#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)
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 $18.79 billion in 2019, 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 since the 3rd quarter. Notably, as of June 2021, U.S. textile production had resumed about 98.8% of its production capacity at the 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 August 2021, the total employment in the two sectors increased by 1.5% and 1.4%, respectively. However, the employment level remains much lower than the pre-COVID level (benchmark: August 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 important ways:
Trade volume cut: 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.
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. 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 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: Close to 70% of U.S. textile and apparel export went to the Western Hemisphere in 2020, a pattern that has stayed stable over the past decades (OTEXA, 2021). 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.
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.”
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.
#1: Is the sole benefit of globalization helping us get cheaper products? How to convince US garment workers who lost their jobs because of increased import competition that they benefit from globalization also?
#2 How to explain the phenomenon that US apparel imports from China continue to rise despite the tariff war? Do you think the tariff war is a wrong strategy or a good strategy implemented at the wrong time given COVID?
#2: In the class, we mentioned that major driving forces of globalization include economic growth, lowered trade and investment barriers, and technology advancement. What will be the primary driving forces of globalization or deglobalization in the post-COVID world, and why?
#3: Based on the reading “U.S.-China Trade War Still Hurting Ohio Family-Owned Business,” what results of the US-China tariff war are expected and unexpected? What is your recommendation for the Biden administration regarding the Section 301 tariff exclusion process and why?
#4: We say textile and apparel is a global sector. How does the US-China tariff war affect textile and apparel producers and companies in other parts of the world? Why?
#5: From this week’s readings, why do we say textile and apparel trade and sourcing involve economic, social, and political factors and implications? Please provide 1-2 specific examples from the articles to support your viewpoints.
(Welcome to our online discussion. For students in FASH455, please address at least two questions and mention the question number (#) in your reply)
According to the latest statistics released by the American Apparel and Footwear Association (AAFA):
In 2020, the US apparel and footwear industry directly employed about 3 million Americans and employed another 2.3 million indirectly.
In 2020, on average, every man, woman, and child in the United States spent $1,067.93 to buy 51.8 pieces of clothes and 5.8 pairs of shoes.
In 2020, US apparel and footwear production accounted for 3.5 percent and 2.3 percent of the US market, respectively.
Due to COVID-19, in 2020, US imports of apparel and footwear sank 16.4 percent and 23.5 percent, respectively. However, imports still supplied 96.5 percent of apparel and 97.7 percent of footwear available in the US market.
In 2020, the average effective tariff rate hit records for both apparel and footwear, reaching 15.5 percent and 13.0 percent, respectively.
According to the World Trade Statistical Review 2021 report released by the World Trade Organization (WTO), the textiles and apparel trade patterns in 2020 include both continuities and new trends affected by the pandemic and companies’ evolving production and sourcing strategies in response to the shifting business environment.
Pattern #1: COVID-19 significantly affected the world textile and apparel trade volumes, resulting in substantial growth of textile exports and a declined demand for apparel.
Driven by increased personal protective equipment (PPE) production, global textile exports grew by 16.1% in 2020, reaching $353bn. In comparison, affected by lockdown measures, worsened economy, and consumers’ tighter budget for discretionary spending, global apparel export decreased by nearly 9% in 2020, totaling $448bn, the worst performance in decades. The apparel sector is not alone. The world merchandise trade in 2020 also suffered an unprecedented 8% drop from a year ago, with COVID-19 to blame.
Notably, as economic activities returned in the second half of 2020, the world clothing export quickly rebounded to around 95% of the pre-covid level by the end of 2020. That being said, the unexpected resurgence of COVID cases in summer 2021, especially the delta variant, caused new market uncertainties. Overall, the world textile and apparel trade recovery process from COVID-19 will differ from our experiences during the 2008 global financial crisis.
Pattern #2: COVID-19 did NOT shift the competitive landscape of the world textile exports; Meanwhile, textile exports from China and Vietnam gained new momentum during the pandemic.
China, the European Union (EU), and India remained the world’s three largest textile exporters in 2020. Together, these top three accounted for 65.8% of the world’s textile exports in 2020, similar to 66.9% before the pandemic (2018-2019).
Notably, China and Vietnam enjoyed a substantial increase in their textile exports in 2020, up 28.9% and 10.7% from a year ago, respectively. The complete textile and apparel supply chain and considerable production capability allow these two countries to switch clothing production to PPE manufacturing quickly. In particular, Vietnamexceeded South Korea and ranked the world’s sixth-largest textile exporter in 2020 ($10 bn of exports), the first time in history.
The United States dropped one place and ranked the world’s fifth-largest textile exporter in 2020 (was 4th from 2015 to 2019), accounting for 3.2% of the shares (was 4.4% in 2019). Production disruptions at the beginning of the pandemic and the shift toward PPE production for domestic consumption were the two primary contributing factors behind the decline in U.S. textile exports. Due to the regional trade patterns, around 67% of U.S. textile exports went to the Western Hemisphere in 2020, including 46% for members of the U.S.-Mexico-Canada Trade Agreement (USMCA) and another 17.2% for members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).
Pattern #3: Fashion companies’ efforts to diversify apparel sourcing from China somehow slowed during the pandemic.
China, the European Union, Vietnam, and Bangladesh unshakably remained the world’s four largest apparel exporters in 2020. Altogether, these top four accounted for 72.2% of the world market shares in 2020, higher than 71.4% in 2019.
Notably, while China steadily accounted for declining shares in the world’s total apparel exports since 2015, its market shares rebounded to 31.6% in 2020 from 30.7% in 2019. We can observe a similar pattern in Canada (up from 36.2% to 41.2%) and the EU (31.2% to 31.3%), two of the world’s leading apparel import markets. Even in the U.S. market, where Chinese goods face adverse impacts of the tariff war, the market shares of “Made in China” only marginally decreased from 30.8% in 2019 to 29.8% in 2020, compared with a more significant drop before the pandemic (i.e., fell from 34.4% 2018 to 30.8% in 2019).
