,” a significant challenge to many SMEs. One respondent commented, “Compliance with the UFLPA may pose a challenge for SMEs due to the higher costs associated with providing the necessary documentation of their supply chains. This could be due to the need to conduct additional audits, hire external consultants, or implement new tracking systems.”
Additionally, the report called for Vietnam’s textile and apparel SMEs to 1) diversify the supply chain, especially using more cotton imports from the US, India, Australia, and Brazil. 2) enhance supply chain traceability (note: how to make it happen remains a big question mark); 3) engage in dialogue with US authorities.
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.
USITC adopted two methods to estimate Section 301 tariffs’ economic impacts:
Econometric model estimates using monthly trade data (10-digit HS code) from January 2017 to December 2021.
A set of partial equilibrium models that linked section 301 tariffs to domestic prices and production at the four-digit NAICS code level. USITC used data from 2018 to 2021 as the base year.
USITC only considered Section 301 tariffs’ direct impacts, i.e., “how tariffs impacted prices, production, and trade for products subject to section 301 tariffs and domestic sectors that compete directly with those imports.”
Regarding the overall impact of Section 301 actions, USITC found that the tariffs imposed on Chinese goods resulted in a price rise paid by US importers, but the exporter prices received by Chinese firms were mostly unchanged. As a result, “imports from China decreased in quantity, leading to a substantial decline in their import value. These changes, in turn, caused an increase in production and prices in US domestic industries that were competing with Chinese imports.”
USITC also evaluated the specific impacts of Section 301 tariffs on the Cut and Sew apparel (NAICS 3152) sector. According to USITC:
“nontariff-inclusive value” refers to the change in the value of imports from China excluding the value of the section 301 duties themselves, which provide an indication of the change in import quantities because export prices are mostly unchanged.
First, Section 301 tariffs hurt US apparel imports from China. USITC estimated that US woven apparel (NAICS 3152) imports from China decreased by 14.7% in 2019 but fell nearly 40% in 2020 and 2021 due to Section 301 tariffs. However, USITC didn’t explain why imports from China suddenly worsened, nor if other factors, such as the Uyghur Forced Labor Prevention Act (UFLPA), played a role.
Second, Section 301 tariffs mostly replaced US woven apparel (NAICS3152) imports from China with other sources. However, the direct benefits of Section 301 tariffs to US domestic cut and sew manufacturing seemed limited. Specifically, USITC estimated that US woven apparel imports from sources other than China increased by 7.1% in 2019, 24.8% in 2020, and 25.2% in 2021 due to Section 301 tariffs. In comparison, Section 301 tariffs resulted in modest growth of US domestic woven apparel (NAICS3152) production (up to 6.3%) over the same period.
Actual trade and production data further showed that US woven apparel (NAICS 3152) imports from sources other than China increased from $55.3 billion in 2018 to $61.2 billion in 2021 (or up 10.7%). Over the same period, US domestic woven apparel (NAICS 3152) sales & value of shipments declined from $7.49 billion to $7.38 billion (or down 1.4%) (Data source: Census). In other words, no clear evidence suggests that Section 301 tariffs boosted US domestic woven apparel production.
Third, Section 301 tariffs made US woven apparel (NAICS 3152) imports from EVERYWHERE more expensive. On the one hand, USITC found that the price of US woven apparel (NAICS 3152) imports from China increased by 4.4% in 2019, 14.7% in 2020, and 14.5% in 2021 due to the Section 301 tariffs. However, similar to the case of trade volume, USITC didn’t explain why Section 301 tariffs’ price impact suddenly became more significant in 2020 and 2021. (Note: In fact, the Tranche 4A tariffs were 15% since September 1, 2019, but were reduced to 7.5% effective February 14, 2020, because of the US-China Phase One deal.)
Meanwhile, due to limited production capacity outside of China, the Section 301 tariffs caused an increase in the cost of US woven apparel imports from all other countries. Specifically, USITC found that the price of US woven apparel (NACIS 3152) imports from sources other than China increased by 3.2% from 2018 to 2021. (Note: given the hiking sourcing costs in 2022, the price increase could be more significant should USITC include updated 2022 trade data in the estimation.)
