I encourage everyone to watch the two short videos above, which provide an excellent wrap-up for FASH455 and remind us of the meaning and significance of our course.
First of all, I hope students can take away essential knowledge about textile and apparel trade & sourcing from FASH455. As you may recall from the video, in FASH455:
We examined the phenomenon of globalization and the debate regarding its profound social, economic, and political implications.
We discussed various trade theories and the general evolution pattern of a country’s textile and apparel industry and its close relationship with that country’s overall industrialization process.
Last but not least, we looked at unique and critical trade policies that matter significantly to the textile and apparel sector (e.g., the U.S.-China tariff war and the yarn-forward rules of origin) as well as the complicated factors behind the making of these trade policies.
Whether your dream job is to be a fashion designer, buyer, merchandiser, sourcing specialist, or marketing analyst, understanding how trade and sourcing work will be highly relevant and beneficial to your future career given the global nature of today’s fashion industry.
Second, I hope FASH455 helps students shape a big-picture vision of the fashion apparel industry in the 21st-century world economy and provides students a fresh new way of looking at the world. Throughout the semester, we’ve examined many critical, timely, and pressing global agendas that are highly relevant to the textile and apparel industry, from the impact of COVID-19 on apparel sourcing and trade, the growing interest in expanding near-shoring from the Western Hemisphere, the debate on the textile and apparel provisions in U.S. free trade agreements to the controversy of forced labor in the apparel supply chain. It is critical to keep in mind that we wear more than clothes: We also wear the global economy, international business, public policy, and trade politics that make affordable, fashionable, and safe clothes possible and available for hardworking families.
Likewise, I hope FASH455 can put students into thinking about why “fashion” matters. A popular misconception is that “fashion and apparel” are just about “sewing,” “fashion magazine,” “shopping” and “Project Runway.” In fact, as one of the largest and most economically influential sectors in the world today, the fashion industry plays a critical and unique role in creating jobs, promoting economic development, enhancing human development, and reducing poverty. As we mentioned in class, over 120 million people remain directly employed in the textile and apparel industry globally, and a good proportion of them are females living in poor rural areas. For most developing countries, textile and apparel typically account for 70%–90% of their total merchandise exports and provide one of the very few opportunities for these countries to participate in globalization. The global pandemic, in particular, reveals the fashion industry’s enormous social and economic impacts and many problems that need our continuous efforts to make meaningful improvements.
Last but not least, I hope from taking FASH455, students will take away meaningful questions that can inspire their future studies and even life’s pursuit. For example:
How to make apparel sourcing and trade more sustainable, socially responsible, and transparent? What needs to be done further–fashion companies, government, consumers, and other stakeholders?
To which extent will geopolitics, such as the Russia-Ukraine war and US-China tensions, affect world trade patterns and fundamentally shift fashion companies’ sourcing and supply chain strategies?
How will automation, AI, and digital technologies change the future landscape of apparel sourcing, trade, and job opportunities? What may fashion education look like ten years from now given the shifting nature of the industry?
How to use trade policy as a tool to solve challenging global issues such as forced labor and climate change? Or shall we leave these issues to the market forces?
We don’t have solid answers yet for these questions. However, these issues are waiting for you, the young professional and the new generation of leaders, to write history, based on your knowledge, wisdom, responsibility, courage, and creativity!
So what do you take away from FASH455? Please feel free to share your thoughts and comments.
On April 17, 2023, the US International Trade Commission (USITC) released a new report analyzing the trade and economic impact of the African Growth Opportunity Act (AGOA). The report fulfills the investigation request by the US House of Representatives Committee on Ways and Means in January 2022.
The full report is HERE. Below are the key findings regarding the apparel sector:
The African Growth and Opportunity Act (AGOA) matters significantly to Sub-Saharan African countries (SSA)’s apparel exports to the United States
AGOA has been the primary competitive advantage for SSA’s apparel exports to the United States. For example, US apparel imports from AGOA beneficiaries have risen from $953 million in 2001 to $1.4 billion in 2021 (note: up to $1.76 billion in 2022). More than 96.4% of these imports claimed AGOA’s duty-free benefits, including 98.8% utilized the “third-country fabric” provision.
While twenty countries were eligible for AGOA’s apparel provision, over 90% of US apparel imports from AGOA members in 2021 originated in five SSA countries: Kenya (31.5%), Madagascar (19.9%), Lesotho (20.6%), Ethiopia (18.3%), and Mauritius (5.1%).
AGOA benefits appear essential for SSA countries to maintain their apparel exports to the United States. USITC noted that in every case when a country lost AGOA eligibility between 2000 and 2021, there was a noticeable decrease in US apparel imports from that country, such as Rwanda and Madagascar. (note: according to OTEXA’s latest trade data, US apparel imports from Ethiopia, which lost its AGOA eligibility in 2022, dropped by 42% in the first two months of 2023 from a year ago, far worse than a 5.8% decrease of AGOA members as a whole.)
SSA garment manufacturers often find supplying the US apparel market a better fit than Europe, primarily because US brands tend to place orders for higher volume bulk basics, which allows workers to focus on a narrower set of skills.
The impact of AGOA on SSA’s apparel production and exports varied at the country level
Some SSA countries (e.g., Kenya and Lesotho) already had well-established apparel industries when AGOA was implemented in 2000. In contrast, other SSA countries (e.g., Madagascar, Ethiopia, Tanzania, and Ghana) received substantial investments from foreign-owned firms after AGOA was enacted, which helped jumpstart their apparel sectors.
USITC also identified two “unsuccessful” AGOA cases. For example, Mauritius was the largest AGOA beneficiary apparel supplier to the United States in 2000 but has since fallen to the fifth-largest in 2021, largely due to increased labor costs. Likewise, South Africa’s apparel export to the US was negatively affected by its disqualification from the “third-country fabric” provision under AGOA.
AGOA has had a limited impact on building an integrated regional textile and apparel supply chain in SSA
Currently, SSA countries primarily participate in the cut-and-sew operations of apparel based on imported textile raw materials from outside the region (mostly from Asia).
The USITC identified several challenges in building the local textile industry in SSA. For example, building a textile mill typically requires much higher investments (e.g., $200–300 million) than a garment factory (i.e., $25 million). Also, most SSA manufacturers cannot make the various types of yarns and fabrics in demand from U.S. buyers.
The dilemma is not new: Access to textile inputs from sources outside SSA is essential for garment manufacturers in SSA to meet the specifications of US buyers. However, relying on imported textile inputs reduces the incentives for investing in new textile production capabilities in SSA.
The USITC report found Mauritius an exception as it has developed a relatively competitive capability in producing cotton fabrics, which are supplied to garment factories in Madagascar. There is also some collaboration between cotton producers in Tanzania and Uganda and Kenya’s textile manufacturers.
US fashion companies generally see SSA as a promising emerging sourcing destination
Apparel producers in SSA are less established in global apparel value chains than manufacturers in other parts of the world. Therefore, it is not uncommon that fashion brands and retailers “work more directly with SSA apparel manufacturers to ensure product quality, particularly for new or expanding product lines.”
Most SSA garment factories only have cut, make, and trim (CMT) capability and rely on imported textile materials arranged by fashion brands and retailers.
USITC found that US companies increasingly import man-made fiber (MMF) apparel from AGOA members to benefit from greater import duty savings. (note: US tariff rates for MMF apparel were typically higher than those made with natural fibers like cotton. On the other hand, however, it’s worth noting that SSA countries generally have more competitive advantages in producing cotton apparel products than in producing MMF apparel).
SSA countries also have advantages over their Asia competitors. For example, “a shipment takes about 15–18 days to travel from the port in Lomé to the East Coast of the United States. From China or Bangladesh, lead times range from 40–50 days.”
Many fashion brands “have expressed interest in sourcing from greenfield factories with fewer legacy challenges posed by compliance and environmental impacts.”
US fashion companies’ sourcing diversification strategy to avoid risk exposure also contributed to the expansion of their apparel imports from AGOA members.
Uncertainty of AGOA renewals hurt US apparel imports from SSA
Apparel companies typically make sourcing decisions 12–18 months in advance. This practice underscores the importance of renewing AGOA early rather than granting extensions only within two to nine months of expiration, as in the past.
The USITC report mentioned, “Without the assurance of the “third country fabric” provision, many US apparel companies sourced from AGOA beneficiaries reported holding back orders from the region.”
More can be done to leverage SSA’s cotton production better
Cotton growing is widespread across about thirty SSA countries. SSA accounts for about 7 percent of the world’s cotton production, the fifth-largest globally.
However, most SSA cotton is sold to international buyers and exported to Asian mills that process it into yarns and fabrics. In contrast, the consumption of domestic cotton in SSA is limited.
The SSA cotton industry produces high-quality, “sustainable” cotton that can be used in several high-value end products sold globally. However, because of a lack of mechanization, SSA cotton production struggles to increase supply to meet demand.
Also, cotton-growing regions in SSA tend to be poorer and less politically stable than other parts of the region.
Discussion questions:
Based on the blog post and class discussions, how competitive or attractive are AGOA members as apparel-sourcing destinations for US fashion companies, especially compared with suppliers from Asia and the Western Hemisphere?
Based on the blog post, what improvement can be made to make AGOA or any problems that need to be addressed?
Any other thoughts related to the patterns of apparel trade and sourcing based on the blog post?
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.”
Argument: The U.S. textile manufacturing industry has been a winner of globalization
Comment #1: The video highlighted some of the few remaining textile plants and the cotton refinery’s in the U.S. and how they are taking risks daily to stay afloat with risks of inflation and climate change. However, for these American companies to stay afloat, they must participate in globalization themselves. The video mentioned how these factories were using Swiss and German dying machines to make production more efficient. For these onshore jobs to stay alive, they have to now utilize globalized information and technology to stay successful.
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.
Argument: the U.S. textile manufacturing industry has been a loser of globalization
Comment #3: According to the video, the U.S. textile manufacturing sector is a loser in globalization and international trade. Robert Lighthizer, a former U.S. trade representative, believes the drive to globalization saw the United States effectively giving away its own prosperity and success. He explains the effects of trade deals on jobs, illustrating how the U.S. would place most of its focus on service sector jobs and outsource its industrial base. However, this resulted in the loss of roughly 6 million jobs and 60,000 factories, destroying many communities all across the country and causing a lack of diversity in the job economy.
Comment #4: I think the US is a loser of globalization and international trade because they rely on other countries for their cheap goods and services. When I look at clothing tags, I rarely see them made in the US nowadays. Again, this is because the US being dependent on other countries due to unbeatable costs. I also think since we rely so heavily on other countries, it has contributed to job displacement.
Comment #5: The US textile manufacturing sector is a loser of globalization and international trade. Cotton production in the US is beneficial to the communities it exists in. However, these companies must fight against a strong dollar, competitors in China who do not always abide by the same regulations as US companies, and use cheap labor. When China entered the WTO, the US suffered greatly. Many textile factories in the US have closed, disrupting the entire community.
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: I think the US textile manufacturing sector was a loser of globalization and international trade because big companies were using other countries for their sourcing and manufacturing. This was because it was much cheaper compared to the United States. In doing this, it declined the need for textile manufacturing jobs in the United States.
Comment #8: 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 #9: 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.
Comment #10: U.S. Businesses are now focusing on the cheapest way to do everything instead of thinking about creating good jobs for their working community with fair pay. The U.S. is losing jobs, factories, communities, etc. in efforts to help other countries build themselves up through globalization. It is time for the U.S. to make some changes and look out for our own country and people.