Several factors could explain the resilience of China’s apparel exports: 1) fashion brands and retailers’ particular sourcing criteria match China’s competitiveness during the pandemic (e.g., flexibility, agility, and total landed sourcing cost). 2) China has one of the world’s most complete textile and apparel supply chains, allowing garment factories to access textile raw material and accessories locally. 3) Compared with many other apparel exporting countries, China suffered a shorter COVID lockdown period and resumed apparel production earlier and more quickly. Most Chinese textile and apparel factories started to reopen in April 2020, and they resumed an overall 90%-95% operational capacity rate by July 2020.
Nonetheless, fashion companies are NOT reversing their long-term strategies to reduce “China exposure” for apparel sourcing. On the contrary, non-economic factors, particularly the concerns about forced labor in China’s Xinjiang region, push most western fashion brands and retailers to develop apparel sourcing capacities beyond China. Meanwhile, no single country has yet and will likely become the “Next China” because of capacity limits. Instead, from 2015 to 2020, China’s lost market shares in the world apparel exports (around 7.8 percentage points) were picked up jointly by its competitors in Asia, including ASEAN members (up 4.4 percentage points), Bangladesh (up 1.3 percentage points), and Pakistan (up 0.3 percentage point). Such a trend is most likely to continue in the post-COVID world.
Pattern #4: Developed economies led textile PPE imports during the pandemic, whereas the developing countries imported fewer textiles as their apparel exports dropped.
On the one hand, the value of textile imports by developed economies, including EU members, the United States, Japan, and Canada, surged by more than 30 percent in 2020, driven mainly by their demand for PPE. The result also reveals the significant contribution of international trade in supporting the supply and distribution of textile PPE globally. On the other hand, the developing countries engaged in apparel production and export drove the import demand for textile raw materials like yarns and fabrics. However, most of these developing countries’ textile imports fell in 2020, corresponding to their decreased apparel exports during the pandemic.
Pattern #5: Despite COVID-19, the world apparel import market continues to diversify. The import demand increasingly comes from emerging economies with a booming middle class.
Affected by consumers’ purchasing power (often measured by GDP per capita) and the size of the population, the European Union, the United States, and Japan remained the world’s three largest apparel importers in 2020, a stable pattern that has lasted for decades. While these top three still absorbed 56.2% of the world’s apparel imports in 2020, it was a new record low in the past ten years (was 58.1% in 2019 and 61.5% in 2018), and much lower than 84% back in 2005.
Behind the numbers, it is not the case that consumers in the EU, the United States, and Japan necessarily purchase less clothing over the years. Instead, several emerging economies have become fast-growing apparel-consuming markets with robust import demand. For example, despite COVID-19, China’s apparel imports totaled $9.5bn in 2020, up 6.5% from 2019. From 2010 to 2020, China’s apparel imports enjoyed a nearly 15% annual growth, compared with only 0.56% of the traditional top three. Around 30% of China’s apparel imports today are luxury items made in the EU.
#1 COVID-19 continues to substantially affect U.S. fashion companies’ sourcing and business operations in 2021
Recovery is happening: Most respondents expect their business to grow in 2021. Around 76 percent foresee their sourcing value or volume to increase from 2020. Around 60 percent of respondents expect a full recovery of their sourcing value or volume to the pre-COVID level by 2022.
Uncertainties remain: Still, 27 percent find it hard to tell when a full recovery will happen. About 20 percent of respondents still expect 2021 to be a very challenging year financially.
U.S. fashion companies’ worries about COVID still concentrate on the supply side, including driving up production and sourcing costs and causing shipping delays and supply chain disruptions. U.S. fashion companies’ COVID response strategies include strengthening relationships with key vendors, emphasizing sourcing agility and flexibility, and leveraging digital technologies. In comparison, few respondents canceled sourcing orders this year.
#2 The surging sourcing costs are a significant concern to U.S. fashion companies in 2021.
As many as 97 percent of respondents anticipate the sourcing cost to increase further this year, including 37 percent expect a “substantial increase” from 2020.
Respondents say almost EVERYTHING becomes more expensive in 2021. Notably, more than 70 percent of respondents expect the “shipping and logistics cost,” “cost of textile raw material (e.g., yarns and fabrics),” “cost of sourcing as a result of currency value and exchange rate changes,” and “labor cost” to go up.
#3 U.S. fashion companies’ sourcing strategies continue to envovle in response to the shifting business environment.
Asia’s position as the dominant apparel sourcing base for U.S. fashion companies remains unshakeable.
“China plus Vietnam plus Many” remains the most popular sourcing model among respondents. However, the two countries combined now typically account for 20-40 percent of a U.S. fashion company’s total sourcing value or volume, down from 40-60 percent in the past few years.
Asia is U.S. fashion companies’ dominant sourcing base for textile intermediaries. “China plus at least 1-2 additional Asian countries” is the most popular textile raw material sourcing practice among respondents.
As U.S. fashion companies prioritize strengthening their relationship with key vendors during the pandemic, respondents report an overall less diversified sourcing base than in the past few years.
#4 U.S. fashion companies continue to reduce their China exposure. However, the debate on China’s future as a textile and apparel sourcing base heats up.
Most U.S. fashion companies still plan to source from China in short to medium terms. While 63 percent of respondents plan to decrease sourcing from China further over the next two years, it is a notable decrease from 70 percent in 2020 and 83 percent in 2019.
Most respondents still see China as a competitive and balanced sourcing base from a business perspective. Few other sourcing countries can match China’s flexibility and agility, production capacity, speed to market, and sourcing cost. As China’s role in the textile and apparel supply chain goes far beyond garment production and continues to expand, it becomes ever more challenging to find China’s alternatives.
Non-economic factors, particularly the allegations of forced labor in China’s Xinjiang Uygur Autonomous Region (XUAR), significantly hurt China’s long-term prospect as a preferred sourcing base by U.S. fashion companies. China also suffered the most significant drop in its labor and compliance rating this year.