Additionally, USITC acknowledged that its estimation may “likely captures the most significant impacts of these tariffs in the short run.” However, some effects of section 301 tariffs would likely be delayed. For example, USITC said, “if importers and domestic producers anticipated the tariffs remaining in place long enough,” they may consider more costly changes, such as adjusting their supply chains and investing in domestic production.
Discussion questions:
Based on USITC’s assessment, should President Biden keep or remove the Section 301 tariffs on imports from China? Why or why not?
Regarding the impact of Section 301, any questions remain unanswered or can be studied further?
Any findings in the USITC report surprised you and why?
In March 2023, the Office of the United States Trade Representative (USTR) released its 2024 Fiscal Year Budget report, outlining six major goals and objectives for FY2024. USTR’s FY2024 goals and objectives for textile and apparel are similar to FY2023, but keywords such as “near-shoring” are newly emphasized.
Goal 1: Open Foreign Markets and Combat Unfair Trade
Provide policy guidance and support for international negotiations or initiatives affecting the textile and apparel sector to ensure that the interests of U.S. industry and workers are taken into account and, where possible, to provide new or enhanced export opportunities for U.S. industry. (Note: no change from FY2023)
Conduct reviews of commercial availability petitions regarding textile and apparel products and negotiate corresponding FTA rules of origin changes, where appropriate, in a manner that takes into account market conditions while preserving export opportunities for U.S. producers and employment opportunities for U.S. workers. (Note: no change from FY2023)
Engage relevant trade partners to address regulatory issues potentially affecting the U.S. textile and apparel industry’s market access opportunities. (Note: no change from FY2023)
Continue to engage with CAFTA-DR partner countries to address trade-related issues to optimize inclusive economic opportunities; strengthen trade rules and transparency and address non-tariff trade impediments; provide capacity building in areas such as textile and apparel trade-related regulation and practice on customs, border and market access issues, including agricultural and sanitary and phytosanitary regulations, to avoid barriers to trade. (note: newly mentioned “transparency”)
Continue to engage CAFTA-DR partners and stakeholders to identify and develop means to increase two-way trade in textiles and apparel and strengthen the North American supply chain and near-shoring to enhance formal job creation. (note: newly emphasized “Near-shoring”)
Provide policy guidance and support for international negotiations or initiatives affecting the textile and apparel sector to ensure that the interests of U.S. industry and workers are taken into account and, where possible, to provide new or enhanced export opportunities for U.S. industry. (Note: no change from FY2023)
Conduct reviews of commercial availability petitions regarding textile and apparel products and negotiate corresponding FTA rules of origin changes, where appropriate, in a manner that takes into account market conditions while preserving export opportunities for U.S. producers and employment opportunities for U.S. workers (note: no change from FY2023)
Engage relevant trade partners to address regulatory issues potentially affecting the U.S. textile and apparel industry’s market access opportunities. (note: no change from FY2023)
Goal 2: Fully Enforce U.S. Trade Laws, Monitor Compliance with Agreements, and Use All Available Tools to Hold Other Countries Accountable
Closely collaborate with industry and other offices and Departments to monitor trade actions taken by partner countries on textiles and apparel to ensure that such actions are consistent with trade agreement obligations and do not impede U.S. export opportunities. (note: no change from FY2023)
Research and monitor policy support measures for the textile sector, in particular in the PRC, India, and other large textile producing and exporting countries, to ensure compliance with international agreements. (note: no change from FY2023)
Continue to work with the U.S. textile and apparel industry to promote exports and other opportunities under our free trade agreements and preference programs, by actively engaging with stakeholders and industry associations and participating, as appropriate, in industry trade shows. (note: no change from FY2023)
Goal 4: Develop Equitable Trade Policy Through Inclusive Processes
Take the lead in providing policy advice and assistance in support of any Congressional initiatives to reform or re-examine preference programs that have an impact on the textile and apparel sector. (note: no change from FY2023)
Other Priorities for USTR in FY2024:
#1 “Advancing a Worker-Centered Trade Policy.” For example, given “communities of color and lower socio-economic backgrounds were more negatively affected by free trade policies that have reduced tariffs and distributed supply chains across the globe,” USTR will develop “a new strategic approach to trade relationships that is not built on traditional free trade agreements…USTR is embarking on trade engagements with allies and like-minded economies, like Taiwan and Kenya and [through] multinational economic frameworks that focus on clean energy and supply chains rather than tariffs.”