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.
Trend 1: US fashion companies continue to diversify their sourcing base in 2022
Numerous studies suggest that US fashion companies leverage sourcing diversification and sourcing from countries with large-scale production capacity in response to the shifting business environment. For example, according to the 2022 fashion industry benchmarking study from the US Fashion Industry Association (USFIA), more than half of surveyed US fashion brands and retailers (53%) reported sourcing apparel from over ten countries in 2022, compared with only 37% in 2021. Nearly 40% of respondents plan to source from even more countries and work with more suppliers over the next two years, up from only 17% in 2021.
Trade data confirms the trend. For example, the Herfindahl–Hirschman index (HHI), a commonly-used measurement of market concentration, went down from 0.110 in 2021 to 0.105 in 2022, suggesting that US apparel imports came from even more diverse sources.
Trend 2: Asia as a whole will remain the dominant source of imports
Measured in value, about 73.5% of US apparel imports came from Asia in 2022, up from 72.8% in 2021. Likewise, the CR5 index, measuring the total market shares of the top five suppliers—all Asia-based, i.e., China, Vietnam, Bangladesh, Indonesia, and India, went up from 60.6% in 2021 to 61.1% in 2022. Notably, the CR5 index without China (i.e., the total market shares of Vietnam, Bangladesh, Indonesia, India, and Cambodia) enjoyed even faster growth, from 40.7% in 2021 to 43.7% in 2022.
Additionally, facing growing market uncertainties and weakened consumer demand amid high inflation pressure, US fashion companies may continue to prioritize costs and flexibility in their vendor selection. Studies consistently show that Asia countries still enjoy notable advantages in both areas thanks to their highly integrated regional supply chain, production scale, and efficiency. Thus, US fashion companies are unlikely to reduce their exposure to Asia in the short to medium term despite some worries about the rising geopolitical risks.
Trend 3: US fashion companies’ China sourcing strategy continues to evolve
Several factors affected US apparel sourcing from China negatively in 2022:
One was China’s stringent zero-COVID policy, which led to severe supply chain disruptions, particularly during the fall. As a result, China’s market shares from September to November 2022 declined by 7-9 percentage points compared to the previous year over the same period.
The second factor was the implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022, which discouraged US fashion companies from sourcing cotton products from China. For example, only about 10% of US cotton apparel came from China in the fourth quarter of 2022, down from 17% at the beginning of the year and much lower than nearly 27% back in 2018.
The third contributing factor was the US-China trade tensions, including the continuation of Section 301 punitive tariffs. Industry sources indicate that US fashion companies increasingly source from China for relatively higher-value-added items targeting the premium or luxury market segments to offset the additional sourcing costs.
Further, three trends are worth watching regarding China’s future as an apparel sourcing base for US fashion companies:
One is the emergence of the “Made in China for China” strategy, particularly for those companies that view China as a lucrative sales market. Recent studies show that many US fashion companies aim to tailor their product offerings further to meet Chinese consumers’ needs and preferences.
Second is Chinese textile and apparel companies’ growing efforts to invest and build factories overseas. As a result, more and more clothing labeled “Made in Bangladesh” and “Made in Vietnam” could be produced by factories owned by Chinese investors.
Third, China could accelerate its transition from exporting apparel to providing more textile raw materials to other apparel-exporting countries in Asia. Notably, over the past decade, most Asian apparel-exporting countries have become increasingly dependent on China’s textile raw material supply, from yarns and fabrics to various accessories. Moreover, recent regional trade agreements, particularly the Regional Comprehensive Economic Partnership (RCEP), provide new opportunities for supply chain integration in Asia.
Trend 4: US fashion companies demonstrate a new interest in expanding sourcing from the Western Hemisphere, but key bottlenecks need to be solved
Trade data suggests a mixed picture of near-shoring in 2022. For example, members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) and US-Mexico-Canada Trade Agreement (USMCA) accounted for a declining share of US apparel imports in 2022, measured in quantity and value. While CAFTA-DR and USMCA members showed an increase in their market share of US apparel imports in the fourth quarter of 2022, reaching 10.7% and 3.1%, respectively, this growth was not accompanied by an increase in trade volume. Instead, US apparel imports from these countries decreased by 11% and 15%, respectively, compared to the previous year. CAFTA-DR and USMCA members’ gain in market share was mainly due to a sharper decline in US apparel imports from the rest of the world (i.e., decreased by over 25% in the fourth quarter of 2022).
Trade data also suggests two other bottlenecks preventing more US apparel sourcing from CAFTA-DR and USMCA members. One is the lack of product diversity. For example, the product diversification index consistently shows that US apparel imports from CAFTA-DR members and Mexico concentrated on only a limited category of products, and the problem worsened in 2022. The result explained why US fashion companies often couldn’t move souring orders from Asia to CAFTA-DR and USMCA members.
Another problem is the underutilization of the trade agreement. For example, CAFTA-DR’s utilization rate for US apparel imports consistently went down from its peak of 87% in 2011 to only 74% in 2021. The utilization rate fell to 66.6% in 2022, the lowest since CAFTA-DR fully came into force in 2007. This means that as much as one-third of US apparel imports from CAFTA-DR did NOT claim the agreement’s preferential duty benefits. Thus, regarding how to practically grow US fashion companies’ near-shoring, we could expect more public discussions and debates in the new year.
Elizabeth Davelaar is a Co-Owner of Maker’s Way Fiber Mill in Brandon, SD, which opened in October 2021. The mill is a family-run business, with Elizabeth’s sister, Erin, and her mother, Kari, as other co-owners. Elizabeth began her career in the fashion industry at the University of Minnesota, where she graduated with a BS in Apparel Design from the College of Design. She then went to the University of Delaware, where she graduated with an MS in Fashion and Apparel Studies and a Graduate Certificate in Sustainable Apparel Business.
Elizabeth served as a project manager for a non-profit fashion brand in St. Louis and taught sewing to immigrant women in St. Louis and women in Ethiopia. She then moved to Vi Bella Jewelry in Sioux Center, IA, working her way from Shipping Manager to VP of Operations, Sustainability and Design. She then opened Maker’s Way Fiber Mill in 2021 with her family and has been working with local fiber producers to grow the yarn industry in South Dakota and surrounding areas.
Interview Part
Sheng: What inspired you to start your fiber mill business? What makes it special and exciting?
Elizabeth: The mill was born out of the need to solve a problem. I became interested in natural dye at the University of Delaware under Professor Cobb. Once I moved back to the area where I grew up, COVID hit, and I was able to dive deeper into the natural dye and use local plants as a dye source. This also led to being curious about local natural fibers. South Dakota isn’t a state that grows cotton, and the hemp industry is currently small, but it has an abundance of sheep. According to statistics from the US Department of Agriculture, South Dakota has 235,000 sheep and is home to one of the nation’s largest wool co-ops. However, there are only 2 working fiber mills in the area that provide custom processing, which makes yarn made from local fiber very hard to find.
This led to the opening of Maker’s Way Fiber Mill. We are a full-service, custom fiber mill and make yarn, felt, roving, and home goods products from primarily wool and alpaca fiber. Approximately 90% of our time is spent processing for clients who own the animals and use the yarn themselves or sell it, with the other 10% processing yarn that we sell online via our website and in-person at events. The vast majority of our customers are local (within 4-5 hrs) and sell locally to crafters. We take pride in knowing where the fiber we use comes from, sourcing from local farms or using fiber from vintage or second-hand sources.
Hats made from 80% alpaca/20% Wool (both sourced from SD) with a small amount of recycled sari silk blended in. Photo courtesy of Elizabeth Davelaar
(Photo courtesy of Elizabeth Davelaar)
Photo courtesy of Elizabeth Davelaar
Sheng: According to Maker’s Way Fiber Mill’s website, sustainability is a critical feature of your products. Why is that, and how do you make your products sustainable?
Elizabeth: We believe that we are stewards of the earth and should be conscious of how the products we make are grown, created, and then how they can be disposed of. The fashion industry, from creating the product to end life, is a huge polluter. The current market for wool is not great for producers, and there isn’t a good avenue for alpaca producers. We work very hard to ensure that our products are sourced from people that we know and trust or are from vintage or second-hand sources. We also work to ensure our products are made from natural fibers, thus they are biodegradable.
We also work to limit the waste in our mill. Although we try our absolute best to reduce loss in the process, each step produces some loss in fiber. This fiber is swept up and either rewashed and added to our Millie line or added to our bird nest starters. The Millie line is yarn spun up from the scraps, and we end up running about four batches of this a year. Each batch is unique because of the different blends of fiber we run. The bird nest starters use fiber that either falls out of our carder or is swept off the floor. These are then put outside in the spring for birds to use for nesting. The fibers are short enough that the baby birds don’t get tangled in them as they would with yarn and because they are natural animal fibers, the nests will biodegrade, unlike acrylic yarns that are sometimes used.
Photo courtesy of Elizabeth Davelaar
Sheng: Maker’s Way Fiber Mill’s products are 100% locally made in South Dakota. From your perspective, what are the opportunities and challenges for manufacturing textiles in the US today?
Elizabeth: I see two big challenges in the natural animal fiber side of the U.S. textile industry: Lack of consumer knowledge of where clothing comes from and lack of infrastructure. But both also present big opportunities!
First, we have found with our mill that people don’t have a good understanding of how many steps there are in creating yarn in general, let alone clothing. We have people who question our pricing because they don’t understand what it means to make yarn in the United States. From start to finish, it takes eight different steps to get raw fiber from producers to yarn ready to sell. Our consultations for new clients tend to be very educational because even fiber producers don’t necessarily know all the steps. As we open the mill for tours and talk to people at events, they start to understand and respect how much work is behind the yarn we create, and that is when we see buy-in – when people start to see the whole process, as well as the people.
The second challenge I see is the overall lack of infrastructure. We are one of approximately 200 small-scale / artisan-style mills in the country (this number is approximate – there is not a good database) and do not run near the quantity compared to the larger manufacturers. As of 2018, there aren’t any small-scale fiber mill equipment manufacturers in the US, so all of the equipment available to us is either used or has to be imported from Canada or Italy. Wait time for most small producers to get their fiber made into yarn is approximately 8-12 months at many mills, some run up to 18 months out. Our mill currently runs about 6 months out and we have been open for just over a year.
For producers who want to sell their wool to larger manufacturers and not have it custom processed, as far as our research has shown, there is one large-scale scouring (wool washing) facility in the states and most of the large-scale spinners use fiber from this facility to spin into yarn and then send the fiber off to other finishing companies for knitting. Otherwise, all of the wool is shipped overseas, and producers are earning approximately $1.66/lb of wool (in 2020). We have heard of many producers that have stockpiles of wool because they are waiting for higher wool prices. Coops also won’t accept wool that isn’t white, so all dark colors of wool get thrown away as there isn’t a market for it.
We also see this as an opportunity. We have noticed the “buying local” trend extending past food also to include yarn. People also see value in making their own clothing and being intentional through knitting/crocheting. There is a growing market for it. We have also seen some demand for the addition of another large-scale scouring facility that could meet the needs for wool insulation and other home applications.
Sheng: Like other fashion programs in the US, most of our FASH students take job opportunities from fashion brands and retailers, not necessarily textile mills. How to raise the young generation’s interest in pursuing a career in textile and apparel factories? Do you have any suggestions?