#5 With an improved industry look and the continued interest in reducing “China exposure,” U.S. fashion companies actively explore new sourcing opportunities.
Vietnam remains a hot sourcing destination. However, respondents turn more conservative this year about Vietnam’s growth potential due to rising cost concerns and trade uncertainties caused by the Section 301 investigation.
U.S. fashion companies are interested in sourcing more from Bangladesh over the next two years. Respondents say apparel “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers. However, the competition among Bangladeshi suppliers could intensify as U.S. fashion companies plan to “work with fewer vendors in the country.”
Respondents are also interested in sourcing more from Sub-Saharan Africa by leveraging the African Growth and Opportunity Act (AGOA). Respondents also demonstrate a growing interest in investing more in AGOA members directly. “Replace AGOA with a permanent free trade agreement that requires reciprocal tariff cuts and continues to allow the “third-country fabric provision” is respondents’ most preferred policy option after AGOA expires in 2025.
#6 Sourcing from the Western Hemisphere is gaining new momentum
Overall, U.S. fashion companies’ growing interest in the Western Hemisphere is more about diversifying sourcing away from China and Asia than moving the production back to the region (i.e., reshoring or near-shoring).
Respondents say CAFTA-DR’s “short supply” and “cumulation” mechanisms provide critical flexibility that allow U.S. fashion companies to continue to source from its members. However, despite the “yarn-forward” rules of origin, only 15 percent of respondents sourcing apparel from CAFTA-DR members say they “purposefully use U.S.-made fabrics” to enjoy the agreement’s duty-free benefits.
Respondents suggest that encouraging more apparel sourcing from the Western Hemisphere requires three significant improvements: 1) make the products more price competitive; 2) strengthen the region’s fabric and textile raw material production capacity; 3) make rules of origin less restrictive in relevant U.S. trade agreements.
This year’s benchmarking study was based on a survey of executives at 31 leading U.S. fashion companies from April to June 2021. The study incorporates a balanced mix of respondents representing various types of businesses in the U.S. fashion industry. Approximately 54 percent of respondents are self-identified retailers, 46 percent self-identified brands, 69 percent self-identified importers/wholesalers. Around 65 percent of respondents report having more than 1,000 employees. Another 27 percent of respondents represent medium-sized companies with 101-999 employees.
First, free trade agreements enacted in the U.S. have had a small but positive effect on the U.S. economy and trade. As of January 1, 2021, the United States has 14 free trade agreements (FTAs) with 20 countries in force. In the year 2017 (the base year), they led to an estimated increase in U.S. real Gross Domestic Product (GDP) of $88.8 billion (0.5 percent), and in aggregate U.S. employment of 485,000 full-time equivalent (FTE) jobs (0.3 percent). Real wages increased by 0.3 percent. Further, U.S. exports increased by $37.4 billion (1.6 percent), and imports increased by $95.2 billion (3.4 percent) because of these FTAs.
Second, USITC estimates that U.S.-free trade agreements have expanded the U.S. textile industry but hurt U.S. domestic apparel production. Thanks to the North American Free Trade Agreement (NAFTA, now the U.S.-Mexico-Canada Trade Agreement, USMCA) and the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), the Western Hemisphere has become the single largest export market for U.S. textile producers. However, U.S. apparel manufacturers have to face intensified import competition.
Third, the textile and apparel-specific rules in U.S. free trade agreements are complicated and often hinder the usage of the trade agreements. As noted by USITC, the U.S. duty on imported textile and, especially, apparel goods are among the highest of all product categories. Despite the duty-saving incentives, only 12.1% of U.S. textile and apparel imports came in under FTAs in 2020, even lower than 16.7% in 2007 when fewer FTAs were in force.
The complexity of the textile and apparel-specific rules of origins (ROOs) is a significant cause of the low FTA utilization rate. As USITC noted, “No two FTAs using the tariff shift model contain the same ROOs for apparel goods…for some importers, the strict preference rules of origins (ROOs), along with the record-keeping and documentation requirements the rules entail, make the cost of compliance too great to take full advantage of the duty-free opportunities.” According to the annual USFIA fashion industry benchmarking study, the surveyed U.S. fashion companies consistently expressed the same concerns about the too restrictive ROOs in U.S. FTAs.
Related, the USITC report noted, “some U.S. domestic textile industry representatives state that the existing FTA rules follow a simple template designed to benefit upstream manufacturers in the textile and apparel supply chain.” Having to use more expensive domestic-made fibers and yarns reduces the price competitiveness of U.S. fabrics and home textiles in the export market.
Further, the USITC report explains the history of the “Short supply” and “Tariff-preference level, TPL” mechanisms in U.S. free trade agreements. However, the report does not provide an assessment of their trade impacts.
Trade statistics show that these exceptions to the restrictive “yarn-forward” rules of origin are critical for U.S. apparel sourcing from certain FTA partners. For example, more than 60% of U.S. apparel imports from Canada claimed duty-free benefits by using the TPL mechanism rather than complying with the USMCA/NAFTA “yarn-forward” rules in 2020. Around 8% of U.S. apparel imports from Mexico did the same. Likewise, in 2020, approximately 4% of U.S. apparel imports from CAFTA-DR members used the “short supply” mechanism, and the other 4% used the “cumulation” mechanism.
First, thanks to consumers’ resumed demand and a more optimistic outlook for the U.S. economy, U.S. apparel imports continue to rebound. However, uncertainties remain. On the one hand, mirroring retail sales patterns, the value of U.S. apparel imports in April 2021 went up by 66% from a year ago, a new record high since the pandemic. The absolute value of U.S. apparel imports so far in 2021 (January –April) also recovered to around 88% of the pre-Covid level (i.e., January to April 2019). However, the value of U.S. apparel imports in April 2021 was 11.2% lower than in March 2021 (seasonally adjusted), suggesting that the market environment is far from stable yet as the COVID situation in the U.S. and other parts of the world continue to evolve.
