Tariff War Heats Up and Expands to U.S.-Made Clothing

Import/Export

As of Friday, June 1, 2018

A major trade war that started with aluminum and steel is now migrating into steep tariffs being placed on U.S.-made apparel exported to Europe.

The war was triggered by the Trump administration announcing on May 31 that it will be placing tariffs on aluminum and steel coming from some of the country’s closest trading partners: Europe, Canada and Mexico.

The 25 percent tariff on steel and 10 percent tariff on aluminum go into effect June 1 after being postponed several times.

In retaliation, the European Union said it will be slapping 25 percent tariffs on key items it imports from the United States. Those include men’s and women’s blue jeans, T-shirts, shorts, men’s synthetic woven industrial and occupational trousers, cotton woven bed linen that is not printed, and footwear with upper and outer soles of leather not covering the ankle. These items carry an estimated value of $88 million, with the EU tariffs going into effect as early as June 20.

“Let’s be clear, ‘Made in USA’ apparel and footwear will suffer as a direct result of this action by the Trump administration,” said Rick Helfenbein, president and chief executive of the American Apparel & Footwear Association, a trade group in Washington, D.C., whose members include big companies including VF Corp., PVH Corp., Lululemon and Tapestry. “The ability to export our ‘Made in USA’ product is essential for the health of the domestic manufacturing industry. This will be detrimental for our companies and for American workers.

“Just as the administration was downgrading the storm from a ‘trade war’ to a ‘trade dispute,’ it has decided to take a very negative turn. It is important to note that tariffs are a hidden tax on the American consumer. They will inflate prices throughout the economy and hurt American job growth. New barriers will not create new opportunities for Americans.”

Because Los Angeles is a major hub for the manufacturing of blue jeans and high-end clothing items, the tariffs are particularly worrisome.

In many ways, the European Union’s imposition of tariffs on apparel is reminiscent of five years ago when the EU increased a tariff on women’s blue jeans made in the United States. That tariff rose from 12 percent to 38 percent due to another trade dispute, costing some Los Angeles denim makers as much as $250,000 during a six-month period.

This time around, apparel experts are wondering how deep the pain will be because more and more Los Angeles brands are switching their blue jeans production to Mexico. That includes True Religion, 7 For All Mankind and Hudson.

“There is not a lot of major stuff going to Europe,” said Ilse Metchek, president of the California Fashion Association.

Statistics from the U.S. Department of Commerce show that in 2017, the United States shipped $690 million in apparel to the European Union’s 28 countries compared with $720 million in 2014.

One of those shippers was Tellason, a high-end men’s blue jeans company based in San Francisco. About 60 percent of its jeans, which use Cone Denim selvage denim and are cut and sewn in San Francisco, are shipped to Europe.

But the founders of the nearly 10-year-old denim line are not concerned about the higher tariffs for their pants retailing for $230. “Unfortunately, some companies will be heavily affected,” said Tellason cofounder Pete Searson. “But we think our customer already knows we have given them the best deal that we can. When we set up our distribution around the world, we were candid with our profitability with our distributors. We were transparent with our pricing structure, fixed costs and margins.”

He said Tellason customers are pretty loyal. “They are not going to beat us up on price,” Searson said.

Steve Lamar, executive vice president of the AAFA, said the other side of the issue is the cost of increased tariffs on aluminum and steel. Canada, Mexico and Europe account for more than half of the imports of those two metals coming into the United States. “Anyone who uses aluminum or steel will see price increases,” he noted.

That will include the cost of zippers or metal buttons. “A zipper may be a small component, but it affects your cost structure. And if you are a garment maker producing a lot of clothing, it will be a big bill that shows up,” he said. “The bottom line is that tariffs are a tax on consumers and manufacturers.”