Elizabeth: I definitely never intended to start a fiber mill when I was in school. I only took one textile class and am pretty sure only one of my design projects used wool. UD was really what fed the sustainability bug in me and I started to realize that sustainability starts at the very beginning of the lifecycle of clothing. Whether or not something can be biodegradable, recyclable, or repurposed starts with what fiber makes up the clothing. UD also showed me how global apparel is and how much carbon footprint it makes.
Working in a fiber mill is not an easy job. It is dirty, we tend to put in long days, and we are constantly learning new things. I am a very hands-on person, and I love being able to create things from nothing, so this job is a great fit for me. The part I loved most about being in design school was being able to create things, and my current job is that all day, every day. We split the mill into “zones” and between myself, Erin and our mom, we all specialized in a specific part of the process. I am in charge of skirting and cleaning fleeces, which means cleaning off all of the hay and visibly dirty areas (aka manure) and then washing the fiber in 140-180 degree water to get the dirt and lanolin out of the fleece. I then pick and card the fiber, which opens up and organizes the fiber into a long tube that is then drafted, spun, plied, and put into skeins. While most days tend to include the same things, each day is never the same as the last. Each animal fleece we run acts differently, so we are always learning new and better ways to run the equipment we have. It is challenging but also a labor of love. Because we work directly with producers, we know the names of most of the animals and love knowing that their fleeces are being used instead of being discarded! We also love connecting with local people who love purchasing from local producers and makers.
Photo courtesy of Elizabeth Davelaar
One of the biggest things I believe fashion programs can do to help open up students to different options in the fashion industry is to expose them to different opportunities and allow them to follow whatever passion they have and emphasize that there isn’t a “right” path in the industry. My classes opened me up to labor issues around the world and that then led me to Delaware. And the opportunities I was given at UD to follow my passions are a huge reason I am doing what I am doing now. One of the things I think UD does right is having many different professors with varying backgrounds in the FASH department and I think other universities would do well to implement that too.
Sheng: Any other key issues or industry trends you will watch in 2023?
Elizabeth: One of the key trends we are watching is the local craft movements and knowing where your clothing comes from. We saw a crafting resurgence happen during COVID and people are still pickup up their knitting needles and crochet hooks to create items to wear and love. We also see some carryover of the local food scene into the local fiber scene. We believe that this will continue to grow!
This study was based on a statistical analysis of 3,307 randomly selected clothing items made from recycled textile materials for sale in the U.S. retail market between January 2019 and August 2022 (see the sample picture above). The results show that:
First, U.S. retailers sourced clothing made from recycled textile materials from diverse countries.
Specifically, the sampled clothing items came from as many as 36 countries, including developed and developing economies in Asia, America, the EU, and Africa.
However, reflecting the unique supply chain composition of clothing made from recycled textile materials, U.S. retailers’ sourcing patterns for such products turned out to be quite different from regular new clothing. For example, whereas the vast majority (i.e., over 90%) of U.S. regular new clothing came from developing countries as of 2022 (UNComtrade, 2022), as many as 43% of the sampled clothing items made from recycled textile materials (n=1,408) were sourced from developed countries. Likewise, U.S. retailers seemed to be less dependent on Asia when sourcing clothing made from recycled materials (41.9%, n=1,387) and instead used near-sourcing from America (30.1%, n=994) more often, particularly domestic sourcing from the United States (14.8%, n=490).
Second, U.S. retailers appeared to set differentiated assortments for products imported from developed and developing countries when sourcing clothing made from recycled textile materials.
Among the sampled clothing items made from recycled textile materials, those imported from developing countries, on average, included a broader assortment than developed economies. Likewise, imports from developing countries also concentrated on products relatively more complex to make as opposed to developed countries. Developing countries’ more extensive clothing production capability, including the available production facilities and skilled labor force, than developed economies could have contributed to the pattern.
On the other hand, likely caused by developed countries’ overall higher production costs, the average retail price of sampled clothing items sourced from developed countries was notably higher than those from developing ones. However, NO clear evidence shows that U.S. retailers used developed countries primarily as the sourcing bases for luxury or premium items and used developing countries only for items targeting the mass or value market.
Third, an exporting country’s geographic location was another statistically significant factor affecting U.S. retailers’ sourcing pattern for clothing made from recycled textile materials. Specifically,
Imports from Asia had the most diverse product assortment (e.g., sizing options) and focused on complex product categories (e.g., outwear) that targeted mass and value markets.
Imports from America (North, South, and Central America) concentrated on simple product categories (e.g., T-shirts and hosiery) with moderate assortment diversity and mainly targeted the mass and value market.
Imports from the EU were mainly higher-priced luxury items in medium-sophisticated or sophisticated product categories with diverse assortment.
Imports from Africa concentrated on relatively higher-priced premium or luxury items in simple product categories (i.e., swim shorts) with a limited assortment diversity.
The study’s findings demystified the country of origin of clothing made from recycled textile materials hidden behind macro trade statistics. The findings also created critical new knowledge that contributed to our understanding of the supply chain of clothing made from recycled textile materials and U.S. retailers’ distinct sourcing patterns and affecting factors for such products. The findings have several other important implications:
First, the study’s findings revealed the broad supply base for clothing made from recycled textile materials and suggested promising sourcing opportunities for such products. Whereas existing studies illustrated consumers’ increasing interest in shopping for clothing made from recycled textile materials, the study’s results indicated that the “enthusiasm” also applied to the supply side, with many countries already engaged in making and exporting such products. Meanwhile, the results showed that U.S. retailers sourced clothing made from recycled textile materials in different product categories with a broad price range targeting various market segments to meet consumers’ varying demands. Moreover, as textile recycling techniques continue to advance, potentially enriching the product offer of clothing made from recycled textile materials, U.S. retailers’ sourcing needs and supply base for such products could expand further.
Second, the study’s findings suggest that sourcing clothing made from recycled textile materials may help U.S. retailers achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials for U.S. retailers. Instead, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help U.S. retailers with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base.
Additionally, the study’s findings call for strengthening U.S. domestic apparel manufacturing capability to better serve retailers’ sourcing needs for clothing made from recycled textile materials. On the one hand, the results demonstrated U.S. retailers’ strong interest in sourcing clothing made from recycled textile materials that were “Made in the USA.” Also, the United States may enjoy certain competitive advantages in making such products, ranging from the abundant supply of recycled textile waste and the affordability of expensive modern recycling machinery to the advanced research and product development capability. On the other hand, the results showed that U.S. retailers primarily sourced simple product categories (e.g., T-shirts and hosiery), targeting the value and mass markets from the U.S. and other American countries. This pattern somewhat mirrored the production and sourcing pattern for regular new clothing, for which apparel “Made in the USA” also lacked product variety and focused on basic fashion items compared with Asian and EU suppliers. Thus, strengthening the U.S. domestic apparel production capacity, especially for those complex product categories (e.g., outwear and suits), could encourage more sourcing of “Made in the USA” apparel using recycled textile materials and support production and job creation in the U.S. apparel manufacturing sector.
In December 2022, Just-Style consulted a panel of industry experts and scholars in its Outlook 2023–what’s next for apparel sourcing briefing. Below is my contribution to the report. All comments and suggestions are more than welcome!
2023 is likely another year full of challenges and opportunities for the global apparel industry.
First, the apparel industry may face a slowed world economy and weakened consumer demand in 2023. Apparel is a buyer-driven industry, meaning the sector’s volume of trade and production is highly sensitive to the macroeconomic environment. Amid hiking inflation, high energy costs, and retrenchment of global supply chains, leading international economic agencies, from the World Bank to the International Monetary Fund (IMF), unanimously predict a slowing economy worldwide in the new year. Likewise, the World Trade Organization (WTO) forecasts that the world merchandise trade will grow at around 1% in 2023, much lower than 3.5% in 2022. As estimated, the world apparel trade may marginally increase between 0.8% and 1.5% in the new year, the lowest since 2021. On the other hand, the falling demand may somewhat help reduce the rising sourcing cost pressure facing fashion companies in the new year.
Second, fashion brands and retailers will likely continue leveraging sourcing diversification and strengthening relationships with key vendors in response to the turbulent market environment. According to the 2022 fashion industry benchmarking study I conducted in collaboration with the US Fashion Industry Association (USFIA), nearly 40 percent of surveyed US fashion companies plan to “source from more countries and work with more suppliers” through 2024. Notably, “improving flexibility and reducing resourcing risks,” “reducing sourcing from China,” and “exploring near-sourcing opportunities” were among the top driving forces of fashion companies’ sourcing diversification strategies. Meanwhile, it is not common to see fashion companies optimize their supplier base and work with “fewer vendors.” For example, fashion companies increasingly prefer working with the so-called “super-vendors,” i.e., those suppliers with multiple-country manufacturing capability or can make textiles and apparel vertically, to achieve sourcing flexibility and agility. Hopefully, we could also see a more balanced supplier-importer relationship in the new year as more fashion companies recognize the value of “putting suppliers at the core.”
Third, improving sourcing sustainability and sourcing apparel products using sustainable textile materials will gain momentum in the new year. On the one hand, with growing expectations from stakeholders and pushed by new regulations, fashion companies will make additional efforts to develop a more sustainable, socially responsible, and transparent apparel supply chain. For example, more and more fashion brands and retailers have voluntarily begun releasing their supplier information to the public, such as factory names, locations, production functions, and compliance records. Also, new traceability technologies and closer collaboration with vendors enable fashion companies to understand their raw material suppliers much better than in the past. Notably, the rich supplier data will be new opportunities for fashion companies to optimize their existing supply chains and improve operational efficiency.
On the other hand, with consumers’ increasing interest in fashion sustainability and reducing the environmental impact of textile waste, fashion companies increasingly carry clothing made from recycled textile materials. My latest studies show that sourcing clothing made from recycled textile materials may help fashion companies achieve business benefits beyond the positive environmental impacts. For example, given the unique supply chain composition and production requirements, China appeared to play a less dominant role as a supplier of clothing made from recycled textile materials. Instead, in the US retail market, a substantial portion of such products was “Made in the USA” or came from emerging sourcing destinations in America (e.g., El Salvador, Nicaragua) and Africa (e.g., Tunisia and Morocco). In other words, sourcing clothing made from recycled textile materials could help fashion companies with several goals they have been trying to achieve, such as reducing dependence on sourcing from China, expanding near sourcing, and diversifying their sourcing base. Related, we are likely to see more public dialogue regarding how trade policy tools, such as preferential tariffs, may support fashion companies’ efforts to source more clothing using recycled or other eco-friendly textile materials.
Additionally, the debates on fashion companies’ China sourcing strategy and how to meaningfully expand near-sourcing could intensify in 2023. Regarding China, fashion companies’ top concerns and related public policy debates next year may include:
What to do with Section 301 tariff actions against imports from China, including the tariff exclusion process?
How to reduce “China exposure” further in sourcing, especially regarding textile raw materials?
How should fashion companies respond and mitigate the business impacts of China’s shifting COVID policy and a new wave of COVID surge?
What contingency plan will be should the geopolitical tensions in the Asia-Pacific region directly affect shipping from the region?