Second, data indicates that Asia as a whole remains the single largest sourcing base for U.S. fashion companies, stably accounting for around 72-75% of the import value. Studies show that two factors, in particular, contribute to Asia’s competitiveness as a preferred apparel sourcing base—price and flexibility & agility. Asia’s highly integrated regional supply chains and its vast production capacity shape its competitiveness in these two aspects.
Third, as the direction of the US-China relations becomes ever more concerning, U.S. fashion companies seem to accelerate diversifying sourcing from China.Even China remains the top apparel supplier for the U.S. market, from January to April 2021, China’s market shares fell to 32.1% in quantity (was 36.6% in 2020) and 20.2% in value (was 23.7% in 2020). Also, the HHI index and market concentration ratios (CR3 and CR5) suggest that US fashion companies are increasingly moving their apparel sourcing orders from China to other Asian countries. For example, according to a leading U.S. fashion corporation in its latest annual report, “in response to the recent tariffs imposed by the current US administration, the Company has reduced the amount of goods being produced in China.”
Further, the latest data suggests that the concerns about the alleged forced labor in Xinjiang hurt China’s prospect as an apparel sourcing destination, BOTH for cotton and non-cotton items. Measured by value, only 11.9% of U.S. cotton apparel came from China in April 2021, a new record low since implementing the CBP WROs, which impose a regional ban on any cotton and cotton apparel made in the Xinjiang region. The latest data also suggests that China is quickly losing market shares for non-cotton textile and apparel items.
Fourth, U.S. apparel sourcing from CAFTA-DR members gains new momentum, reflecting the strong interest in sourcing more from the region from the business community and policymakers. For example, 17.5% of U.S. apparel imports came from the Western Hemisphere in 2021 (Jan-Apr), higher than 16.1% in 2020 and 17.1% before the pandemic. Notably, CAFTA-DR members’ market shares increased to 10.8% in 2021 (Jan-Apr) from 9.6% in 2020. The value of U.S. apparel imports from CAFTA-DR also enjoyed a 25.8% growth in 2021 (Jan-Apr) from a year ago, one of the highest among all sourcing destinations. The imports from El Salvador (up 29.2%), Honduras (up 28.0%), and Guatemala (27.0%) had grown particularly fast in 2021.
Meanwhile, U.S. apparel imports from USMCA members stayed stable overall. CAFTA-DR and USMCA members currently account for around 60% and 25% of U.S. apparel imports from the Western Hemisphere. They are also the single largest export market for U.S. textile products (around 70%). The Biden administration has signaled its strong interest in strengthening the western hemisphere textile and apparel supply chain by leveraging CAFTA-DR along with other trade policy tools.
The article is available HERE (need Just-Style subscription)
First, more US apparel companies prioritize consolidating their existing sourcing base than diversification during the pandemic. Nearly half of the top 30 US apparel companies we examined explicitly say they either sourced from fewer countries or worked with fewer vendors in 2020 than 2017-2019 before the pandemic. In comparison, only about one-third of respondents say they were sourcing from more countries in 2020 than two years.
Second, the desire to form a closer relationship with key vendors and ensure social and environmental compliance are the two primary factors behind US apparel companies’ consolidation strategy. In a time of uncertainty like the pandemic, apparel companies are leaning more heavily on suppliers that have proven reliable, capable, and flexible. Working closely with the suppliers and building an efficient and trust-based supply chain also play a central role in US fashion companies’ COVID-mitigation strategies. Meanwhile, with social and environmental compliance becoming increasingly crucial in apparel sourcing today, companies are cutting ties with vendors that are not adhering to government mandates and proprietary codes of conduct. Notably, US apparel companies’ higher expectations for sustainability as well as social and environmental compliance may have resulted in a smaller pool of qualified suppliers.
Third, the desire to steer away from China and reduce sourcing risks are the two main drivers behind US fashion companies’ recent sourcing diversification strategy. US apparel companies mostly moved their sourcing orders from China to China’s competitors in Asia instead of expanding “near-sourcing. On the other hand, it is not uncommon to see US apparel companies keep a relatively diverse sourcing base to control various sourcing risks in the current business setting.
Fourth, the content analysis further reveals that US fashion brands and retailers commit to sourcing and supply chain innovation in response to COVID-19 and the new business environment. Some specific sourcing strategies are noteworthy:
Work with “super vendors,” i.e., vertically integrated suppliers that can execute multiple steps in the supply chain or those with production facilities in numerous countries.
Optimize supply chain process to improve speed to market.
Adjust fabric and textile raw material sourcing base, although the specific strategies vary from company to company.
With the public’s increasing demand, fashion companies are making more significant efforts to improve their apparel supply chains’ transparency, i.e., mapping where the product is made and knowing suppliers’ compliance with social and environmental regulations.
Recently, VF Corporation, one of the most historical and largest US apparel corporations, released the entire supply chain of its 20 popular apparel items, such as Authentic Chino Stretch, Men’s Merino Long Sleeve Crewe, and Women’s Down Sierra Parka. VF Corporation used more than 300 factories worldwide to make these apparel items and related textile raw materials.
We conducted a statistical analysis (Multivariate analysis of variance, MANOVA) of these factories, aiming to evaluate the state of VF Corporation’s apparel supply chain transparency, including its strengths and areas that can be improved further. The findings of this study will fulfill a critical research gap and significantly enhance our understanding of the nature of today’s apparel supply chain and the opportunities and challenges to improve its transparency.
The results show that VF Corporation’s suppliers in different segments of the apparel supply chain had different transparency performances overall:
While more than 92% of tier 1 & 2 suppliers shared their environmental or social compliance information with VF Corporation, less than 60% of VF Corporation’s tier 3 & 4 suppliers did so (note: statistically significant).
A higher percentage of VF Corporation’s tier 2 & 3 suppliers (i.e., mills making fabrics, yarns, or accessories) received environmental compliance-related certification than tier 1 suppliers (i.e., garment factories) (note: statistically significant).