#2 Address forced labor. For example, USTR developed the first-ever focused trade strategy to combat forced labor. Paired with the implementation of the Uyghur Forced Labor Prevention Act, and the Memorandum of Cooperation (MOC) launching of a Task Force on the Promotion of Human Rights and International Labor Standards in Supply Chains under the U.S.-Japan Partnership on Trade. And USTR will “use every tool available to block the importation of goods made partially or entirely with forced labor.”
#3 Re-Aligning the U.S. – Beijing Trade Relationship. “USTR continues to keep the door open to conversations with the PRC, including on its Phase One commitments. However, USTR acknowledges the Agreement’s limitations. USTR’s strategy is expand beyond only pressing Beijing for change and includes vigorously defending our values and economic interests from the negative impacts of the PRC’s unfair economic policies and practices.”
#4 Strengthen enforcement of US trade policy. For example, USTR sees enforcement “a key component of our worker-centered trade policy.” USTR is “upholding the eligibility requirements in preference programs,” such as the African Growth and Opportunity Act (AGOA). As many enforcement tools were “were crafted decades ago,” USTR will be “reviewing our existing trade tools and working with Congress to develop new tools as needed.”
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.”
In December 2022, Just-Style consulted a panel of industry experts and scholars in its Outlook 2023–what’s next for apparel sourcing briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!
2023 is likely another year full of challenges and opportunities for the global apparel industry.
First, the apparel industry may face a slowed world economy and weakened consumer demand in 2023. Apparel is a buyer-driven industry, meaning the sector’s volume of trade and production is highly sensitive to the macroeconomic environment. Amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide in the new year. Likewise, the World Trade Organization (WTO) forecasts that the world merchandise trade will grow at around 1% in 2023, much lower than 3.5% in 2022. As estimated, the world apparel trade may marginally increase between 0.8% and 1.5% in the new year, the lowest since 2021. On the other hand, the falling demand may somewhat help reduce the rising sourcing cost pressure facing fashion companies in the new year.
Second, fashion brands and retailers will likely continue leveraging sourcing diversification and strengthening relationships with key vendors in response to the turbulent market environment. According to the 2022 fashion industry benchmarking study I conducted in collaboration with the US Fashion Industry Association (USFIA), nearly 40 percent of surveyed US fashion companies plan to “source from more countries and work with more suppliers” through 2024. Notably, “improving flexibility and reducing resourcing risks,” “reducing sourcing from China,” and “exploring near-sourcing opportunities” were among the top driving forces of fashion companies’ sourcing diversification strategies. Meanwhile, it is not common to see fashion companies optimize their supplier base and work with “fewer vendors.” For example, fashion companies increasingly prefer working with the so-called “super-vendors,” i.e., those suppliers with multiple-country manufacturing capability or can make textiles and apparel vertically, to achieve sourcing flexibility and agility. Hopefully, we could also see a more balanced supplier-importer relationship in the new year as more fashion companies recognize the value of “putting suppliers at the core.”
Third, improving sourcing sustainability and sourcing apparel products using sustainable textile materials will gain momentum in the new year. On the one hand, with growing expectations from stakeholders and pushed by new regulations, fashion companies will make additional efforts to develop a more sustainable, socially responsible, and transparent apparel supply chain. For example, more and more fashion brands and retailers have voluntarily begun releasing their supplier information to the public, such as factory names, locations, production functions, and compliance records. Also, new traceability technologies and closer collaboration with vendors enable fashion companies to understand their raw material suppliers much better than in the past. Notably, the rich supplier data will be new opportunities for fashion companies to optimize their existing supply chains and improve operational efficiency.
On the other hand, with consumers’ increasing interest in fashion sustainability and reducing the environmental impact of textile waste, fashion companies increasingly carry clothing made from recycled textile materials. My latest studies show that sourcing clothing made from recycled textile materials may help fashion companies achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials. Instead, in the US retail market, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help fashion companies with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base. Related, we are likely to see more public dialogue regarding how trade policy tools, such as preferential tariffs, may support fashion companies’ efforts to source more clothing using recycled or other eco-friendly textile materials.
