Japan’s Apparel Sourcing Patterns

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(The full article is available HERE)

Key findings:

First, the total value of Japan’s apparel imports has been growing steadily in line with consumption patterns. Between 2010 and 2018, the value of Japan’s apparel imports enjoyed a 2.7% compound annual growth rate, which was lower than the US (3.4%), but higher than the EU (1.9%) and the world average (1.3%) over the same period.

Second, while China remains the top supplier, Japanese fashion brands and retailers are also diversifying their sourcing bases. Similar to their counterparts in the US and EU, Japanese fashion brands and retailers are actively seeking alternatives. Imports from Vietnam, Bangladesh, and Indonesia have been growing particularly fast, even though their production capacity and market shares are still far behind China.

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Third, Japanese fashion companies are increasingly sourcing from Asia. As of 2018, only 7.5% of Japan’s apparel imports came from non-Asian countries (mostly western EU countries), a notable drop from 11.4% back in 2000. A good proportion of Japan’s apparel imports from Asia actually contain fibers and yarns originally made in Japan. For example, it is not difficult to find clothing labeled ‘Made in China’ or ‘Made in Vietnam’ that also includes phrases such as ‘Using soft, slow-spun Japanese fabric’ and ‘With Japanese yarns’ in the detailed product description.

Fourth, overall, Japan sets a lower tariff barrier for apparel than other leading import countries. As of September 2019, there were around 15 FTAs and TPAs in force in Japan, whose members include several 1st tier apparel supplying countries in Asia, such as Vietnam, Bangladesh, India, Indonesia, and Cambodia. Most of these trade programs adopt the so-called “fabric-forward” rules of origin (also known as “double-transformation” rules of origin). Additionally, Japan is actively engaged in negotiations on a trilateral free trade agreement with China and South Korea, and the Regional Comprehensive Economic Partnership (RCEP), which involves Japan, South Korea, China and members of the Association of Southeast Asian (ASEAN) countries. Once reached and implemented, these trade agreements will provide new exciting duty-saving sourcing opportunities, including from China, the top apparel exporter in the world.

New Report: Fashion’s New Must-have—Sustainable Sourcing at Scale

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The study was based on a survey of 64 sourcing executives from vertical apparel retailers, hybrid wholesalers, and sportswear companies, with a total sourcing volume of $100 billion. Below are the key findings of the report:

  • More sourcing executives now focus on process improvements in their companies, such as sustainability and transparency (56% of respondents), digitalization of sourcing process and related areas (45% of respondents), consolidation of supplier base (42% of respondents), end-to-end process efficiency (41% of respondents) than shifting sourcing countries (20% of respondents). Related, as cost gaps between sourcing destinations are narrowing, apparel companies are shifting from minimizing the price of supply to a focus on customer-centric, agile product development to meet customer demand. Digitalization, such as intelligent sourcing, is one of the most promising areas.
  • Affected by the on-going U.S.-China tariff war, two-thirds of surveyed companies expect their overall sourcing cost to increase in the years ahead, including 37.5% expecting a 2-4% increase and 25% expecting 1-2% increase. However, only 3.1% of respondents expect a significant cost increase (>4%).
  • Echoing the findings of other recent studies, respondents plan to source relatively less from China through 2025. Bangladesh, Vietnam, Myanmar, and Ethiopia are among the top alternative sourcing destinations. Meanwhile, more companies are considering near-sourcing. The biggest challenge, however, is limited fabric production capacity, NOT higher wages.
  • Sustainable apparel sourcing is regarded as a must—70% of EU companies and 35% of North American companies surveyed say “responsible and sustainable sourcing was on the CEO agenda.” Top challenges to achieve sustainable apparel sourcing include “no common, objective industry standard on sustainable sourcing”, “consumers lack a clear picture of what sustainable fashion is all about”, “mixed influence of the sourcing function in company-wide sustainability strategy.” Further, more companies prioritize environmental-sustainability initiatives (issues such as sustainable material, recycled material, traceability, and packing) than social sustainability initiatives (issues such as) fair on living wage and decent work). Additionally, respondents hold competing views on whether sustainability will increase sourcing costs overall. Around 58% of respondents see additional costs for sustainable sourcing between 1% and 5%.
  • Sustainability will play an increasingly important role in how apparel companies select their suppliers. Some surveyed apparel brands and retailers say they have upgraded their supplier ratings over the last couple of years, moving away from viewing sustainability simply as a compliance-based hygiene factor and instead embracing criteria that are more sophisticated.
  • There is also a need to shift from the transactional-based, season-by-season and the low-commitment relationship between apparel companies and their vendors to strategic partnerships between the two. Around 73% of respondents plan to consolidate their supplier base by at least 5% over the next few years. Related, apparel companies increasingly empower suppliers for self-auditing with tools like the Higg Index.