Meanwhile, VF Corporation’s tier 1 suppliers were more active in pursuing social compliance-related certification than suppliers in other levels (note: statistically significant)
However, no evidence suggests that whether from a developed or developing country will statistically affect a vendor’s transparency performance.
The study’s findings have several important implications:
First, more work can be done to strengthen fashion companies’ transparency of tier 3 & 4 suppliers (i.e., textile mills making yarns and fibers). Despite the significant efforts to know their garment factories (i.e., tier 1 suppliers), fashion companies like VF Corporation still have limited knowledge about vendors upper in the supply chain. Notably, even VF Corporation doesn’t have much leverage to request environmental and social compliance-related information from these vendors. According to VF Corporation, often “Supplier was unresponsive to VF’s request for information.”
Second, the results suggest that vendors at different supply chain levels have their respective transparency priorities. However, it is debatable whether tier 1 & 2 suppliers also need to care about environmental and sustainability-related compliance, and if tier 3 & 4 suppliers should be more transparent about their social compliance record. The growing concerns about forced labor involved in cotton production (i.e., tier 4 suppliers) make the debate even more relevant.
Additionally, different from the public perception and previous studies, the findings call for equal treatment of suppliers from developed and developing countries when vetting their environmental and social compliance-related transparency.
Because this case study looked at VF Corporation only, future research can continue to investigate other fashion companies’ supply chain transparency based on data availability. It will also be meaningful to hear directly from tier 3 & 4 suppliers to understand their perception about improving the apparel supply chain’s transparency and related opportunities and challenges.
Witness: National Council of Textile Organizations (NCTO) President and CEO Kim Glas; The full testimony is available HERE
Berry Amendment: Under a provision of 1941 legislation known as the “Berry Amendment” , the Department of Defense (DOD) must buy clothing, fabrics, fibers, yarns, other made-up textiles, boots, and certain other items that are 100% US-made. Notably, the Berry Amendment mandates a much higher level of domestic content than the Buy American Act of 1933, which, in general, only requires 50% of the costs of a product to be manufactured in the United States. DOD spent around $1.6 billion on clothing, textiles, and footwear in FY2020 under the Berry Amendment. The items covered by the Berry Amendment have varied over the years. In the FY2017 NDAA (P.L. 114-328), Congress extended the Berry Amendment by requiring DOD to provide 100% U.S.-made running shoes for recruits entering basic training.
Related, onFebruary 24, 2021, President Biden released an executive order (EO) and announced to conduct a 100-day supply chains review on several key US industries, including semiconductors, batteries, strategic minerals, and pharmaceuticals. The review will also cover certain critical business sectors, such as national defense, public health, information and communication technology, energy, transportation, and agriculture. Further, the EO explicitly asks the Secretary of Health and Human Services, in consultation with the heads of appropriate agencies, to submit a report identifying risks in the supply chain of personal protective equipment (PPE). PPE includes textile products like facial masks, gowns and gloves. More comprehensive reform and supply chain strategies are likely to follow after the supply chain review requested by the EO.
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. BTW, the names of several experts featured in the video should sound familiar to you, such as David Spooner (former U.S. Chief Textile Negotiator and Assistant Secretary of Commerce), Julia Hughes (president of the US Fashion Industry Association, USFIA) and Auggie Tantillo (former president of the National Council of Textile Organizations, NCTO).
First of all, I hope students can take away essential knowledge about textile and apparel (T&A) trade & sourcing from FASH455. As you may recall from the video, in FASH455, we’ve examined the phenomenon of globalization and its profound social, economic and political implications. We also discussed various trade theories and the general evolution pattern of a country’s T&A industry and its close relationship with that country’s overall industrialization process. We further explored three primary T&A supply chains in the world (namely the Western-Hemisphere supply chain, the flying geese model in Asia, and the phenomenon of intra-region T&A trade in Europe). Last but not least, we looked at unique and critical trade policies that matter significantly to the T&A sector (e.g., 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 T&A 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 T&A industry, from the impact of COVID-19 on apparel sourcing and trade, apparel companies’ social responsibility practices, the debate on the textile and apparel provisions in the U.S.-Mexico-Canada Trade Agreement (USMCA or NAFTA2.0) to the controversy of used clothing trade. 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. This is also the message from many of our distinguished guest speakers this semester, and I do hope you find these special learning events enlightening and inspiring.
Likewise, I hope FASH455 can put students into thinking about why “fashion” matters. A popular misconception is that “fashion and apparel” is 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, T&A industry plays a critical and unique role in creating jobs, promoting economic development, enhancing human development and reducing poverty. As we mentioned in the class, over 120 million people remain directly employed in the T&A industry globally, and a good proportion of them are females living in poor rural areas. For most developing countries, T&A typically accounts for 70%–90% of their total merchandise exports and provides one of the very few opportunities for these countries to participate in globalization. The spread of COVID-19, in particular, reveals the enormous social and economic impacts of the apparel sector and many problems that need our continuous efforts to make an improvement.
Last but not least, I hope from taking FASH455, students will take away meaningful questions that can inspire their future study and even life’s pursuit. For example:
How to make the growth of the global textile and apparel trade more inclusive and equal?
How to make sure tragedies like the Rana Plaza building collapse will never happen again?
How will automation, AI and digital technologies change the future landscape of apparel sourcing, trade, and job opportunities?
How to use trade policy as a tool to solve tough global issues such as labor practices and climate change?
Is inequality a problem caused by global trade? If global trade is the problem, what can be the alternative?
These questions have no good answers yet. However, they are waiting for you, the young professional and the new generation of leaders, to write the 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.
Within the Western-Hemisphere (WH) textile and apparel supply chain, the United States serves as the leading textile supplier, whereas developing countries in North, Central, and South America (such as Mexico and countries in the Caribbean region) assemble imported textiles from the United States or elsewhere into apparel. The majority of clothing produced in the area is eventually exported to the United States or Canada.