Meanwhile, driven by various economic and non-economic factors, fashion companies will likely further explore ways to “bring the supply chain closer to home” in 2023. However, the near-shoring discussion will become ever more technical and detailed. For example, to expand near-shoring from the Western Hemisphere, more attention will be given to the impact of existing free trade agreements and their specific mechanisms (e.g., short supply in CAFTA-DR) on fashion companies’ sourcing practices. Even though we may not see many conventional free trade agreements newly launched, 2023 will be another busy year for textile and apparel trade policy deliberation, especially behind the scene and on exciting new topics.
By Sheng Lu
Discussion question: As we approach the middle of the year, why do you agree or disagree with any predictions in the outlook? Please share your thoughts.
#1. What makes globalization and trade controversial and debatable? Please use 1-2 examples from the video to illustrate your point.
#2. 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.
#3. Based on the video and the figures above, is the US textile manufacturing sector a winner or loser of globalization and international trade? Why?
#4. Related to question #3, does the future prosperity of the US textile manufacturing sector need globalization or de-globalization? What’s your vision?
#5. Take the following poll (anonymous) and share your reflections.
#6. 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?
#7. 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.
Question: What does a typical day look like during your AAFA internship?
Ally: I would arrive at American Apparel and Footwear Association (AAFA)’s beautiful DC office, take the elevator up to the third floor, greet the two other interns, and make my way over to my desk. For the policy interns, our typical day consisted of working on individual projects and attending committee meetings, such as the weekly Social Responsibility Committee call with member companies, environmental and product safety meetings, trade policy meetings, and others. We also took notes on hearings and events and paid particular attention to topics related to the apparel sector. For example, I listened in and took notes on Hill hearings, workshops hosted by the World Trade Organization (WTO), and International Labour Organization (ILO) meetings. Some additional internship projects included updating country sourcing profiles for AAFA member companies to use in their factory selection process and analyzing trade data.
A very exciting and beneficial component of the AAFA internship experience was being able to attend special industry events such as the Washington International Trade Association (WITA) dinner and AAFA’s Annual Traceability and Sustainability Conference in Pittsburgh, PA. The WITA dinner is often referred to as “Trade Prom” and is packed with a ‘Who’s Who of trade policy professionals–over 500 attendees each year. Volunteering at this event with the other AAFA and WITA interns was incredible. The AAFA 2022 Traceability and Sustainability Conference in Pittsburgh, PA was another highlight of my internship experience. The conference took place at the American Eagle corporate headquarters, which was very exciting to tour. I spent three days in Pittsburgh with the AAFA team and heard presentations from top leaders in the fashion sustainability space, which was a dream! Member retailers spoke about what their companies are working on, what key challenges the industry faces, and how brands can collectively make a difference. It was a truly inspiring event and a phenomenal networking opportunity. This was an experience I will never forget!
Question: Any major projects did you work on during your internship? What did you learn from the experiences?
Ally:One of the main projects I worked on during my internship was updating AAFA’s Sourcing Profiles for their member companies. These country-specific sourcing profiles include essential information relevant to apparel companies’ sourcing decisions, such as a country’s political situation, minimum wage, membership in trade agreements, and economic outlook. Updating these sourcing profiles allowed me to understand why fashion brands and apparel retailers choose to source from particular countries over others. Having this solid background knowledge of leading apparel-sourcing destinations helps me tremendously, especially given that I am very interested in pursuing a career in sourcing. Some other projects I worked on include analyzing the latest US import patterns for travel goods and creating a “Corporate Social Responsibility Checklist” for AAFA members.
Question: What insights did you learn about the fashion apparel industry from the internship? For example, the key issues the industry cares about or the challenges it faces.
Ally: Through this highly valuable internship with AAFA, I saw the fashion industry through a unique policy and “DC” perspective. A key issue the industry cares about is sustainability. For example, fashion companies are increasingly implementing more and more environmentally and socially responsible business practices. Many leading US apparel brands shared their perspectives on building a more sustainable and transparent fashion supply chain at AAFA’s Traceability and Sustainability Conference. Fashion companies are also investing in innovative new technologies to work toward a closed-loop, circular economy.
Another challenge the fashion industry faces today is improving the supply chain’s transparency. For example, the alleged forced labor in China’s Xinjiang region is a huge concern to US apparel companies. With the recent implementation of the Uyghur Forced Labor Prevention Act (UFLPA) in June 2022, many US fashion brands and retailers are seeking advice on how to comply with this new law and minimize potential sourcing disruptions. Now, more than ever, apparel companies need to ensure they can map their supply chains all the way back to the very beginning, such as where they source their raw cotton.
There is also much interest among fashion companies in finding new sourcing destinations outside of China. For example, Sri Lanka sees this as an opportunity, as well as other developing countries such as Vietnam and Cambodia. We could see some notable shifts in US fashion companies’ sourcing patterns in the coming years.
Further, this Fall, I have been interning virtually at Worldwide Responsible Accredited Production (WRAP). WRAP is a non-profit organization headquartered in Arlington VA, with staff worldwide. WRAP certifies factories in the apparel, footwear, and sewn-products sector regarding their social responsibility performance. WRAP helps factories achieve this certification by conducting audits and working with factories directly to improve working conditions. AAFA and WRAP work closely with one another on numerous projects and industry events, and it has been wonderful to connect these two internship experiences. For example, I read and studied factory audit reports at WRAP. This allowed me to see fashion companies’ and auditors’ respective perspectives when examining a factory’s social compliance. Something that I took away from both internships is that garment factories could use auditing as an opportunity rather than a burden. By investing time and energy into improving factory working conditions and getting certified by a third-party organization, such as WRAP, a factory can attract more retailers, gain more business, and provide a better working environment for its workers.
Question: How do your learning experiences at FASH help with your internship? Any specific knowledge or skillsets do you find most critical?
Ally:My learning experiences in the UD’s FASH department were what influenced and inspired me to pursue the internship with AAFA and now with WRAP. FASH455 (Global apparel trade and sourcing), specifically, is what sparked my interest in apparel sourcing, supply chain, and trade. Before taking this class, I certainly had not thought about how free trade agreements affect the fashion industry. I found all the sourcing rules of origin such as “yarn-forward” and “fabric-forward” to be interesting and intriguing and I was eager to learn more. That is part of what led me to seek out these fashion opportunities in DC.
What I’ve learned through my time in the FASH department is that there are so many career directions a fashion merchandising degree can take you. Fashion is not all about runway shows and magazines- although those elements are very exciting. Many people often do not think about so many other aspects of the industry, like sourcing and trade. The fashion department at UD does a great job in providing students with a well-rounded education and improving students’ critical thinking skills, writing skills, data analytic skills, as well as other skills useful in preparing us for our future careers.
Being selected as a UD Summer Scholar during the Summer of 2021 was another fascinating and unique learning experience, which allowed me to begin researching an area of the fashion industry that I am most interested in–sustainability. Specifically, working with Dr. Lu, I researched US fashion retailers’ merchandising and marketing strategies for clothing made from recycled materials. I expanded the Summer Scholar’s research project into my master’s thesis which was recently published in the Journal of Fashion Design, Technology and Education. This is super exciting!
Choosing the University of Delaware and its fashion department for my education was the best choice I could have made. I have such positive memories such as my first business of fashion class with Professor Ciotti, my assortment planning and buying class with Professor Shaeffer, where we simulated working for a department store, and Dr. Cao’s sustainability and textile courses. Being Co-President of the Sustainable Fashion Club was also a highlight of my time in the FASH department. All of my coursework and experiences in the FASH department gave me the confidence needed to succeed in my internship and work experiences.
Question: What’s your plan after graduation?
Ally: I am currently nearing graduation from my Master’s program. I am on track to receive my Master’s degree in Spring 2023 (or earlier!). I am looking for full-time job opportunities in the realm of fashion sourcing, sustainability, and supply chain. I am hoping to live in either New York or DC after graduation, depending on what job opportunities become available. I am also keeping an open mind to other locations/job prospects. I am eager and excited to start my career in an industry that I am so passionate about, and I look forward to seeing where the future takes me!
The full interview, conducted by Modaes’ Editor-in-Chief, Iria P. Gestal, is available HERE (in Spanish). Below is an abridged translation.
Question: Fashion brands have reduced their exposure to China markedly in recent years. What has been the turning point?
Sheng: We could interpret fashion companies’ decisions in the context of their overall sourcing diversification strategy. Many companies want to diversify their sourcing base because of the ever-uncertain business environment, ranging from the continuation of the supply chain disruptions, and the Russia-Ukraine war, to the rising geopolitical tensions. As China is one of the largest sourcing bases for many fashion companies, reducing “China exposure” is unavoidable.
Question: Isn’t there a specific concern about sourcing from China?
Sheng: Definitely! The Uyghur Forced Labor Prevention Act (UFLPA), officially implemented in the summer of 2022, is a big deal. For example, back in 2017, around 30% of US cotton apparel came from China. However, because of the new law and concerns about the risk of forced labor, China’s market shares fell to only 10% as of August 2022. One well-known US brand selling jean products cut their sourcing from China to just 1% of the total.
Question: Is it possible that the apparel sector as a whole reaches that point?
Sheng: Whether we like it or not, it is still unlikely to get rid of China from the supply chain entirely in the short to medium terms. Notably, China continues to play a significant role as a supplier of raw textile materials, particularly for leading apparel-exporting countries in Asia like Vietnam, Bangladesh, and Cambodia. Diversifying textile raw materials sourcing will be a longer and more complicated process.
Question: Is the “China Plus One” strategy no longer enough?
Sheng: The “China Plus One” strategy does not necessarily mean companies only source from “two” countries. Instead, the phrase refers to companies’ sourcing diversification strategy, trying to avoid “putting all eggs in one basket.” However, neither is the case that fashion companies blindly source from more countries today. Notably, many companies attempt to leverage a stronger relationship with key vendors to mitigate sourcing risks and achieve more sourcing flexibility and agility. For example, fashion companies increasingly tend to work with the so-called “super vendors,” i.e., those with multiple country presence and vertical manufacturing capabilities.
Question: Some politicians have said that the war in Russia has been the “geopolitical awakening” of Europe. Has the same thing happened in fashion?
Sheng: Indeed! We say fashion is a “global sector” because companies “produce anywhere in the world and SELL anywhere in the world.” However, many fashion brands and retailers have had to leave Russia due to the war and geopolitics. The same could apply to China—for example, China’s zero-COVID policy has posed a dilemma for western fashion companies operating there—whether to stay or leave the country, which used to be regarded as one of the fastest-growing emerging consumer markets. Likewise, more and more fashion companies have chosen to develop “dual supply chains” in response to the geopolitical tensions between China and the West—“made in China for China” and “made elsewhere for the rest of the world/Western market.” However, we must admit that this is not an ideal way to optimize the global supply chain.
Question: Has the apparel sector been “naïve” until now, ignoring these risks?
Sheng: I do not think so. In fact, most fashion companies and their leaders closely watch world affairs. As I recall, some visionary companies started evaluating geopolitics’ supply chain implications last year. Indeed, a peaceful world with few trade barriers is an ideal business environment for fashion companies. Unfortunately, there are too many “black swans” to worry about these days. As another example, “friend-shoring,” meaning only trading with allies or “like-minded” countries, becomes increasingly popular today. This phenomenon is also the result of geopolitics. With the looming of a new cold war (or the winter is already here), fashion companies may need to use imagination and prepare for the “worst scenarios” to come.
Question: Is a textile and apparel supply without China a more expensive one?