U.S.-Japan Trade Agreement (Updated: September 2019)

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On 16 September 2019, the Trump administration notified U.S. Congress of its intent to enter into a trade agreement on “tariff barriers” with Japan as well as an “executive agreement” on digital trade. According to the announcement, the Trump administration plans to utilize Section 103(a) of the 2015 Trade Promotion Authority law, which allows the president to modify tariffs WITHOUT congressional approval. While details of the tariff agreement are not yet available, U.S. Trade Representative Robert Lighthizer in August said the deal with Japan would focus on beef, pork, wheat, dairy products, wine, and ethanol, as well as on industrial goods.

The 16 September notification also says the Trump administration will “further negotiations with Japan to achieve a comprehensive trade agreement that results in more fair and reciprocal trade between the United States and Japan.” Such a more comprehensive trade agreement, however, will require congressional approval.

On December 21, 2018, Office of the U.S. Trade Representative (USTR) released negotiating objectives of the proposed U.S.-Japan Free Trade Agreement (USJTA). Overall, USJTA aims to address both tariff and non-tariff barriers to achieve fairer and more balanced trade between the two countries. Regarding the textiles and apparel sector, USTR says it will “secure duty-free access for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities” during the negotiation. USJTA also will “establish origin procedures for the certification and verification of rules of origin that promote strong enforcement, including with respect to textiles.”

Should the newly announced U.S.-Japan trade deal remove the tariffs for textiles and apparel traded between the two countries, the overall economic impact on related trade flows could be modest. Data from the UNComtrade shows that in 2018 U.S. imported $656 million textiles (SITC 26 and 65) and $88 million apparel (SITC 84) from Japan, accounting for 2.1% and 0.1% of total U.S. textile and apparel imports respectively. Meanwhile, in 2018 Japan imported around $353 million textiles and $121 million apparel from the U.S., accounting for 3.7% and 0.4% of Japan’s total textile and apparel imports that year respectively.

In comparison, over 70% of U.S. textile and apparel exports went to the Western-Hemisphere and U.S. imported textiles and apparel mostly from NAFTA & CAFTA-DR members and other Asian countries (such as China and Vietnam). Likewise, Japan also has a much closer trade tie with other Asian countries because of the regional textile and apparel trade patterns (or commonly known as “factory Asia”).

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On the other hand, the elimination of tariffs and potentially non-tariff barriers under the U.S.-Japan trade deal could expand the bilateral trade flows for technical textiles. Notably, the top categories of U.S. textile and apparel exports to Japan in 2018 were mostly technical textiles such as specialty and industrial fabrics, filament yarns, and non-woven textiles. Likewise, the top categories of Japan’s textile and apparel exports to the U.S. in 2018 also include special-purpose fabric, non-woven fabric, and synthetic filament fabrics.

Additionally, the textiles and apparel-specific rules of origin (RoO) is likely to remain a heated debate in the US-Japan trade negotiation. To protect the interests of the U.S. textile industry and the Western-Hemisphere regional textile and apparel supply chain, most free trade agreements enacted in the United States adopt the so-called “yarn-forward” RoO. Even though the U.S.-Japan trade agreement may not be a too big deal economically, the U.S. textile industry is unlikely to give up the RoO fight. However, most free trade agreements enacted in Japan adopt more liberal fabric-forward rules of origin (or commonly called “double transformation”). As textile and apparel production in Japan is increasingly integrated with other Asian countries, the strict “yarn-forward” RoO could prevent Japanese textile and apparel exporters from enjoying the preferential duty benefits under the U.S.-Japan trade agreement fully.

American Giant: $108 Hoodie Made in the USA

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Discussion questions:

  1. Is it still meaningful to promote apparel 100% “Made in the USA” in today’s global economy? Why or why not?
  2. From the video, what is your evaluation of the strength, weakness, opportunity, and threat of American Giant’s business?
  3. From the video and our class discussions, why or why not do you think the U.S.-China tariff war has benefited textiles and apparel “Made in the USA”?
  4. Will you be interested in working in a textile mill/garment factory as featured in the video after graduation? Why or why not?
  5. Any other thoughts/reflections from the video?

