Trade Wars and China Tariffs the Latest on the Threats to Brands and Retailers + Strategies for the Future Julia K. Hughes, President United States Fashion Industry Association (USFIA) February 5, 2019
fashion made possible by global trade
Our Mission The United States Fashion Industry Association (USFIA) is dedicated to the removal of barriers that impede the free movement of textile and apparel products to the United States and international markets. Our Work for the Industry Communication Education Advocacy
USFIA Members & Affiliates include Fashion brands, retailers, importers, and wholesalers doing business globally Service providers, including customs brokers, freight forwarders, law firms, logistics providers, steamship lines, and testing and certification companies Manufacturers and suppliers of finished products and inputs Supplier associations, business councils, promotional groups and agencies, and academic institutions
In two years, President Trump has Withdrawn from the Trans-Pacific Partnership (TPP) Renegotiated U.S.-Korea Free Trade Agreement Renegotiated NAFTA (now called USMCA) Imposed new penalty tariffs on imports of steel and aluminum Imposed new penalty tariffs on imports from China Targets forced technology transfers, unfair licensing requirements, and IPR violations
What do fashion brands and retailers think? USFIA s 2018 Fashion Industry Benchmarking Study says
Executives Top Business Concerns, Ranked 1. Protectionist trade policy agenda in the United States 2. Market competition in the United States from e- commerce 3. Increasing production or sourcing cost 4. Market competition in the United States from brickand-mortar stores or conventional peer competitors 5. Investing in and updating technology 6. Managing supply chain risks 7. Finding a new sourcing base other than China
Trade protectionism is the #1 concern. Ranked #1 for the second year in a row Ranked #8 to #11 in the first three years of the study between 2014-2016 More than 60 percent of executives rank among their top five business challenges More than 1/3 of executives rank #1 or #2
We will never be completely out of China due to their speed, ease of doing business. The only thing that could change that is a protectionist agenda. -American fashion brand in 2017
The Threat of a Trade War With China Remains the Greatest Risk Pressure to Mitigate Rising Sourcing Costs and Pressure to Diversify Sourcing Outside China
Impact of the Trade War Status Today and What Brands and Retailers Can Do
Section 301 Today Deadline of March 2 nd for agreement on the issues forced technology transfer and intellectual property theft. Also deadline for a commitment by China to buy more products made in the United States Fear that no agreement not only means higher duties on List 3 but also duties on all imports from China
US Section 301 tariff measures on Chinese products PwC "Next Steps on China Tariffs
What Products Are Already Affected? Boxes, for packing of goods, of plastic (3923.10.90) Bags, for packing of goods, of plastic (3923.29.00) Plastic rainwear valued under $10 (3926.20.60) Patent leather (4114.20.30) Leather Handbags (4202.21.90)
What Products Are Already Affected? Leather Apparel (4203.10.40) Leather Gloves (4203.29) Wool Yarn (5106.10.00) Cotton (5201) Hats and headgear (6504)
Strategies for Brands and Retailers Sourcing Diversification Technical Options Classification Valuation Low-Value Shipments (E-Commerce Direct to Consumer)
Apparel Sourcing Today
Sourcing Locations in 2018 Respondents report sourcing from 51 countries or regions in 2018, the same as in 2017. 8 out of the top 10 sourcing destinations are based in Asia #1 China (100%), covered from 91% in 2017 #2 Vietnam (96%), a new record high #3 Indonesia (79%) #4 India (75%) #5 Bangladesh (75%) #9 Mexico (50%) #10 USA (46%) Almost all leading sourcing destinations in Asia have a higher utilization rate in 2018 Sourcing from the Western-Hemisphere is growing in popularity, including NAFTA and CAFTA-DR
Sourcing Trends in 2016 and 2017 2016 was a difficult year with declines in most imports: Apparel -1% Fabric +5% Made-Ups -4% Yarn -5% 2017 was better for U.S. imports with slight growth in apparel imports: Apparel 0.79% Fabric -2% Made-Ups 4% Yarn 10%
Sourcing Trends for 2018 The first ten months of 2018 were strong for all imports: Apparel 3.1% Fabric 8.1% Made-Ups 6.8% Yarn 12.9%
2018 Apparel Suppliers January October 2018 Rank Country Million SME % Share % Growth Million $ % Share % Growth 1 China 9,983.380 41.80 2.49 23533.596 33.06 1.34 2 Vietnam 3218.470 13.48 4.62 10564.395 14.82 7.48 3 Bangladesh 1660.536 6.95 4.46 4646.077 6.47 5.54 4 Indonesia 1020.159 4.25-5.26 3871.650 5.44-1.86 5 India 946.072 3.89 0.31 3348.847 4.60 2.98 6 Cambodia 873.577 3.65 11.87 2073.779 2.89 13.62 7 Honduras 824.688 3.54-6.66 2127.645 3.03-0.30 8 Mexico 731.549 3.10 2.86 2887.767 4.19-2.95
Sourcing Trends for 2018 Fastest Growing Apparel Suppliers in 2018 Ranks Ethiopia up 92% 40 Myanmar up 38% 34 Madagascar up 21% 32 Egypt up 19% 19 Kenya up 13% 25 Haiti up 13% 17
How Execs Rate Sourcing Options Strength Average Weakness Most balanced: Vietnam China Mexico CAFTA-DR
Sourcing Diversification Keeping a relatively diverse sourcing base will remain a key element of U.S. fashion companies sourcing strategy in the next two years. Only 10 percent plan to consolidate their sourcing base(i.e., source from less countries and work with less suppliers.) Close to 80 percent plan to source from the same number of countries or more countries. Respondents are equally divided regarding whether to increase (54 percent) or decrease (46 percent) the number of suppliers they will work with
Duty-Free Imports FTA overall remain underutilized for sourcing As an encouraging sign, the utilization rates of NAFTA (65 percent), CAFTA-DR (58 percent) and AGOA (50 percent) reached 50% this year.
Duty Free Imports DUTY-FREE APPAREL IMPORTS ARE UNDERUTILIZED NAFTA and CAFTA represent 76% of the duty-free apparel imports
Legal Options to Minimize the Impact of the 301 Tariffs
Ideas to Avoid the China Tariffs Classification Check the classification with the experts Change the tariff classification There may be an opportunity to redesign your product Re-engineer with different fabrics Re-engineer with different style This only works so long as most apparel is not affected by the tariffs
Ideas to Avoid the China Tariffs New Country of Origin Keep sourcing and compliance and logistics experts in your company involved in every decision to move to a new factory
How Manage the New Sourcing Strategy Need to guarantee that new sourcing options meet legal requirements Know who you are doing business with Know their capabilities and capacity
Ideas to Reduce China Tariffs Valuation Talk to your customs attorney first Ideas to reduce the value of the product: First Sale Freight Charges Buying Agent
Ideas to Reduce China Tariffs Ship direct to the consumer Talk to your customs attorney first Use Section 321, called De Minimus, that allows most e- commerce to be free of duty and taxes. One shipment to one person each day Must be valued under $800
What s on the horizon? Major threat 10% or 25% tariffs on ALL imports from China More enforcement actions by U.S. Customs and Border Protection Congressional consideration of the new NAFTA Worry about global trade war auto tariffs on the agenda in addition to steel and aluminum Ready to start negotiating bilateral trade agreements with Japan, the European Union and the UK. On the horizon: Africa, Philippines and Switzerland.
Thank you! For additional information: Email: info@usfashionindustry.com Twitter: @usfashion Phone: +1-202-419-0444