Sheng: It depends on how to look at it. The most challenging part of “reducing China exposure” is the textile raw materials. But we could think outside the box. For example, my recent studies show that China is NOT the top supplier of clothing made from recycled textile materials. Instead, fashion companies are more likely to source such products locally from the US or EU, or Africa—like Jordan, Tunisia, and Morocco, because of the unique supply chain composition. In other words, sourcing more clothing made from recycled textile materials may help fashion companies achieve several long-awaited goals, such as diversifying sourcing base, expanding nearshoring, and reducing sourcing costs.
Patrick Fox, Senior Director, Customs and Trade Strategy, VF Corporation
Cen Williams, Hub Leader for Africa and Middle East region, PVH
Greg Poole, Chief Sourcing Officer, The Children’s Place
Background:
Trade preference programs provide duty-free US market access to selected exports of eligible developing countries. Unlike free trade agreements, all preference programs are unilateral, meaning they do not require reciprocal trade concessions.
There are five major trade preference programs enacted in the United States, including:
Generalized System of Preferences (GSP), which applies to developing countries as a whole. However, the US GSP program excludes most textile and apparel products due to import competition concerns. GSP expired on December 31, 2020 and Congress is working with stakeholders to renew the program.
Four trade preference programs that target specific regions, including the Andean Trade Preference Act (APTA), the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), the African Growth and Opportunity Act (AGOA), and the Haitian Opportunity through Partnership Encouragement (HOPE) Act. In 2021, about 2% of US apparel imports came from trade preference partners.
US trade preferences reflect both economic development and foreign policy goals. In addition to the economic benefits, eligibility criteria create incentives for beneficiary countries to support objectives such as adopting and enforcing internationally recognized worker rights, reducing barriers to investment, and enforcing intellectual property rights.
However, the trade preference program is not without controversies. For example, it is debatable whether the trade preference program effectively enhances the genuine export competitiveness of developing countries. Also, despite preferential duty benefits, US fashion companies often hesitate to source more from trade preference partners due to concerns about a lack of critical infrastructure, limited production capacity, and political instability.
This study offers valuable input and practical policy recommendations from U.S. apparel companies’ perspectives regarding expanding U.S. apparel sourcing from CAFTA-DR members. For the study, we consulted executives at 27 leading U.S.-based apparel companies (note: 85% report having annual revenues exceeding $500 million; over 95% have been sourcing apparel from the CAFTA-DR region for more than ten years).
The results confirm that expanding U.S. apparel sourcing from CAFTA-DR could be the best chance to effectively create more jobs in Central America and solve the root causes of migration there. To achieve this goal, we need to focus on four areas:
First, improve CAFTA-DR’s apparel production capacity and diversify its product offers.
As many as 92 percent of respondents report currently sourcing apparel from CAFTA-DR members.
Highly consistent with the macro trade statistics, the vast majority of respondents (i.e., 60 percent) place less than 10 percent of their company’s total sourcing orders with CAFTA-DR members.
Whereas respondents rate CAFTA-DR members overall competitive in terms of “speed to market,” they express concerns about CAFTA-DR countries’ limited production capacity in making various products. As a result, U.S. companies primarily source basic fashion items like T-shirts and sweaters from the region. These products also face growing price competition with many alternative sourcing destinations.
Improving CAFTA-DR’s production capacity and diversifying product offers would encourage U.S. apparel companies to move more sourcing orders from Asia to the region permanently.
Second, practically solve the bottleneck of limited textile raw material supply within CAFTA-DR and do NOT worsen the problem.
The limited textile raw material supply within CAFTA-DR is a primary contributing factor behind the region’s stagnated apparel export volume and a lack of product diversification.
Notably, respondents say for their apparel imports from CAFTA-DR members, only 42.9% of fabrics, 40.0% of sewing threads, and 23.8% of accessories (such as trims and labels) can be sourced from within the CAFTA-DR area (including the United States). CAFTA-DR’s textile raw material supply problem could worsen as the U.S. textile industry switches to making more technical textiles and less so for apparel-related fabrics and textile accessories.
Maintaining the status quo or simply calling for making the CAFTA-DR apparel supply chain more “vertical” will NOT automatically increase the sourcing volume. Instead, allowing CAFTA-DR garment producers to access needed textile raw materials at a competitive price will be essential to encourage more U.S. apparel sourcing from the region.
Third, encourage more utilization of CAFTA-DR for apparel sourcing.
CAFTA-DR plays a critical role in promoting U.S. apparel sourcing from the region. Nearly 90 percent of respondents say the duty-free benefits provided by CAFTA-DR encourage their apparel sourcing from the region.
The limited textile supply within CAFTA-DR, especially fabrics and textile accessories, often makes it impossible for U.S. companies to source apparel from the region while fully complying with the strict “yarn-forward” rules of origin. As a result, consistent with the official trade statistics, around 31 percent of respondents say they sometimes have to forgo the CAFTA-DR duty-free benefits when sourcing from the region.
Respondents say the exceptions to the “yarn-forward” rules of origin, including “short supply,” “cumulation,” and “cut and assemble” rules, provide necessary flexibilities supporting respondents’ apparel sourcing from CAFTA-DR members. Around one-third of respondents utilize at least one of these three exceptions when sourcing from CAFTA-DR members when the products are short of meeting the strict “yarn-forward” rules of origin. It is misleading to call these exceptions “loopholes.”
Fourth, leverage expanded apparel sourcing to incentivize more investments in the CAFTA-DR region’s production and infrastructure.
U.S. apparel companies are interested in investing in CAFTA-DR to strengthen the region’s sourcing and production capacity. Nearly half of respondents explicitly say they will make investments, including “building factories or expanding sourcing or manufacturing capacities” in the CAFTA-DR region through 2026.
CAFTA-DR will be better positioned to attract long-term investments in its textile and apparel industry with a sound and expanded apparel sourcing volume.
In February and March of 2022, the Office of the United States Trade Representative (USTR) organized and hosted a series of four webinars on CAFTA-DR trade in textiles and apparel. The objective was to enhance stakeholder understanding of the textile and apparel provisions of CAFTA-DR and identify opportunities for increasing and diversifying two-way trade between the United States and CAFTA-DR partner countries.
Webinar 1: Trends and Opportunities in CAFTA-DR Textile and Apparel Trade
Webinar 2: Making Use of CAFTA-DR’s Rules of Origin for Apparel
Webinar 3: The CAFTA-DR Short Supply Mechanism: What It Is and How To Use It
Webinar 4: Understanding Customs Claims and Customs Verifications in CAFTA-DR
Note: According to the 2022 USFIA Fashion Industry Benchmarking Study, US fashion companies demonstrate new excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). More than 60 percent of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.
Respondents also say the exceptions to the “yarn-forward” rules of origin, such as the “short supply” and “cumulation” mechanisms, provide essential flexibility that encourages more apparel sourcing from CAFTA-DR members.
However, U.S. apparel sourcing from CAFTA-DR has yet to achieve its full potential. For example, measured in value, only 10.2% of US apparel imports came from CAFTA-DR members in May 2022 (and 9.7% year to date), almost no change from 10.6% in 2021. Meanwhile, the CAFTA-DR utilization rate for apparel imports was stagnant at about 75%-80% since 2015, meaning 20-26 percent of U.S. apparel imports from CAFTA-DR members did NOT claim preferential duty benefits every year.
U.S. fashion companies report significant challenges coming from the macro-economy in 2022, particularly inflation and rising cost pressures. However, most respondents still feel optimistic about the next five years.
Respondents rated “increasing production or sourcing costs” and “inflation and outlook of the U.S. economy” as their 1st and 3rd top business challenges in 2022.
As a new record, 100 percent of respondents expect their sourcing costs to increase in 2022, including nearly 40 percent expecting a substantial cost increase from a year ago. Further, almost everything has become more expensive this year, from textile raw materials, shipping, and labor to the costs associated with compliance with trade regulations.
Over 90 percent of respondents expect their sourcing value or volume to grow in 2022, but more modest than last year.
Despite the short-term challenges, most respondents (77 percent) feel optimistic or somewhat optimistic about the next five years. Reflecting companies’ confidence in their businesses, nearly ALL respondents (97 percent) plan to increase hiring over the next five years.
U.S. fashion companies adopt a more diverse sourcing base in response to supply chain disruptions and the need to mitigate growing sourcing risks.
Asia remains the dominant sourcing base for U.S. fashion companies—eight of the top ten most utilized sourcing destinations are Asia-based, led by China, Vietnam, Bangladesh, and India.
More than half of respondents (53 percent) report sourcing apparel from over ten countries in 2022, compared with only 37 percent in 2021.
Reducing “China exposure” is one crucial driver of U.S. fashion companies’ sourcing diversification strategy. One-third of respondents report sourcing less than 10% of their apparel products from China this year. In addition, a new record of 50 percent of respondents sources MORE from Vietnam than China in 2022.
Nearly 40 percent of respondents plan to “source from more countries and work with more suppliers” over the next two years, up from only 17 percent last year.
Managing the risk of forced labor in the supply chain is a top priority for U.S. fashion companies in 2022, especially with the new implementation of the Uyghur Forced Labor Prevention Act (UFLPA).
Over 95 percent of respondents expect UFLPA’s implementation to affect their company’s sourcing. Notably, more than 85 percent of respondents plan to cut their cotton-apparel imports from China, and another 45 percent to further reduce non-cotton apparel imports from the country.
Most respondents (over 92 percent) do NOT plan to reduce apparel sourcing from Asian countries other than China. However, nearly 60 percent of respondents also would “explore new sourcing destinations outside Asia” in response to UFLPA.
Mapping and understanding the supply chain is a critical strategy adopted by U.S. fashion companies to address the forced labor risks in the supply chain. Almost all respondents currently track Tier 1 and 2 suppliers. With the help of new traceability technologies, 53 percent of respondents have started tracking Tier 3 suppliers this year (i.e., those manufacturing yarn, threads, and trimmings), a substantial increase from 25-36 percent in the past.
There is considerable new excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). Respondents also call for more textile raw sourcing flexibility to encourage apparel sourcing from the CAFTA-DR region.
CAFTA-DR plays a more significant role as a sourcing base. About 20 percent of respondents place more than 10% of their sourcing orders from the region, doubling from 2021.
Over the next two years, more than 60 percent of respondents plan to increase apparel sourcing from CAFTA-DR members as part of their sourcing diversification strategy.
CAFTA-DR is critical in promoting U.S. apparel sourcing from the region. Around 80 percent of respondents took advantage of the agreement’s duty-free benefits when sourcing apparel from the region this year, up from 50—60 percent in the past.
Respondents say the exceptions to the “yarn-forward” rules of origin, such as the “short supply” and “cumulation” mechanisms, provide essential flexibility that encourages more apparel sourcing from CAFTA-DR members.
Respondents say improving textile raw material supply is critical to encouraging more U.S. apparel sourcing from CAFTA-DR members. Particularly, “allowing more flexibility in souring fabrics from outside CAFTA-DR” and “improving yarn production capacity and variety within CAFTA-DR” are the top two priorities.
U.S. fashion companies strongly support another ten-year renewal of the African Growth and Opportunity Act (AGOA). Meanwhile, Ethiopia’s loss of AGOA eligibility discourages U.S. apparel sourcing from the ENTIRE AGOA region.
As much as 75 percent of respondents say another ten-year AGOA renewal will encourage more apparel sourcing from the region and making investment commitments.
However, despite the tariff benefits and the liberal rules of origin, respondents express explicit concerns about the region’s lack of competitiveness in speed to market, political instability, and having an integrated regional supply chain.
