New Proposed Tariffs on Chinese Imports Hit Textiles and Handbags
The latest round of proposed tariffs on Chinese imports has the apparel world wondering if it is time to shift its manufacturing from the country that for decades has been known as the apparel factory to the world.
On July 6, the Trump administration’s latest set of tariffs were imposed on $34 billion worth of Chinese goods limited to primarily industrial goods and parts.
Now the president wants to slap a 10 percent tariff on an additional $200 billion in tariffs on some 6,000 items that include textiles, handbags, yarns, embroidery and leather as well as other goods including electronics, seafood, produce, cigarettes and beauty products. So far, apparel and footwear items are not on the list. But they could be as the Trump administration threatens even more tariffs in the future.
“I think consumer goods are the last things the Trump administration would want to put on the list,” said Tom Travis, an attorney with Sandler, Travis & Rosenberg who is an expert on trade law and customs. “But since no one can read a crystal ball, the best bet for people to do is to take a look at their supply chains and figure out alternatives. I’m not suggesting that they run and change things right away, because they have to have a deliberately planned contingency and determine their own risks.”
For many U.S. clothing companies, China is so attractive because it has a vast apparel and textile infrastructure that produces many of the raw materials needed to make garments, including buttons, fabric, zippers, embroidery and sewing thread.
“If people could have shifted out of China, they would have done it by now,” said Steve Lamar, executive vice president of the American Apparel & Footwear Association. “There is definitely a strong vertical industry in China that makes it hard to move production of apparel, footwear and travel goods,” he said.
Finding factories in a new country requires verifying they meet environmental and labor standards as well as produces a quality product. “At any given moment, there are three or four factors telling you to move out of China, and there are three or four factors telling you to stay put. Because of this, China’s market share of U.S. apparel imports has stayed at a static 40 percent to 41 percent,” Lamar said.
For Stony Apparel Corp., a longtime Los Angeles manufacturer of clothing for juniors and girls, the move from China would be difficult because of the volume the company does there. About 80 percent to 90 percent of Stony Apparel’s collection of dresses, T-shirts, tops and pants are produced in Chinese factories, said company co-founder Steve Maiman.
“We are always on the lookout to expand our horizons, but it is a slow and arduous process. When you are making millions of units a month, your supply chain has to be reliable,” he said. “It is pretty hard to just think you are going to move somewhere else because of tariffs, which already are pretty darn high. They are 16 percent to 32 percent on various categories, which is through the moon. Unfortunately, any additional rates, in an effort to ‘make America great again,’ will be passed on to our shoppers.”
Maiman points out that the same conditions that affect his China-based production are also affecting his competitor’s China-based production. Everyone will probably pass on price increases to consumers, he said.
The National Retail Federation, a trade group in Washington, D.C., already has its eye on price hikes. It issued a statement saying the Trump administration’s latest tariffs on a list of $200 billion worth of products was “a reckless strategy that will boomerang back to harm U.S. families and workers. The threat to the U.S. economy is less about a question of ‘if’ and more about ‘when’ and ‘how bad.’ Tariffs on such a broad scope of products make it inconceivable that American consumers will dodge this tax increase as prices of everyday products will be forced to rise.”
Chip Bergh, the president and chief executive of Levi Strauss & Co. in San Francisco, said in a second-quarter-earnings conference call on July 10 that he was concerned that many fashion houses would be hit with higher costs.
However, he believes his company will not be as greatly affected because Levi Strauss has traditionally diversified its sourcing mix so that no one country is responsible for more than 20 percent of production.
For now, the recent round of tariffs on $200 billion worth of products won’t take effect for at least another two months while hearings are held in Washington, D.C., Aug. 20–23 to receive input on the issue.
In the wake of the latest tariff proposals, the U.S. Senate on July 12 passed a nonbinding resolution to try to give it more say about trade penalties imposed in the name of national security. The vote was 88–11.