[For FASH455: 1) Please mention the question number in your comments; 2) Please address at least TWO questions in your comments]

Additional readings:

WTO Reports World Textile and Apparel Trade in 2018

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According to the World Trade Statistical Review 2019 newly released by the World Trade Organization (WTO), the current dollar value of world textiles (SITC 65) and apparel (SITC 84) exports totaled $315 billion and $505 billion in 2018 respectively, increased by 6.4% and 11.1% from a year earlier. This has been the fastest growth of world textile and apparel trade since 2012. Specifically: 

I. Textile export

China, European Union (EU28), and India remained the world’s top three exporters of textiles in 2018. Altogether, these top three accounted for 66.9% of world textile exports in 2018, a new record high since 2011. Notably, China and EU (28) also enjoyed a faster-than-world-average export growth in 2018, up 7.9% and 6.9% respectively. The United States remained the world’s fourth top textile exporter in 2018, accounting for 4.4% of the shares, down slightly from 4.6% in 2017.

II. Apparel export

China, the European Union (EU28), Bangladesh, and Vietnam unshakably remained the world’s top four largest exporters in 2018. Altogether, these top four accounted for as much as 72.3% of world market shares in 2018, which, however, was lower than 75.8% in 2017 and 74.3% in 2016—primarily due to China’s declining market shares. Notably, even though apparel exports from Vietnam (up 13.4%) and Bangladesh (up 11.1%) enjoyed a fast growth in absolute terms in 2018, their gains in market shares were quite limited (up 0.3 percentage point from 5.9% to 6.2% for Vietnam and up 0.1 percentage point from 6.4% to 6.5% for Bangladesh). This result once again suggests that due to capacity limits, no single country has emerged to become the “Next China.” Instead, China’s lost market shares in apparel exports were fulfilled by a group of countries, a phenomenon which can be linked with fashion brands and retailers’ sourcing diversification strategy.

III. Textile import

The European Union (EU28), the United States, and China were the top three largest importers of textiles in 2018, accounting for 37.5% of the world’s total textile imports that year. Although the market shares of the top three in 2018 were close to 37.7% a year earlier, it nevertheless was much lower than over 50% back in the 2000s. The increasing diversification of textile import market is associated with the shifting pattern of world apparel manufacturing and export closely.

IV. Apparel import

Affected by consumers’ purchasing power (often measured by GDP per capita) and size of the population, the European Union, the United States, and Japan remained the world’s top three importers of apparel in 2018. Altogether, these top three absorbed 61.5% of world apparel in 2018, which, however, was lower than 62.3% in 2017 and a significant drop from 84% back in 2005. Behind the result, it is not the case that consumers in the EU, U.S., and Japan are importing less clothing. Instead, several emerging economies (such as China) are becoming fast-growing apparel consumption markets and starting to import more. As consumers’ purchasing power in these emerging economies continues to improve, we could expect a more diversified world apparel import market in the years ahead.

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Additional reading: Latest trends in world textile and apparel trade

U.S. Textile and Apparel Industry is NOT Immune to the U.S.-China Tariff War

The full article is available HERE

This article tries to evaluate the potential impact of the U.S.-China tariff war on the U.S. textile and apparel (T&A) industry, including manufacturing and related trade activities.

The quantitative evaluation conducted is based on the Global Trade Analysis Project (GTAP) model. Data came from the latest GTAP9 database, which covers trade, employment and production in 57 sectors in 140 countries. In correspondence to the recent development of the U.S.-China tariff war, the analysis focuses on the following three scenarios:

  • Scenario 1: 10% punitive tariff + base year tariff rate in 2017 applied to products traded between the U.S. and China, except textiles and apparel
  • Scenario 2: 10% punitive tariff + base year tariff rate in 2017 applied to products traded between the U.S. and China, including textiles and apparel
  • Scenario 3: 25% punitive tariff + base year tariff rate in 2017 applied to products traded between the U.S. and China, including textiles and apparel

Three findings are of note:

First, the tariff war with China will increase the market price for T&A in the United States and consequentially incentivize more production of T&A “Made in the USA.” As shown in Figure 1, the annual U.S. T&A production will increase when the punitive tariff is imposed on textile and apparel imports from China. The most significant increase will happen in scenario 3 (textile output expands by US$8,829 million and apparel output expands by US$6,044 million) when a 25 percent punitive tariff is imposed and the market price of T&A in the U.S. also correspondingly goes up by nearly 1.5% compared with the base year level in 2017.

Second, the tariff war with China will hurt U.S. textile exports. The results show that the tariff war will increase the production cost of “Made in the USA,” and result in a decline of U.S. textile exports due to reduced price competitiveness. This is the case even in scenario 1 when the tariff war does not target T&A directly, but nevertheless, raises the price of intermediaries for producing textiles in the United States. The results further show that the annual U.S. textile exports will suffer the most significant decline in scenario 3 (down US$1,136 million), especially to China and other Asian countries where U.S. textile products are facing intense competition from local suppliers. In comparison, U.S. textile exports to the Western Hemisphere will suffer a loss as well in the tariff war, but to a much less extent due to the strong supply-chain relationship with the region.