Additionally, the debates on fashion companies’ China sourcing strategy and how to meaningfully expand near-sourcing could intensify in 2023. Regarding China, fashion companies’ top concerns and related public policy debates next year may include:
What to do with Section 301 tariff actions against imports from China, including the tariff exclusion process?
How to reduce “China exposure” further in sourcing, especially regarding textile raw materials?
How should fashion companies respond and mitigate the business impacts of China’s shifting COVID policy and a new wave of COVID surge?
What contingency plan will be should the geopolitical tensions in the Asia-Pacific region directly affect shipping from the region?
Meanwhile, driven by various economic and non-economic factors, fashion companies will likely further explore ways to “bring the supply chain closer to home” in 2023. However, the near-shoring discussion will become ever more technical and detailed. For example, to expand near-shoring from the Western Hemisphere, more attention will be given to the impact of existing free trade agreements and their specific mechanisms (e.g., short supply in CAFTA-DR) on fashion companies’ sourcing practices. Even though we may not see many conventional free trade agreements newly launched, 2023 will be another busy year for textile and apparel trade policy deliberation, especially behind the scene and on exciting new topics.
By Sheng Lu
Discussion question: As we approach the middle of the year, why do you agree or disagree with any predictions in the outlook? Please share your thoughts.
#1. Are classic trade theories (e.g., comparative advantage) still relevant or outdated in the 21st century? Why? Please share your thoughts based on the video and the figures.
#2. Based on the video and the figures above, is the US textile manufacturing sector a winner or loser of globalization and international trade? Why?
#3. Take the following poll (anonymous) and share your reflections.
#4. Should the government’s trade policy consider non-economic factors such as national security and geopolitics? What should be the line between promoting “fair trade” and “trade protectionism”? What’s your view?
#5. Is there anything else you find interesting/intriguing/thought-provoking in the video? Why?
(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)
On September 2, 2022, the Office of the US Trade Representative (USTR) announced it would continue the billions of dollars of Section 301 punitive tariffs against Chinese products. USTR said it made the decision based on requests from domestic businesses benefiting from the tariff action. As a legal requirement, USTR will launch a full review of Section 301 tariff action in the coming months.
In her remarks at the Carnegie Endowment for International Peace on Sep 7, 2022, US Trade Representative Katharine Tai further said that the Section 301 punitive tariffs on Chinese imports “will not come down until Beijing adopts more market-oriented trade and economic principles.” In other words, the US-China tariff war, which broke out four years ago, is not ending anytime soon.
A Brief History of the US Section 301 tariff action against China
The US-China tariff war broke out as both unexpected and not too surprising. For decades, the US government had been criticizing China for its unfair trade practices, such as providing controversial subsidies to state-owned enterprises (SMEs), insufficient protection of intellectual property rights, and forcing foreign companies to transfer critical technologies to their Chinese competitors. The US side had also tried various ways to address the problems, from holding bilateral trade negotiations with China and imposing import restrictions on specific Chinese goods to suing China at the World Trade Organization (WTO). However, despite these efforts, most US concerns about China’s “unfair” trade practices remain unsolved.
When former US President Donald Trump took office, he was particularly upset about the massive and growing US trade deficits with China, which hit a record high of $383 billion in 2017. In alignment with the mercantilism view on trade, President Trump believed that the vast trade deficit with China hurt the US economy and undermined his political base, particularly with the working class.
On August 14, 2017, President Trump directed the Office of the US Trade Representative (USTR) to probe into China’s trade practices and see if they warranted retaliatory actions under the US trade law. While the investigation was ongoing, the Trump administration also held several trade negotiations with China, pushing the Chinese side to purchase more US goods and reduce the bilateral trade imbalances. However, the talks resulted in little progress.
President Trump lost his patience with China in the summer of 2018. In the following months, citing the USTR Section 301 investigation findings, the Trump administration announced imposing a series of punitive tariffs on nearly half of US imports from China, or approximately $250 billion in total. As a result, for more than 1,000 types of products, US companies importing them from China would have to pay the regular import duties plus a 10%-25% additional import tax. However, the Trump administration’s trade team purposefully excluded consumer products such as clothing and shoes from the tariff actions. The last thing President Trump wanted was US consumers, especially his political base, complaining about the rising price tag when shopping for necessities. The timing was also a sensitive factor—the 2018 congressional mid-term election was only a few months away.