Ethiopia’s loss of AGOA benefits had a notable negative impact on sourcing from the country AND the entire AGOA region. Notably, no respondent plans to move sourcing orders from Ethiopia to other AGOA beneficiaries.
Congress might assess the U.S. experience with the Phase One process as it debates the merits of the deal and how to leverage it, the effects of the tariffs, and options to advance U.S. economic interests and counter China’s persistent statist economic practices. Specifically:
In light of how difficult it was to secure China’s acknowledgment of its practices of concern and limited commitments in these areas, to what extent may the U.S. reasonably expect talks with Beijing to achieve outcomes that further U.S. policy objectives, when measured against the U.S. resources and efforts required? Does focusing on talks with China take U.S. focus and resources away from efforts to deploy or develop U.S. trade tools and joint approaches with other countries that might be required to protect and advance U.S. economic interests?
Is the executive branch fully using its authorities to address its concerns about China? Are other approaches and measures needed in addition to or separate from tariffs, and if so, what are they? Should the USTR use Section 301 to address other concerns, such as subsidies? What approaches could be pursued, such as prior efforts with Europe and Japan to address non-market economic distortions and subsidies?
Should Congress require the USTR to enforce the Phase One provisions and actively use the Phase One dispute process? Should the USTR challenge China’s industrial policies that appear to violate commitments not to require technology transfer, and its efforts to set global technology licensing and pricing terms, such as through its courts?
How might Congress weigh the tariffs’ effects on U.S. firms and consumers against issues of economic competitiveness? To what extent are tariffs inflationary compared to drivers such as food, energy, housing, labor and supply chain shortages, and monetary policy?
Could tariffs help diversify China-based supply chains and counter China’s subsidies by raising costs vis-à-vis U.S. and third-market products? Could tariffs on goods tied to China’s industrial policies help level the playing field, or would this violate U.S. trade commitments and encourage others to follow suit? USTR proposed but never enacted tariffs on consumer electronics. Could these tariffs counter China’s efforts to deepen technology supply chains in China?
Congress could engage with the Administration to develop and implement guidelines for when and how to grant and extend exclusions. This could potentially promote transparency, consistency, and proper application of standards in reviewing requests, thereby helping to ensure that the USTR carries out Section 301 objectives as prescribed by Congress
What role should Congress play in the negotiation and consideration of an IPEF and other regional trade initiatives? What regional and other multilateral trade commitments would best serve U.S. economic and strategic interests in the region?
What types of enforcement mechanisms would an IPEF include and how would its commitments and enforceability compare to CPTPP and U.S. free trade agreements? What are the tradeoffs of these approaches and should they be pursued in tandem?
How does the expiration of U.S. Trade Promotion Authority (TPA) affect the Administration’s approach to scoping, negotiating, and enacting an IPEF and trade agreements?
AGOA reauthorization. AGOA is authorized through September 2025. US Trade Representative Katherine Tai has urged consideration of improvements to encourage investment, and help small and women-owned businesses and more countries make use of the program. Congress may consider whether and when to reauthorize AGOA and if reforms are needed.
Free trade agreement (FTA) negotiations. An FTA with an AGOA-eligible country would have implications for AGOA and U.S. trade relations in the region. As the Administration, in consultation with Congress, determines whether to pursue trade negotiations in the region, including with Kenya, key considerations include: (1) what flexibilities from typical U.S. FTA commitments are appropriate; (2) potential effects on broader AGOA utilization; and (3) potential effects on regional initiatives like the African Continental Free Trade Area(AfCFTA).
Increased U.S. tariffs. The Trump administration imposed tariff increases (Section 232) on steel and aluminum imports. Congress may examine the tariffs’ effects on AGOA participants.
Third-party agreements. Reciprocal agreements between AGOA beneficiaries and third parties (e.g., EU-South Africa) may disadvantage U.S. exporters. Congress may examine possible U.S. responses.
Congress may consider and advise the Administration on how to prioritize free trade agreement (FTA) talks with Kenya among other U.S. trade policy objectives; whether and in what form to seek renewal of the Trade Promotion Authority (TPA); the scope and extent of potential U.S.-Kenya FTA commitments to pursue; how to ensure an FTA with Kenya and its rules of origin support regional integration efforts and U.S. economic interests; and the potential types of support (e.g., trade capacity building funds) and flexibilities (e.g., phasing in of commitments) to include as appropriate to Kenya’s level of development)
Congress may continue to monitor U.S. trade and economic interests at stake in the UK-EU Trade and Cooperation Agreement (TCA)’s implementation. It may consider whether to press the Administration to continue to prioritize resolving specific trade issues and/or renew broader U.S-UK free trade agreement negotiations. In doing so, Congress may examine the potential benefits and costs of further U.S.-UK trade liberalization (or its absence) for the firms and workers in their districts and states.
Many in Congress and in the U.S. industry support a U.S.-UK FTA. Many Members tie their support to ensuring that Brexit outcomes do not undermine the Northern Ireland peace process. A potential TPA renewal debate could heighten these issues. If FTA talks proceed, Congress may monitor and shape them, and consider implementing legislation for a final agreement. Additionally, Members may examine other ways to engage further on bilateral and global trade issues of shared concern, e.g., sectoral regulatory cooperation or dialogues.
The GSP program expired on December 31, 2020. Congress is considering several bills to reauthorize and introduce new eligibility criteria to the program. Some of the proposed eligibility criteria include provisions on human rights, environmental laws, and good governance. Supporters of the proposed eligibility criteria consider it a modernization of the GSP program to address modern-day issues. Others raise concerns that adding new criteria may make the costs of complying with the program outweigh the benefits and discourage beneficiary developing countries’ participation. They may also undermine the core objectives of the program, which is to promote economic development through trade.
Other possible options for GSP include:
Support reciprocal tariff and market access benefit through free trade agreements (FTAs). Some U.S. policymakers have suggested that developing countries might benefit more through WTO multilateral negotiations, FTAs, or some form of agreement that could also provide reciprocal trade benefits and improved market access for the United States.
Authorize GSP only for Least-Developed Countries (LDCs). Narrowing the scope of eligibility could benefit the LDC that remains in the program by reducing competition in the U.S. market from more advanced developing countries. Assuming that many LDCs would continue to receive the GSP preference under AGOA, other LDCs that might benefit from an LDC-only GSP program are Afghanistan, Bhutan, Burma, Burundi, Cambodia, Congo (Kinshasa), Haiti, Kiribati, Mauritania, Nepal, Samoa, Somalia, South Sudan, the Solomon Islands, Timor-Leste,Tuvalu, and Vanuat.
Expand the application of GSP. For example, allow some import-sensitive products to receive preferential access (such as apparel). Increase the flexibility of rules of origin (ROO) requirements. For example, allow more GSP beneficiaries to cumulate inputs with other beneficiaries to meet the 35% domestic content requirement or lower the domestic content requirement. Eliminate competitive need limitations or raise the thresholds. Reauthorize GSP for longer terms or make the program permanent.
Restrict Application of Preferences. For example: Consider mandatory graduation for “middle income.” Strengthen provision that allows graduation of individual industry sectors within beneficiary countries. Reform eligibility criteria to strengthen provisions on worker rights as well as introduce new criteria, such as good governance, gender equality, and environmental law and regulation.
Congress may examine and weigh in on the TTC’s structure, priorities and scope, and prospects for “success.”
TTC’s anticipated prioritization of more recent or urgent issues (such as joint responses to Russia’s aggression in Ukraine), compared to other bilateral trade and technology issues (such as digital inclusion) that were priorities at the time of the TTC launch. Congress may explore potential trade-offs in priorities and/or opportunities to expand the TTC, such as by creating additional working groups or structures to sustain intensified cooperation on major bilateral trade issues. This may include a review of whether to modify the scope of the TTC’s working groups to address bilateral tariffs and other market access issues. Congress also may explore opportunities through the TTC to intensify U.S.-EU cooperation to remove regulatory barriers.
Congress may examine the TTC’s prospects for success and its ability to produce concrete outcomes, and also seek to establish the metrics by which to gauge the TTC’s effectiveness.
Congress may examine whether to pursue potential market opening opportunities through the TTC for future formal US-EU FTA talks, or pursue such talks separately. On one hand, potential FTA negotiations that develop out of the TTC could benefit from the intensified cooperation and renewed trust that the TTC may foster. On the other hand, such talks may be limited if they do not address bilateral tariffs or other market access issues.
Textile and apparel manufacturing in the U.S. has significantly shrunk in size over the past decades due to multiple factors ranging from automation, import competition to the shifting U.S. comparative advantages for related products. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $16.59 billion in 2021, up 23.8% from 2009. In comparison, U.S. apparel manufacturing dropped to $9.5 billion in 2019, 4.4% lower than ten years ago (Bureau of Economic Analysis, 2021).
Meanwhile, like many other sectors, U.S. textile and apparel production was hit hard by COVID-19 in the first half of 2020 but started to recover in the 3rd quarter. Notably, as of December 2021, U.S. textile production had returned to its pre-COVID level.
On the other hand, as the U.S. economy is turning more mature and sophisticated, the share of U.S. textile and apparel manufacturing in the U.S. Gross Domestic Product (GDP) dropped to only 0.12% in 2020 from 0.57% in 1998 (Bureau of Economic Analysis, 2021).
The U.S. textile and apparel manufacturing is changing in nature. For example, textile products had accounted for over 66% of the total output of the U.S. textile and apparel industry as of 2019, up from only 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some product categories that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven. These products are also becoming the new growth engine of U.S. textile exports. Notably, “special fabrics and yarns” had accounted for more than 34% of U.S. textile exports in 2019, up from only 20% in 2010 (Data source: UNComtrade, 2021).
Compatible with the production patterns, employment in the U.S. textile industry (NAICS 313 and 314) and apparel industry (NAICS 315) fell to the bottom in April-May 2020 due to COVID-19 but started to recover steadily since June 2020. From January 2021 to December 2021, the total employment in the two sectors increased by 4.5% and 4.2%, respectively (Seasonally adjusted). However, the employment level remains much lower than the pre-COVID level (benchmark: December 2019).
To be noted, as production turns more automated and thanks to improved productivity (i.e., the value of output per worker), U.S. textile and apparel factories have been hiring fewer workers even before the pandemic. The downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector. Related, how to attract the new generation of workforce to the factory floor remains a crucial challenge facing the future of textile and apparel “Made in the USA.”
It is not rare to find clothing labeled “made in the USA with imported fabric” or “made in the USA with imported material” in the stores. Statistical analysis shows a strong correlation between the value of U.S. apparel output and U.S. yarn and fabric imports from 1998 to 2019.
Like many other developed economies whose textile and apparel industries had reached the stage of post-maturity, the United States today is a net textile exporter and net apparel importer. COVID-19 has affected U.S. textile and apparel trade in several ways:
Trade volume fell and yet fully recovered: Both affected by the shrinkage of import demand and supply chain disruptions, the value of U.S. textile and apparel imports dropped by as much as 19.3% in 2020 from a year ago, particularly apparel items (down 23.5%). Likewise, the value of U.S. textile and apparel exports in 2020 decreased by 15.6%, including an unprecedented 26% decrease in yarn exports. Further, thanks to consumers’ robust demand, the value of US apparel imports enjoyed a remarkable 27.4% growth in 2021 from a year ago and but was still 2.5% short of the level in 2019.