WH countries still form a close supply chain partnership in textile and apparel production. For example, close to 70% of US textile exports went to WH members in 2020, a pattern that has stayed stable over the past decades (OTEXA, 2021). Meanwhile, the United States serves as the single largest export market for most apparel exporting countries in the WH For example, in 2019, close to 89% of apparel exports from CAFTA-DR and USMCA (NAFTA) members went to the US.
However, the WH textile and apparel supply chain is not without significant challenges. For example, CAFTA-DR and Mexico are increasingly using textiles inputs from outside the WH region, which weakens the US role as a dominant textile supplier. Notably, most of the market shares lost by US textile suppliers are fulfilled by Asian countries, including China and other members of the RCEP (Regional Comprehensive Economic Partnership). Theoretically, using cheaper textile inputs from Asia may help apparel producing countries in the WH improve the price competitiveness of their finished garments and diversify their export markets beyond the US.
Meanwhile, despite the apparent popularity of “near-sourcing”, no evidence suggests that US fashion brands and retailers are sourcing more from WH countries, including CAFTA-DR and USMCA (NAFTA) members. Neither the US-China trade war nor COVID-19 seems to have shifted the trends. Instead, close to 75%-80% of US apparel imports still come from Asian countries (OTEXA, 2021). Studies further show that a vast majority of US apparel imports from WH concentrate on a limited category of products, such as tops and bottoms, which is far from sufficient to meet retailers’ sourcing needs.
On the other hand, technical textiles and industrial textiles account for a growing share in the total US textile exports, and Asia is a particularly fast-growing market. However, there is few US free trade agreement with Asian countries, making it a disadvantage to promote “Made in the USA” products in these markets. It is debatable what should be the priority for the US textile and apparel trade policy: to continue to protect the exports of yarn and fabrics to the WH or open new export markets for technical and industrial textiles outside the WH region?
The apparel sourcing formula is getting ever more sophisticated today. US fashion brands and retailers consider a wide range of factors when deciding where to source their products. The long list of sourcing factors includes #1 Capacity, #2 Price & tariff, #3 Stability, #4 Sustainability, and #5 Quality (see the table below).
When evaluating the world’s top 27 largest apparel supplying countries’ performance, no souring destination appears to be perfect. In general, fashion brands and retailers have many choices for sourcing destinations that can meet their demand for production capacity, price point, and quality. However, fashion companies face much more limited options when seeking an apparel sourcing destination with a stable financial and political environment and a strong sustainability record.
When we compare the trade volume and the performance against the five primary sourcing factors:
Apparel sourcing today is no longer a “winner takes all” game. Notably, the factor “Capacity” is suggested to have limited impacts on the value of apparel imports from a particular sourcing destination.
Apparel sourcing is not merely about “competing on price” either--the impact of the factor “Price & tariff” on the pattern of apparel imports statistically is not significant.
Improving financial and political stability as well as product quality can help a country enhance its attractiveness as an apparel sourcing base. In particular, American and Asia-based fashion companies seem to give substantial weight to the factors of “Stability” and “Product quality” in their sourcing decisions.
Fashion companies’ current sourcing model does not always provide strong financial rewards for sustainability. Interestingly, the result indicates that a higher score for the factor “sustainability” does NOT result in more sourcing orders at the country level. Behind the result, fashion companies today likely consider sustainability and compliance at the vendor level rather than at the country level in their sourcing decisions. It is also likely that sustainability and compliance are treated more as pre-requisite or “bottom-line” criteria instead of a factor to determine the volume of the sourcing orders.
In conclusion, fashion companies’ sourcing decisions seem to be more complicated and subtle than what is often described in public.
U.S. apparel imports continue to rebound, but uncertainty remains
Asia will remain the dominant apparel sourcing base
U.S. fashion companies are NOT giving up China as one of their essential apparel-sourcing bases, although companies continue to reduce their “China exposure” overall. Meanwhile, do NOT underestimate the impact of non-economic factors on sourcing.
No clear evidence suggests near sourcing from the Western Hemisphere is happening in a large scale
Watch Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These two mega-free trade agreements could shape new textile and apparel supply chains in the Asia-Pacific region.
First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. However, the speed of recovery slowed. Specifically, The value of U.S. apparel imports in November 2020 marginally went down by 0.3% from October 2020 (seasonally adjusted), compared with an 8.8% growth from Aug to September and a 4.6% growth from September to October (seasonally adjusted).
As of November 2020, the volume of U.S. apparel imports has recovered to around 85-90% of the pre-coronavirus level. This result echoes the trend of U.S. apparel retail sales (NAICS 4481), which also indicates a “V-shape” rebound since May 2020.
Data further shows that compared with the 2008 world financial crisis, Covid-19 has caused a more significant drop in the value of U.S. apparel imports. However, it seems the post-Covid recovery process has been more robust than the 2009 financial crisis. The Auto Regressive Integrated Moving Average (ARIMA) model forecasts that at the current speed of recovery, the value of U.S. apparel imports (seasonally adjusted) could start to enjoy a positive year over year (YoY) growth by February 2021 (or around 11 months after the outbreak of Covid-19 in March 2020). In comparison, when recovering from the 2008 world financial crisis, it took almost 15 months to turn the YoY growth rate from negative to positive).
With the new lockdown measures taken in response to the resurgence of the Covid cases, the outlook of US apparel imports remains uncertain. It should also be noted that the period from December to April usually is the light season for apparel imports.
Second, supporting the findings of some recent studies, data suggests that U.S. fashion brands and retailers continue to reduce their “China exposure” in 2020. For example, both the HHI index and market concentration ratios (CR3 and CR5) suggest that apparel sourcing orders are gradually moving from China to other Asian countries. Related, since August 2020, China’s market shares in total U.S. apparel imports have been sliding both in quantity and in value.