President Trump hoped his unprecedented large-scale punitive tariffs would change China’s behaviors on trade. It partially worked. As the trade frictions threatened economic growth, the Chinese government returned to the negotiation table. Specifically, the US side wanted China to purchase more US goods, reduce the bilateral trade imbalances and alter its “unfair” trade practices. In contrast, the Chinese asked the US to hold the Section 301 tariff action immediately.
However, the trade talks didn’t progress as fast as Trump had hoped. Even worse, having to please domestic forces that demanded a more assertive stance toward the US, the Chinese government decided to impose retaliatory tariffs against approximately $250 billion US products. President Trump felt he had to do something in response to China’s new action. In August 2019, he suddenly announced imposing Section 301 tariffs on a new batch of Chinese products, totaling nearly $300 billion. As almost everything from China was targeted, apparel products were no longer immune to the tariff war.With the new tariff announcement coming at short notice, US fashion brands and retailers were unprepared for the abrupt escalation since they typically placed their sourcing orders 3-6 months before the selling season.
Nevertheless, Trump’s new Section 301 actions somehow accelerated the trade negotiation. The two sides finally reached a so-called“phase one” trade agreementin about two months. As part of the deal, China agreed to increase its purchase of US goods and services by at least $200 billion over two years, or almost double the 2017 baseline levels. Also, China promised to address US concerns about intellectual property rights protection, illegal subsidies, and forced technology transfers. Meanwhile, the US side somewhat agreed to trim the Section 301 tariff action but rejected removing them. For example, the punitive Section 301 tariffs on apparel products were cut from 15% to 7.5% since implementing the “phase one” trade deal.
Trump lost the 2020 presidential election, and Joe Biden was sworn in as the new US president on January 20, 2021. However, the Section 301 tariff actions and the US-China “phase one” trade deal stayed in force.
Debate on the impact of the US-China tariff war
Like many other trade policies, the US Section 301 tariff actions against China raised heated debate among stakeholders with competing interests. This was the case even among different US textile and apparel industry segments.
On the one hand, US fashion brands and retailers strongly oppose the punitive tariffs against Chinese products for several reasons:
First, despite the Section 301 tariff action, China remained a critical apparel sourcing base for many US fashion companies with no practical alternative. Trade statistics show that four years into the tariff war, China still accounted for nearly 40 percent of US apparel imports in quantity and about one-third in value as of 2021. According to the latest data, in the first ten months of 2022, China remained the top apparel supplier, accounting for 35% of US apparel imports in quantity and 22.2% in value. Studies also consistently find that US fashion companies rely on China to fulfill orders requiring a small minimum order quantity, flexibility, and a great variety of product assortment.
Second, having to import from China, fashion companies argued that the Section 301 punitive tariffs increased their sourcing costs and cut profit margins. For example, for a clothing item with an original wholesale price of around $7, imposing a 7.5% Section 301 punitive tariff would increase the sourcing cost by about 5.8%. Should fashion companies not pass the cost increase to consumers, their retail gross margin would be cut by 1.5 percentage points. Notably, according to the US Fashion Industry Association’s 2021 benchmarking survey, nearly 90 percent of respondents explicitly say the tariff war directly increased their company’s sourcing costs. Another 74 percent say the tariff war hurt their company’s financials.
Third, as companies began to move their sourcing orders from China to other Asian countries like Vietnam, Bangladesh, and Cambodia to avoid paying punitive tariffs, these countries’ production costs all went up because of the limited production capacity. In other words, sourcing from everywhere became more expensive because of the Section 301 action against China.
Further, it is important to recognize that fashion companies supported the US government’s efforts to address China’s “unfair” trade practices, such as subsidies, intellectual property rights violations, and forced technology transfers. Many US fashion companies were the victims of such practices. However, fashion companies did not think the punitive tariff was the right tool to address these problems effectively. Instead, fashion brands and retailers were concerned that the tariff war unnecessarily created an uncertain and volatile market environment harmful to their business operations.