Trade balance shifted: Before the pandemic, U.S. was a net exporter of fabrics. However, as the import demand for non-woven fabrics (for making PPE purposes) surged during the pandemic, U.S. ran a trade deficit of $502 million for fabrics in 2020; the trade deficit expanded to $975 million in 2021. Meanwhile, as retail sales slowed and imports dropped during the pandemic, the U.S. trade deficit in apparel shrank by 19% in 2020 compared with 2019. However, the shrinkage of the trade deficit did not necessarily boost clothing “Made in the USA” in 2020, reminding us that the trade balance often is not an adequate indicator to measure the economic impact of trade.
No change in export market: More than 70% of U.S. textile and apparel export went to the Western Hemisphere in 2021, a pattern that has stayed stable over the past decades (OTEXA, 2022). More can be done to strengthen the Western Hemisphere supply chain and textile and apparel production in the region by leveraging regional trade agreements like CAFTA-DR and USMCA.
In April 2022, the Office of the United States Trade Representative (USTR) released its 2023 Fiscal Year Budget report, outlining five goals and objectives for 2023. Notably, textile and apparel is a key sector USTR plans to focus on in the coming year:
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.
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.
Engage relevant trade partners to address regulatory issues potentially affecting the U.S. textile and apparel industry’s market access opportunities.
Continue to engage under CAFTA-DR working groups and committees to optimize inclusive economic opportunities; strengthen the agreement and address non-tariff trade impediments; provide capacity building in textile and apparel trade-related regulation and practice on customs, border and market access issues, including agriculture and sanitary and phytosanitary regulation, to avoid barriers to trade.
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 to enhance formal job creation.
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.
Research and monitor policy support measures for the textile sector, in particular in China, India, and other large textile producing and exporting countries, to ensure compliance with international agreements.
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.
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.
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By leveraging production and trade statistics from government databases, we examined the critical trends of US textile manufacturing and supply. Particularly, we try to understand the strengths and weaknesses of the United States as a textile raw material supplier for domestic garment manufacturers and those in the Western Hemisphere. Below are the key findings:
First, fiber, yarn, and thread manufacturing is a long-time strength in the US, whereas fabric production is much smaller in scale. Specifically, fiber, yarn, and thread (NAICS 31311) accounted for nearly 18% of US textile mills’ total output in 2019. In comparison, less than 13% of the production went to woven fabrics (NAICS 31321) and only about 5% for knit fabrics (NAICS 31324).
Second, the US textile industry shifts to make more technical textiles and less apparel-related yarns, fabrics, and other raw materials. Data shows that from 2015 to 2019, the value of US fiber, yarn, and thread manufacturing (NAICS code 31311) dropped by as much as 16.8 percent. Likewise, US broadwoven fabric manufacturing (NAICS code 31321) and knit fabric (NAICS code 31324) decreased by 2.0 percent and 2.7 percent over the same period. Labor cost, material cost, and capital expenditure are critical factors behind the structural shift of US textile manufacturing.
Third, the structural change of US textile manufacturing directly affects the role of the US serving as a textile supplier for domestic apparel producers and those in the Western Hemisphere.
On the one hand, the US remains a critical yarns and threads supplier in the Western Hemisphere. For example, from 2010 to 2019, the value of US fibers, yarn and threads exports (NAICS31311) increased by 25%, much higher than other textile categories. Likewise, in 2021, fibers, yarns, and threads accounted for about 23.3% of US textile exports, higher than 21.0% in 2010. Additionally, nearly 40% of Mexico and CAFTA-DR members’ yarn imports in 2021 (SITC 651) still came from the US, the single largest source. This trend has stayed stable over the past decade.
On the other hand, the US couldn’t sufficiently supply fabrics and other textile accessories for garment producers in the Western Hemisphere, and the problem seems to worsen. Corresponding to the decline in manufacturing, US broadwoven fabric (NAICS 31321) and knit fabric (NAICS 31324) exports decreased substantially.
The US also plays a declining role as a fabric and textile accessories supplier for garment factories in the Western Hemisphere. Garment producers in Mexico and CAFTA-DR members had to source 60%-80% of woven fabrics and 75-82% of knit fabrics from non-US sources in 2021. Likewise, only 40% and 14.6% of Mexico and CAFTA-DR members’ textile accessories, such as labels and trims, came from the US in 2021.
Likewise, the limited US fabric supply affects the raw material sourcing of domestic apparel manufacturers. For example, according to the “Made in the USA” database managed by the Office of Textiles and Apparel (OTEXA), around 36% of US-based apparel mills explicitly say they use “imported material,” primarily fabrics.
The study’s findings echo some previous studies suggesting that textile raw material supply, especially fabrics and textile accessories, could be the single most significant bottleneck preventing more apparel “Made in the USA” and near-sourcing from the Western Hemisphere.
Meanwhile, how to overcome the bottleneck could trigger heated public policy debate. For example, US policymakers could encourage an expansion of domestic fabric and textile accessories manufacturing as one option. However, to make it happen takes time and requires substantial new investments. Also, economic factors may continue to favor technical textiles production over apparel-related fabrics in the US.
As an alternative, US policymakers could make it easier for garment producers in the Western Hemisphere to access their needed fabrics and textile accessories outside the US, such as improving the rules of origin flexibility in CAFTA-DR or USMCA. But this option is likely to face strong opposition from US yarn producers and be politically challenging to implement.
(About the authors: Dr Sheng Lu is an associate professor in fashion and apparel studies at the University of Delaware; Anna Matteson is a research assistant in fashion and apparel studies at the University of Delaware).
(The following comments are from students in FASH455 based on the readings)
Yes, US fashion companies should continue to diversify their apparel sourcing bases in 2022 because…
“It is said that you never keep all your eggs in one basket. If something happens in one of the countries that brands are sourcing from, whether it’s economically or politically, their business could be in jeopardy because they have no other sourcing bases anywhere else. As we see now with the Russian and Ukraine War, anything can happen at any time, and huge businesses like Mcdonalds and Starbucks have shut down their stores in Russia. Having connections in the business world is what takes a company further and makes them wealthier.
“The demand for sustainability and transparencyis only rising from consumers and this is causing brands to need to take accountability and action for more ethical sourcing. In order for brands to find factories that will work with the stricter regulations and policies, it may require them to find different and new locations and countries to work with.”
“The pandemic proved to be detrimental to brands only sourcing from a few countries. Pandemic lockdowns and government restrictions were harmful to companies that did not have a diverse sourcing base… A diverse sourcing base will allow companies to have the ability to continue to source new products in case of government lockdowns in other sourcing nations.”
“I think that US fashion companies should continue to diversify their sourcing base in 2022 to benefit other developing countries who are looking to build their economy. The majority of apparel sourcing is done out of China and Vietnam. A diverse apparel sourcing base would be a great way to take the heat off of these countries and benefit others.”
“I think fashion companies should continue to diversify their sourcing bases because it can help them remain competitive while stillkeeping costs down. Keeping costs down can also help prevent giant unpredictable spikes. Lastly, the company will have more flexibility if they are diverse because they won’t be relying on a single source and won’t run into issues if that single source fails.”
“I understand the argument that it is easier for smaller companies to produce solely in China seeing as it can be seen as a one-stop-shop. I also understand why some companies are looking to bring their sourcing closer together and closer to home to mitigate some of the sourcing costs. However, I find this view to be short-sighted and will be detrimental to companies in the long run. As we saw with the pandemic, diversification is helpful in the wake of disaster. If one country is suffering from a natural, economic, or political disaster it would be helpful to have production capabilities in other countries. This way if production is shut down in one country, it is not as detrimental to obtaining products because you can lean on the factories in other countries. I personally would rather wait out the incredibly high costs, which will hopefully go down soon, and keep my sourcing base diversified to be better prepared for unforeseen challenges in the future.”
No, US fashion companies should consolidate their apparel sourcing bases in 2022 because…
“US companies need to work on reducing the number of factories to increase sustainability and labor efforts. It would not be beneficial for the industry to continue to expand their sourcing bases, as that allows for less transparency with consumers. By diversifying their sourcing base they are proving to their consumers they only care about costs and how their clothing is affecting the environment.”
“I do not think US fashion companies should continue to diversify their sourcing base in 2022. These fashion companies should rather focus on nearshoring and local-to-local supply chain. Many retailers are interested in nearshoring as it helps eliminate the need to order months ahead, as the merchandise will have a shorter distance to travel. On top of this, many consumers want transparency and fast delivery. By sourcing more locally, fashion companies will be able to provide shorter shipping times as well as be more aware of sustainability in the supply chain and will then be able to relay the information to the consumers.”
“The very diverse sourcing base is exactly why some fashion companies struggled with supply chain disruptions and shipping delays. As the business environment remains highly uncertain, why not cut ties with some high-risk countries and only source products from the most secure and stable sourcing bases?”
“The present sourcing techniques used by US fashion corporations need to be refined and improved. The number of factories used for sourcing has to be reduced in order to improve sustainability and labor efforts. Increasing the number of sourcing bases does not benefit the industry since it reduces customer trust in the supply chain.”
“From trade data, it seems the top apparel suppliers to the US market barely changed—China, Vietnam, Bangladesh, Cambodia, Indonesia, or India. So, realistically, if a company intends to diversify sourcing, where else can they go?”
“During the pandemic, many US companies focused on strengthening their relationships with key vendors to gain a competitive advantage to achieve more flexibility in sourcing. It worked, then why companies should give up this strategy in 2022? Also, I think it would be wise for fashion companies to give MORE rewards to business partners that helped them survive the difficult times, rather than give sourcing orders to “new vendors”…further, using long-term loyalty and fiscal leverage with strategic business partners as an advantage could prove to be a good option for companies looking to obtain high production capacity, low prices, flexibility, and speed to market from their suppliers.”
Discussion questions:
Which side do you agree with or disagree with and why? What is your recommendation for US fashion companies regarding their apparel sourcing diversification strategies in 2022? Please join our online discussion and leave your comments.
As US fashion companies diversify their sourcing from Asia, near-sourcing from the Western Hemisphere, particularly members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) seems to benefit. According to the latest trade data from the Office of Textiles and Apparel (OTEXA), US apparel companies placed relatively more sourcing orders with suppliers in the Western Hemisphere in 2021. For example, CAFTA-DR members’ market shares increased by 0.31 percentage points in quantity and nearly one percentage point in value compared with a year ago.
However, it is concerning to see the utilization rate of CAFTA-DR for apparel sourcing fall to a new record low of only 73.7% in 2021. This means that as much as 26.3% of US apparel imports from CAFTA-DR members did NOT claim the duty-free benefits.
The lower free trade agreement (FTA) utilization rate became a problem, particularly among CAFTA-DR members with fast export growth to the US market in 2021. For example, whereas US apparel imports from Honduras enjoyed an impressive 45.6% growth in 2021, only 72.6% of these imports claimed the CAFTA-DR duty benefits, down from 82.3% a year ago. We can observe a similar pattern in El Salvador, Nicaragua, and the Dominican Republic.
The phenomenon is far from surprising, however. For years, US fashion companies have expressed concerns about the limited textile supply within CAFTA-DR, especially fabrics and textile accessories. The lack of textile supply plus the restrictive “yarn-forward” rules of origin in the agreement often creates a dilemma for US fashion companies: either source from Asia entirely or source from CAFTA-DR but forgo the duty-saving benefits.