We should NOT ignore the impact of non-economic factors on China’s prospect as an apparel sourcing destination. For example, the reported forced labor issue related to Xinjiang, China, and a series of actions taken by the U.S. government (such as the CBP withhold release orders) have significantly affected U.S. cotton apparel imports from China. Measured by value, from January to November 2020, only 15.4% of U.S. cotton apparel came from China, compared with 22.2% in 2019 and 28% back in 2017. While China’s total textile and apparel exports to the US dropped by 32% in 2020 (Jan to Nov), China’s cotton textiles and cotton apparel exports to the US went down more sharply by 41.1% and 47.2%, respectively.
Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (19.8% YTD in 2020 vs. 16.2% in 2019), ASEAN (32.6% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.2% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.4% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 (Jan to Nov) from a year ago.
Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the U.S.-China tariff war. In the first eleven months of 2020, 9.4% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.4% from USMCA members (down from 4.5% in 2019). The limited local textile production capacity and the high production cost are the two notable disadvantages of sourcing from the region.
First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. The value of U.S. apparel imports in September 2020 went up by 8.8% from August 2020 (seasonally adjusted), a new record high since March 2020 when COVID-19 broke out in the States. As of September 2020, the volume of U.S. apparel imports has recovered to around 84-85% of the pre-coronavirus level. This result echoes the trend of U.S. apparel retail sales (NAICS 4481), which also indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports hopefully will last for another 1-2 months.
Data also shows that compared with the 2008 world financial crisis, Covid-19 has caused a more significant drop in the value of U.S. apparel imports. However, it seems the post-Covid recovery process has been more robust than the 2008 financial crisis. Notably, the Auto Regressive Integrated Moving Average (ARIMA) model forecasts that at the current speed of recovery, the value of U.S. apparel imports (seasonally adjusted) could start to enjoy a positive year over year (YoY) growth by February 2021 (or around 11 months after the outbreak of Covid-19 in March 2020). In comparison, when recovering from the 2008 world financial crisis, it took almost 15 months to turn the YoY growth rate from negative to positive.
Second, still, no evidence suggests that U.S. fashion companies are giving up China as one of their essential apparel-sourcing bases. Notably, since May 2020, China had quickly regained its position as the top apparel supplier to the U.S. market. From June to September 2020, China’s market shares have stably stayed at around 27-28% in value and 40-42% in quantity.
According to the media, some sourcing orders are returning to China as China’s competitors in Asia are struggling with more limited production capacity, shortage of raw material and supply chain disruption caused by Covid-19.
That being said, trade data suggests that U.S. fashion companies continue to reduce their “China exposure” overall. For example, both the HHI index and the market concentration ratios (CR3–total market shares of top 3 suppliers and CR5–total market shares of top 5 suppliers) indicate that apparel sourcing orders are gradually moving from China to other Asian countries–it is interesting to see HHI, CR3 and CR5 all suggest a more diversified apparel sourcing base in 2020 (Jan-Sep) than in 2018 and 2019; however, the value of CR5 (exclude China) reached a new record high in 2020 (Jan-Sep).
Third, related to the point above, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.0% YTD in 2020 vs. 16.2% in 2019), ASEAN (33.1% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.4% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.4% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.
Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first nine months of 2020, only 9.1% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.4% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first nine months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 26% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the major contributing factors.
Just an anecdote–according to some industry insiders, the booming of E-commerce during the pandemic may also possibly explain why “near sourcing” is not reflected in trade data despite its reported growing popularity. Specifically, US fashion retailers would:1) import products from Asia and stock them in the bonded warehouses in Mexico (note: bonded warehouse means dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty). 2) When US consumers place orders, the retailer will ship products directly from these bonded warehouses in Mexico to the final destination. Most importantly, retailers could take advantage of the US de minimis rule (i.e., goods valued at $800 or less could enter the U.S. duty-free one person one day) and avoid paying tariffs– even though these products are counted as imports from Asian countries that do not have a free trade agreement with the United States. In other words, these products are not officially treated as imports from Mexico even though they are shipped from bonded warehouse in Mexico.
The surveyed U.S. fashion companies demonstrate more readiness and interest in using the US-Mexico-Canada Trade Agreement (USMCA) for apparel sourcing purposes in 2020 than a year ago:
For companies that were already using NAFTA for sourcing, the vast majority (77.8 percent) say they are “ready to achieve any USMCA benefits immediately,” up more than 31 percent from 2019.
Even for respondents who were not using NAFTA or sourcing from the region, about half of them this year say they may “consider North American sourcing in the future” and explore the USMCA benefits.
Nevertheless, when asked about the potential impact of USMCA on companies’ apparel sourcing practices, some respondents expressed concerns about the rules of origin changes. These worries seem to concentrate on denim products in particular. For example, one respondent says, “USMCA changes negatively affects our denim jeans sourcing particularly with the new pocketing rules of origin.” Another adds, “Denim pocketing ROO change is a concern but manageable.”
It also remains to be seen whether USMCA will boost “Made in the USA” fibers, yarns, and fabrics by limiting the use of non-USMCA textile inputs. For example, while the new agreement expands the Tariff Preference Level (TPL) for U.S. cotton/man-made fiber apparel exports to Canada (typically with a 100 percent utilization rate), these apparel products are NOT required to use U.S.-made yarns and fabrics.
First, U.S. apparel imports continue to rebound thanks to consumers’ robust demand. The value of U.S. apparel imports in August 2020 went up by 7.6% from July 2020 (seasonally adjusted), a new record high since March 2020 when COVID-19 broke out in the States. As of August 2020, the volume of U.S. apparel imports has recovered to around 80% of the pre-coronavirus level. This result echoes the trend of U.S. apparel retail sales (NAICS 448), which also indicates a “V-shape” rebound since May 2020. As fashion brands and retailers typically build their inventory for holiday sales (such as back to school, Thanksgiving, and Christmas) from July to October, the upward trend of U.S. apparel imports hopefully will last for another 1-2 months.
Nevertheless, between January and August 2020, the value of U.S. apparel imports decreased by almost 30% year over year, which has been MUCH worse than the performance during the 2008-2009 global financial crisis (down 11.8%).