“While NCTO members support the inclusion of finished products in Section 301, we are seriously concerned that…adding tariffs on imports of manufacturing inputs that are not made in the US such as certain chemicals, dyes, machinery, and rayon staple fiber in effect raises the cost for American companies and makes them less competitive with China.”
Mitigate the impact of the tariff war: Fashion Companies’ Strategies
The first approach was to switch to China’s alternatives. Trade statistics suggest that Asian countries such as Vietnam and Bangladesh picked up most of China’s lost market shares in the US apparel import market. For example, in 2022 (Jan-Nov), Asian countries excluding China accounted for 51.2% of US apparel imports, a substantial increase from 41.2% in 2018 before the tariff war. In comparison, about 16.4% of U.S. apparel imports came from the Western Hemisphere in 2021 (Jan-Nov), lower than 17.0% in 2018. In other words, no evidence shows that Section 301 tariffs have expanded U.S. apparel sourcing from the Western Hemisphere.
The second approach was to adjust what to source from China by leveraging the country’s production capacity and flexibility. For example, market data from industry sources showed that since the Section 301 tariff action, US fashion companies had imported more “Made in China” apparel in the luxury and premium segments and less for the value and mass markets. Such a practice made sense as consumers shopping for premium-priced apparel items typically were less price-sensitive, allowing fashion companies to raise the selling price more easily to mitigate the increasing sourcing costs. Studies also found that US companies sourced fewer lower value-added basic fashion items (such as tops and underwear), but more sophisticated and higher value-added apparel categories (such as dresses and outerwear) from China since the tariff war.
China is no longer treated as a sourcing base for low-end cheap product
More apparel sourced from China target the premium and luxuary market segments
Related, US fashion companies such as Columbia Sportswear leveraged the so-called “tariff engineering” in response to the tariff war. Tariff engineering refers to designing clothing to be classified at a lower tariff rate. For example, “women’s or girls’ blouses, shirts, and shirt-blouses of man-made fibers” imported from China can tax as high as 26.9%. However, the same blouse added a pocket or two below the waist would instead be classified as a different product and subject to only a 16.0% tariff rate. Nevertheless, using tariff engineering requires substantial financial and human resources, which often were beyond the affordability of small and medium-sized fashion companies.
Third, recognizing the negative impacts of Section 301 on US businesses and consumers, the Office of the US Trade Representative (USTR) created a so-called “Section 301 exclusion process.” Under this mechanism, companies could request that a particular product be excluded from the Section 301 tariffs, subject to specific criteria determined at the discretion of USTR. The petition for the product exclusion required substantial paperwork, however. Even companies with an in-house legal team typically hire a DC-based law firm experienced with international trade litigation to assist the petition, given the professional knowledge and a strong government relation needed. Also of concern to fashion companies was the low success rate of the petition. The record showed that nearly 90 percent of petitions were denied for failure to demonstrate “severe economic harm.” Eventually, since the launch of the exclusion process, fewer than 1% of apparel items subject to the Section 301 punitive tariff were exempted. Understandably, the extra financial burden and the long shot discouraged fashion companies, especially small and medium-sized, from taking advantage of the exclusion process.
In conclusion, with USTR’s latest announcement, the debate on Section 301 and the outlook of China as a textile and apparel sourcing base will continue. Notably, while economic factors matter, we shall not ignore the impact of non-economic factors on the fate of the Section 301 tariff action against China. For example, with the implementation of the Uyghur Forced Labor Prevention Act (UFLPA), only about 10% of US cotton apparel imports came from China in the first ten months of 2022 (latest data available), the lowest in a decade. As the overall US-China bilateral trade relationship significantly deteriorated in recent years and the friction between the two countries expanded into highly politically sensitive areas, the Biden administration could “willfully” choose to keep the Section 301 tariff as negotiation leverage. Domestically, President Biden also didn’t want to look “weak” on his China policy, given the bipartisan support for taking on China’s rise.