Likewise, because of a lack of sufficient textile supply within the region, US apparel imports from CAFTA-DR members become increasingly concentrated on basic fashion items, typically facing intense competition with many alternative sourcing destinations. For example, measured in value, over 80% of US apparel imports from CAFTA-DR members in 2021 were shirts, trousers, and underwear. However, US companies import the vast majority (70%-88%) from non-CAFTA-DR sources for these product categories.
Understandably, it will be unlikely to substantially expand US apparel sourcing from CAFTA-DR members without solving the textile supply shortage problem facing the region.
Data shows that 15.2% of US apparel imports came from USMCA and CAFTA-DR members YTD in 2021 (January-August), higher than 13.7% in 2020 and about 14.7% before the pandemic (2018-2019). Notably, CAFTA-DR members’ market shares increased to 11% in 2021 (January to Aug) from 9.6% in 2020. The value of US apparel imports from CAFTA-DR also enjoyed a 54% growth in 2021 (January—Aug) from a year ago, faster than 25% of the world’s average.
#2 Sourcing apparel from USCMA and CAFTA-DR members helps US fashion brands and retailers save around $1.6-1.7 billion tariff duties annually. (note: the estimation considers the value of US apparel imports from USMCA and CAFTA-DR members at the 6-digit HTS code level and the applied MFN tariff rates for these products; we didn’t consider the additional Section 301 tariffs US companies paid for imports from China). Official trade statistics also show that measured by value, about 73% of US apparel imports under free trade agreements came through USMCA (25%) and CAFTA-DR (48%) from 2019 to 2020.
#3 US apparel imports from USMCA and CAFTA-DR members do NOT necessarily focus on items subject to a high tariff rate. Measured at the 6-digit HS code level, apparel items subject to a high tariff rate (i.e., applied MFN tariff rate >17%) only accounted for about 8-9% of US apparel imports from USMCA members and 7-8% imports from CAFTA-DR members. In comparison, even having to pay a significant amount of import duties, around 17% of US apparel imports from Vietnam and 10% of imports from China were subject to a high tariff rate (see table below).
The phenomenon suggests that USCMA and CAFTA-DR members still have limited production capacity for many man-made fibers(MMF) clothing categories (such as jackets, swimwear, dresses, and suits), typically facing a higher tariff rate. This result also implies that expanding production capacity and diversifying the export product structure could make USMCA and CAFTA-DR more attractive sourcing destinations.
#4 US apparel imports from USMCA and CAFTA-DR members tend to focus on large-volume items subject to a medium tariff rate. Specifically, from 2017 to 2021 (Jan-Aug), ten products (at the 6-digit HTS code level) typically contributed around half of the US tariff revenues collected from apparel items (HS chapters 61-62). However, the average applied MFN tariff rates for these items were only about 13%. Meanwhile, these top tariff-revenue-contributing apparel items accounted for about 50% of US apparel imports from USMCA members and nearly 64%-69% of imports from CAFTA-DR members.
Likewise, the top ten products (at the 6-digit HTS code level) typically accounted for 65%-68% of US apparel imports from USMCA members and nearly 73-75% of US apparel imports from CAFTA-DR members. These products also had a medium average applied MFN rate at 11-12% for USMCA and 12-13% in the case of CAFTA-DR.
Given the duty-saving incentives, expanding “near-sourcing” from USMCA and CAFTA-DR members could prioritize these large-volume apparel items with a medium tariff rate in short to medium terms. However, in the long run, a shortcoming of this strategy is that many such items are basic fashion clothing that primarily competes on price (such as T-shirts and trousers) and cannot leverage the unique competitive edge of near-sourcing (such as speed to market). When the US reaches new free trade agreements, particularly those involving leading apparel-producing countries in Asia, it could offset the tariff advantages enjoyed by USMCA and CAFTA-DR members and quickly result in trade diversion.
#1: As of June 2021, US textile production had resumed about 98.8% of its production capacity at the pre-COVID level. Based on the readings, why or why not do you think the industry is already “out of the woods”? How to understand the impact of COVID-19 on the international competitiveness of US textile production?
#2: To which extent do you think the state of the US textile and apparel industry and its performance during the pandemic challenge the conclusions of the classic trade and economic development theories we learned in the class (e.g., comparative advantage, factor proportion, the international division of labor, and stage of development theories)? Do you find any trade or production patterns that existing theories cannot fully explain?
#3 Many US fashion companies’ strategies to “consolidate existing sourcing base and strengthen the relationship with key vendors” during the pandemic. What is your evaluation of this strategy—is it a short-term reaction toward COVID-19 or a long-term trend likely to stay? What does this strategy mean for vendors in the apparel supplying countries?
#4: What are the notable changes in fashion companies’ sourcing criteria during the pandemic? How to explain such changes? Who are the winners and losers? Why?
#5: It is of concern that sustainability and social responsibility become a lower priority for the apparel industry during the pandemic, given the unprecedented operational and financial challenges companies face. What is your assessment based on the readings?
#6: What is your vision for the US textile and apparel industry in the post-COVID world? What are the key issues/questions/development trends we shall watch?
(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)
The new law bans the long-standing piece-rate system — 5 cents to sew a side seam, for instance, or 10 cents to sew a neck — that often adds up to less than $6 an hour (source: LA times). From now on, garment workers in California will get a minimum wage of $14 per hour for employers with 26 or more employees.
The new law’s “brand guarantor” provision would extend the liability for wage theft from the factories themselves to the brands and retailers that sell the clothes, as well as any subcontractors in between. In other words, the bill creates new liabilities across California’s clothing supply chain from factory subcontractors to retailers. (source: San Francisco Examiner)
Concerns about Senate Bill 62
According to the American Apparel and Footwear Association (AAFA), the California Garment Worker Protection Act “does not recognize that brands or buyers may have little to no control over how a particular garment factory employer manages their payroll or enterprise finances.” AAFA explains why this new law in actuality could punish good actors:
“Brand Good contracts with Manufacturer Y to manufacture their clothes, paying a good price, more than enough to pay required wages to Manufacturer Y’s employees. However, in an effort to generate more business, Manufacturer Y also takes a low-bid contract from Brand Bad, so low that both Manufacturer Y and Brand Bad know Manufacturer Y will not be able to pay required wages to its employees. Under this bill, Brand Good would be liable for any wage claims resulting from Manufacturer Y’s acceptance of a low-bid contract completely unrelated to its operations.
The legislation would make responsible brands like Brand Good legally liable to pay for wage claims resulting from Manufacturer Y’s and Brand Bad’s unlawful or irresponsible activity. SB 62 will not deter bad actors like Brand Bad from operating in California’s garment manufacturing industry. Instead, it will penalize responsible companies like Brand Good, even though Brand Good did the right thing. As a result, Brand Good, and other responsible brands, will no longer allow their branded garments to be manufactured in California out of fear that they will acquire additional liabilities over activities they don’t control.”
More than 60% of garment factories in the US are based in California.
Discussion question:Based on the video and the readings, what is your view on the California Garment Worker Protection Act? What changes could it bring to the fashion apparel industry and why?
(Disclaimer: All posts on this site are for FASH455 educational and academic research purposes only, and they are nonpolitical and nonpartisan. No blog post intends to either favor or oppose any particular political party/public policy, nor shall be interpreted that way)
As one breaking news, on 16 September 2021, China officially presented its application to join the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). While the approval of China’s membership in CPTPP remains a long shot and won’t happen anytime soon, the debate on the potential impact of China’s accession to the trade agreement already starts to heat up.
Like many other sectors, textile and apparel companies are on the alert. Notably, China plus current CPTPP members accounted for nearly half of the world’s textile and apparel exports in 2020. Many non-CPTPP countries are also critical stakeholders of China’s membership in the agreement. In particular, the Western Hemisphere textile and apparel supply chain, which involves the US textile industry, could face unrepresented challenges once China joins CPTPP.
First, once China joins CPTPP, the tariff cut could provide strong financial incentives for Mexico and Canada to use more Chinese textiles. China is already a leading textile supplier for many CPTPP members. In 2019, as much as 47.7% of CPTPP countries’ textile imports (i.e., yarns, fabrics, and accessories) came from China, far more than the United States (12.1%), the other leading textile exporter in the region.
Notably, thanks to the Western Hemisphere supply chain and the US-Mexico-Canada Trade Agreement (USMCA, previously NAFTA), the United States remains the largest textile supplier for Mexico (48.2%) and Canada (37.2%). Mexico and Canada also serve as the largest export market for US textile producers, accounting for as many as 46.4% of total US yarn and fabric exports in 2020.
However, US textile exporters face growing competition from China, offering more choices of textile products at a more competitive price (e.g., knitted fabrics and man-made fiber woven fabrics). From 2005 to 2019, US textile suppliers lost nearly 20 percentage points of market shares in Mexico and Canada, equivalent to what China gained in these two markets over the same period.
Further, China’s membership in CPTPP means its textile exports to Mexico and Canada could eventually enjoy duty-free market access. The significant tariff cut (e.g., from 9.8% to zero in Mexico) could make Chinese textiles even more price-competitive and less so for US products. This also means the US textile industry could lose its most critical export market in Mexico and Canada even if the Biden administration stays away from the agreement.
Second, if both China and the US become CPTPP members, the situation would be even worse for the US textile industry. In such a case, even the most restrictive rules of origin would NOT prevent Mexico and Canada from using more textiles from China and then export the finished garments to the US duty-free. Considering its heavy reliance on exporting to Mexico and Canada, this will be a devastating scenario for the US textile industry.
Even worse, the US textile exports to CAFTA-DR members, another critical export market, would drop significantly when China and the US became CPTPP members. Under the so-called Western-Hemisphere textile and apparel supply chain, how much textiles (i.e., yarns and fabrics) US exports to CAFTA-DR countries depends on how much garments CAFTA-DR members can export to the US. In comparison, US apparel imports from Asia mostly use Asian-made textiles. For example, as a developing country, Vietnam relies on imported yarns and fabrics for its apparel production. However, over 97% of Vietnam’s textile imports come from Asian countries, led by China (57.1%), South Korea, Taiwan, and Japan (about 25%), as opposed to less than 1% from the United States.
The US textile industry also deeply worries about Vietnam becoming a more competitive apparel exporter with the help of China under CPTPP. Notably, among the CPTPP members, Vietnam is already the second-largest apparel exporter to the United States, next only to China. Despite the high tariff rate, the value of US apparel imports from Vietnam increased by 131% between 2010 and 2020, much higher than 17% of the world average. Vietnam’s US apparel import market shares quickly increased from only 7.6% in 2010 to 16.6% in 2020 (and reached 19.3% in the first half of 2021). The lowered non-tariff and investment barriers provided by CPTPP could encourage more Chinese investments to come to Vietnam and further strengthen Vietnam’s competitiveness in apparel exports.
Understandably, when apparel exports from China and Vietnam became more price-competitive thanks to their CPTPP memberships, more sourcing orders could be moved away from CAFTA-DR countries, resulting in their declined demand for US textiles. Notably, a substantial portion of US apparel imports from CAFTA-DR countries focuses on relatively simple products like T-shirts, polo shirts, and trousers, which primarily compete on price. Losing both the USMCA and CAFTA-DR export markets, which currently account for nearly 70% of total US yarns and fabrics exports, could directly threaten the survival of the US textile industry.
FASH455 Global Apparel & Textile Trade and Sourcing 