Second, no evidence suggests that U.S. fashion companies are giving up China as one of their essential apparel-sourcing bases. Notably, since May 2020, China had quickly regained its position as the top apparel supplier to the U.S. market. From June to August 2020, China’s market shares have stably stayed at around 27-28% in value and 40-42% in quantity.
Some industry sources show that “Made in China” enjoys two notable advantages that other apparel supplying countries cannot catch up in the short term. 1) unparalleled production capacity, meaning importers can source almost all products in any quantity from China vs. more limited production capacity (both in terms of variety and volume) in other alternative sourcing destinations. 2) China can mostly produce textile raw material locally vs. many apparel exporting countries still rely heavily on imported yarns and fabrics (supplied by China).
However, non-economic factors, particularly the reported Xinjiang forced labor issue, are complicating fashion companies’ sourcing decisions. Notably, US cotton apparel imports from China year-to-date (YTD) in 2020 (Jan to August) significantly decreased by 54% from a year ago, much higher than the 22% drop in US imports from the rest of the world. As a result, China’s market share in the US cotton apparel import market sharply declined from 22% in 2019 to only 15.1% in 2020 (Jan-Aug), a record low in the past ten years. This unusual trade pattern suggests that the concerns about social compliance risk are holding US fashion companies back from sourcing cotton apparel products from China. As the forced labor issue continues to evolve and become ever more sensitive and high profile, it is not unlikely that US fashion companies may substantially cut their China sourcing further, even if it is not a preferred choice economically.
Third, despite Covid-19, Asia as a whole remains the single largest source of apparel for the U.S. market. Other than China, Vietnam (20.2% YTD in 2020 vs. 16.2% in 2019), ASEAN (33.6% YTD in 2020 and vs. 27.4% in 2019), Bangladesh (8.6% YTD in 2020 vs.7.1% in 2019), and Cambodia (4.5% YTD in 2020 vs. 3.2% in 2019) all gain additional market shares in 2020 from a year ago.
Likewise, thanks to a highly integrated regional textile and apparel supply chain, Asian countries all together were able to maintain fairly stable market shares on the world stage over the past decade despite all market disruptions, from the financial crisis, trade war to the wage increase.
Fourth, still, no clear evidence suggests that U.S. fashion brands and retailers have been giving more apparel sourcing orders to suppliers from the Western Hemisphere because of COVID-19 and the trade war. In the first seven months of 2020, only 8.9% of U.S. apparel imports came from CAFTA-DR members (down from 10.3% in 2019) and 4.1% from USMCA members (down from 4.5% in 2019). Confirming the trend, in the first eight months of 2020, the value of U.S. yarns and fabrics exports to USMCA and CAFTA-DR members also suffered a 28.0% decline from a year ago. The heavy reliance on textile supply from the U.S. (implying more vulnerability to the Covid-19 supply chain disruptions) and the price disadvantage could be among the contributing factors.
Further, industry sources show that the apparel products U.S. fashion companies import from members of USMCA and CAFTA-DR predominantly are tops and bottoms. The lack of production capacity for other product categories significantly limits the growth potential of these countries playing the role as a leading sourcing base.
The size of the U.S. textile and apparel industry has significantly shrunk over the past decades. However, U.S. textile manufacturing is gradually coming back. The output of U.S. textile manufacturing (measured by value added) totaled $18.79 billion in 2019, 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, 2020).
Meanwhile, COVID-19 has hit U.S. textile and apparel production significantly. Notably, the value of U.S. textile and apparel output decreased by as much as 21.4% and 14.9% in the second quarter of 2020, respectively, compared with a year ago. This result was worse than a 15% decrease during the 2008-2009 world financial crisis. Further, the decline in U.S. textile exports is an essential factor contributing to the significant drop in U.S. textile manufacturing. In the first seven months of 2020, the value of U.S. yarn and fabric exports went down by 31% and 19%, respectively, year over year (OTEXA, 2020).
Additionally, 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 0.13% in 2019 from 0.57% in 1998 (Bureau of Economic Analysis, 2020).
The U.S. textile and apparel manufacturing is also 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 58% in 1998 (Bureau of Economic Analysis, 2020). Textiles and apparel “Made in the USA” are growing particularly fast in some emerging markets that are high-tech driven, such as medical textiles, protective clothing, specialty and industrial fabrics, and non-woven.
As production turns more automated, the U.S. textile and apparel manufacturing sector is NOT creating more jobs. Even before the pandemic, from January 2005 to January 2020, employment in the U.S. textile manufacturing (NAICS 313 and 314) and apparel manufacturing (NAICS 315) declined by 44.3% and 59.3%, respectively (Bureau of Labor Statistics, 2020). However, improved productivity (i.e., the value of output per employee) could be a critical factor behind the net job losses.
Data further shows that COVID19 has resulted in more than 83,700 job losses in the U.S. textile and apparel manufacturing sector between March-April 2020, of which around 80% have returned as of September 2020. Nevertheless, the downward trend in employment is not changing for the U.S. textile and apparel manufacturing sector.
Consistent with the theoretical prediction, U.S. remains a net textile exporter and a net apparel importer. In 2019, the U.S. enjoyed a $1,633million trade surplus in textiles and suffered an $80,637 million trade deficit in apparel (USITC, 2020). Notably, nearly 40% of textiles “Made in the USA” (NAICS 313 and 314) were sold overseas in 2019, up from only 15% in 2000 (OTEXA, 2020). On the other hand, because of the regional supply chain, close to 70% of U.S. textile and apparel export go to the western hemisphere, a pattern that stays stable over the past decade.
by Sheng Lu
Why or why not do you think the U.S. textile industry (NAICS 313 +314) and the apparel industry (NAICS 315) are in good shape?
Based on the statistics, do you think textile and apparel “Made in the USA” have a future? Please explain.
What are the top challenges facing the U.S. textile industry and the apparel industry in today’s global economy and during the COVID19?