This article provided a comprehensive review of the world textiles and clothing trade patterns in 2021 based on the newly released data from the World Trade Statistical Review 2022 and the United Nations (UNComtrade). Affected by the ongoing pandemic and companies’ evolving production and sourcing strategies in response to the shifting business environment, the world textiles and clothing trade patterns in 2021 included both continuities and new trends. Specifically:
Pattern #1: As the world economy recovered from COVID, the world clothing export boomed in 2021, while the world textile exports grew much slower due to a high trade volume the year before. Specifically, thanks to consumers’ strong demand, world clothing exports in 2021 fully bounced back to the pre-COVID level and exceeded $548.8bn, a substantial increase of 21.9% from 2020. The apparel sector is not alone. With economic activities mostly resumed, the world merchandise trade in 2021 also jumped 26.5% from a year ago, the fastest growth in decades.
In comparison, the value of world textiles exports grew slower at 7.8% in 2021 (i.e., reached $354.2bn), lagging behind most sectors. However, such a pattern was understandable as the textile trade maintained a high level in 2020, driven by high demand for personal protective equipment (PPE) during the pandemic.
Nevertheless, the world textiles and clothing trade could face strong headwinds down the road due to a slowing world economy and consumers’ weakened demand. Notably, amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide. Likewise, the World Trade Organization (WTO) forecasts that the growth of world merchandise trade will be cut to 3.5% in 2022 and down further to only 1% in 2023. As a result, the world textiles and clothing trade will likely struggle with stagnant growth or a modest decline over the next two years.
Pattern #2: COVID did NOT fundamentally shift the competitive landscape of textile exports but affected the export product structure. Meanwhile, some long-term structural changes in world textile exports continued in 2021.
Specifically, China, the European Union (EU), and India remained the world’s three largest textile exporters in 2021, a pattern that has stayed stable for over a decade. Together, these top three accounted for 68% of the world’s textile exports in 2021, similar to 66.9% before the pandemic (2018-2019). Other textile exporters that made it to the top ten list in 2021 were also the same as a year ago and before the pandemic (2018-2019).
Meanwhile, the growth rate of the top ten textile exporters varied significantly in 2021, ranging from -5.5% (China) to 47.8% (India). The demand shift from PPE to apparel-related yarns and fabrics was a critical contributing factor behind the phenomenon. For example, China’s PPE-related textile exports decreased by more than $33bn (or down 43%) in 2021. In contrast, the world knit fabric exports (SITC code 655) surged by more than 30% in 2021, led by India (up 74%) and Pakistan (up 72%). Nevertheless, as consumers’ lifestyles almost reached a “new normal,” we could expect the textile export product structure to stabilize soon.
On the other hand, as a trend already emerged before the pandemic, middle-income developing countries continued to play a more significant role in textile exports, whereas developed countries lost market shares. For example, the United States, Germany, and Italy led the world’s textile exports in the 2000s, accounting for more than 20% of the market shares. However, these three countries’ shares fell to 12.8% in 2019 and hit a new low of 11.3% in 2021. In comparison, middle-income developing countries like China, Vietnam, Turkey, and India have entered the development stage of expanding textile manufacturing. As a result, their market share in the world’s textile exports rose steadily. These countries also achieved a more balanced textiles/clothing export ratio over the years, meaning more textile raw materials like yarns and fabrics can be locally produced instead of relying on imports. For example, Vietnam, known for its competitive clothing products, achieved a new high of $11.5bn in textile exports in 2021 and ranked sixth globally. Vietnam’s textiles/clothing ratio also doubled from 0.15 in 2005 to 0.37 in 2021. It is not unlikely that Vietnam’s textile exports may surpass the United States over the next few years.
Pattern #3: Countries with large-scale production capacity stood out in world clothing exports in 2021. Meanwhile, clothing exporters compete to become China’s alternatives, but there seems to be no clear winner yet.
Consumers’ surging demand and COVID-related supply chain disruptions significantly impacted the world’s clothing export patterns in 2021. As fashion brands and retailers were eager to find sourcing capacity, countries with large-scale production capacity and relatively stable supply enjoyed the fastest growth in clothing exports. For example, except for Vietnam, which suffered several months of COVID lockdowns, all other top five clothing exporters enjoyed a more than 20% growth of their exports in 2021, such as China (up 24%), Bangladesh (up 30%), Turkey (up 22%), and India (up 24%).