Third, the trade diversion effect of the tariff war will bring in more apparel imports to the U.S. market from Asian suppliers other than China. As shown in the figure above, when the punitive tariff imposed on textile and apparel products, the value of U.S. apparel imports from China will decline ranging from US$4,573 million (10 percent punitive tariff imposed) to US$8,858 million (25 percent punitive tariff imposed) annually compared with the base year level in 2017. This result reflects U.S. apparel importers and retailers’ mounting concerns about sourcing cost in the setting of the tariff war. However, apparently, the tariff war will do little to help U.S. domestic apparel manufacturers reduce the competitive pressure with imports. Particularly, in scenario 3, U.S. apparel imports from suppliers other than China will increase as much as US$10,400 million, worsening the U.S. trade deficit in the apparel sector further.

by Sheng Lu

Explore the Competitiveness of China’s Textile and Apparel Exports to the U.S.

This study intends to explore how the U.S.-China trade tension since 2017 has affected the competitiveness of China’s textile and apparel (T&A) exports to the U.S. market. Findings of the study will shed new lights on the mega-trend of T&A sourcing from China in the medium term, and support T&A companies’ sourcing decision making in the current uncertain business environment.

Data for the analysis were collected from the Office of Textiles and Apparel (OTEXA) under the U.S. Department of Commerce, including the value of U.S. imports from China between 2016 (i.e., the year before the U.S. launched the section 301 investigation against China) and March 2019 (the latest data available) for a total of 167 categories of T&A products.

Specifically, based on the constant market share (CMS) model, a commonly adopted international trade analysis tool, this study decomposed the value of U.S. T&A imports from China into the following four factors:

  • Market growth effect: changes in China’s T&A exports to the U.S. due to the growth of total U.S. import demand for T&A
  • Commodity structural effect: changes in China’s T&A exports to the U.S. due to the shifting product structure of China’s T&A exports
  • General competitive effect: changes in China’s T&A exports to the U.S. due to the shifting competitiveness of Chinese T&A products in the U.S. market (measured by China’s market shares)
  • Product competitive effect: changes in China’s T&A exports to the U.S. due to the joint effect of the product structure of China’s T&A exports and the shifting competitiveness of Chinese T&A products in the U.S. market (measured by China’s market shares)

Four findings are of note:

First, the U.S.-China trade tension has affected China’s T&A exports to the U.S. negatively. Even though the majority of T&A products have not been subject to the U.S. Section 301 punitive tariff yet, China’s T&A exports to the U.S. suffered a significant drop, particularly since 2019. This result, however, was at odds with the overall trend of China’s T&A exports to the U.S. in recent years. Notably, except apparel, China’s yarns, fabrics and made-up textile exports to the U.S. all enjoyed a steady and positive growth between 2016 and 2018. Overall, it seems U.S. T&A importers are shifting sourcing orders away from China mainly because of concerns over trade tensions rather than their usual business considerations.

Second, the increased U.S. import demand has partially mitigated the negative impact of trade tension on China’s T&A exports to the U.S. market. Results of the CMS model indicate that expanded total U.S. import demand for T&A driven by the booming U.S. economy had avoided an even worse decline of U.S. T&A imports from China. In other words, without such a market growth, China’s T&A exports to the U.S. would have been $2,065 million less in 2018 (including $528 million for apparel) and $388 million less (including $368 million for apparel) in the first quarter of 2019 than their current level.

Third, China’s export competitiveness is shifting from apparel to textiles. Results of the CMS model show that even before the tariff war, the competitiveness of China’s apparel exports has been weakening, which was the most significant contributing factor to the decline of $530 million U.S. apparel imports from China between 2016 and 2018. In comparison, China is exporting more yarns and fabrics to the U.S. in recent years. Data from OTEXA shows that between 2016 and 2018, China’s yarn and fabric exports to the U.S. enjoyed a 13.1% and 2.6% compound annual growth respectively, compared with a 0.6% decline of apparel. The CMS model further suggests that China’s improved export competitiveness can explain the majority of these increased exports.

Fourth, the results show that the changing product structure of China’s T&A exports to the U.S. also has an impact on trade flows. For example, as estimated, China lost around $20.4 million apparel exports to the U.S. in the first quarter of 2019 because the sourcing orders shifted towards those product categories with relatively lower market growth. In comparison, the commodity structural effect has favored China’s made-up textile exports to the U.S. market, resulting in $21.9 million more exports in the first quarter of 2019 than otherwise.

by Sheng Lu