As another critical trend, many international fashion brands and retailers have been trying to reduce their apparel sourcing from China, driven by various economic and non-economic factors, from cost considerations and trade tensions to geopolitics. Notably, despite its strong performance in 2021, China accounted for only 23.1% of US apparel imports in 2022 (January to September), much lower than 36.2% in 2015. Likewise, China’s market shares in the EU, Japanese, and Canadian clothing import markets also fell over the same period, suggesting this was a worldwide phenomenon.
With reduced apparel sourcing from China, fashion companies have actively sought alternative sourcing destinations, but the latest trade data suggests no clear winner yet. For example, Vietnam and Bangladesh, the two most popular candidates for “Next China,” accounted for 6.5% and 5.7% shares in the world’s clothing export in 2021, still far behind China (32.1%). Interestingly, from 2015 to 2021, the world’s top four largest clothing exporters next to China (i.e., Bangladesh, Vietnam, Turkey, and India) did not substantially gain new market shares. Instead, China’s lost market was filled by “the rest of the world.”
Additionally, recent studies show that many fashion companies have switched back to the sourcing diversification strategy in 2022 as managing risks and improving sourcing flexibility become more urgent priorities. In other words, the world’s clothing export market could turn more “crowded” and competitive in the coming years.
Pattern #4: Regional supply chains remain critical features of the world textiles and clothing trade. Several factors support and shape the regional textiles and clothing trade patterns. First, as clothing production often needs to be close to where textile materials are available, many developing clothing-producing countries rely heavily on imported textile materials, primarily from more advanced economies in the same region. Second, through lowered trade barriers, regional free trade agreements also financially encouraged garment producers, particularly in Asia, the EU, and Western Hemisphere (WH), to use locally or regionally made textile materials. Further, fashion companies’ interest in “near-shoring” supported the regional supply chain, and related textiles and clothing trade flows between neighboring countries.
The latest trade data indicated that Asia’s regional textiles and clothing trade patterns strengthened further despite supply chain chaos during the pandemic. Specifically, in 2021, as many as 82% of Asian countries’ textile imports came from within Asia, up from 80% in 2015. China, in particular, has played a more prominent role as a leading textile supplier for other Asian clothing-exporting countries. For example, more than 60% of Vietnam’s textile imports came from China in 2021, a substantial increase from 23% in 2005. The same pattern applied to Pakistan, Cambodia, Bangladesh, and the Association of Southeast Asian Nations (ASEAN) members.
In January 2022, the Regional Comprehensive Economic Partnership (RCEP), a mega free trade agreement involving all major economies in Asia, entered into force. The tariff cut and very liberal rules of origin of the agreement will hopefully drive Asia’s booming regional textiles and clothing trade and further deepen its regional economic integration.
Besides Asia, the regional textiles and clothing trade pattern in the EU (or the so-called Intra-EU trade) was also in good shape. In 2021, 50.8% of EU countries’ textile imports and 37% of clothing imports came from other EU members. This pattern has changed little over the past decade, thanks to many EU countries’ commitment to maintaining local textiles and clothing production rather than outsourcing.
In comparison, the Western Hemisphere (WH) textile and apparel supply chain (e.g., clothing made in Mexico or Central America using US or regionally made textiles) seemed to struggle in recent years. As of 2021, only 20% of WH countries’ textile imports came from within WH, down from 26% in 2015. Likewise, WH countries (mainly the US and Canada) just imported 14.6% of clothing from WH in 2021, down from 15.3% in 2015 and much lower than their EU counterparts (37% in 2021). It will be interesting to see whether US and Canadian fashion companies’ expressed interest in expanding near-shoring may reverse the course.
Furthermore, the regional textiles and clothing trade patterns in Sub-Saharan Africa (SSA) are also worth watching. Compared with Asia and the EU, SSA clothing producers used much fewer locally-made textiles (i.e., stagnant at around 11% only from 2011 to 2021), reflecting the region’s lack of textile manufacturing capability. Most trade programs with SSA countries, such as the US-led African Growth and Opportunity Act (AGOA) and EU’s Everything But Arms (EBA) program, adopt liberal rules of origin for clothing products, allowing third-party textile input to be used. It can be studied whether such liberal rules of origin somehow disincentivize building SSA’s own textile manufacturing sector or are still essential given the reality of SSA’s limited textile production capacity.
FASH455 Global Apparel & Textile Trade and Sourcing 