Lankan apparel stands to benefit from Us-china trade spat

„Apparel exporters say they are being approached by U.S. clothing buyers „U.S. currently sources 1/3 of its apparel imports from China and just 2.4% from SL „Trade war impact likely to reflect in Lankan export figures in 4-5 months

The apparel industry, which is Sri Lanka’s leading export revenue earner, is set to gain fresh impetus from the U.S. market in the coming months, as American garment importers look for producers outside China due to the increasing threat of a trade war between the two economic giants.

“Because of the U.s.-china trade war, some of the U.S. apparel importers who were sourcing their products from China are coming to Sri Lanka,” Sri Lanka Apparel Exporters Association President Felix Fernando told Mirror Business.

After investigating China’s ‘unfair’ trade practices, the US Trade Representative this month determined to impose higher tariffs on US$ 50 billion worth of imports from China, subject to a consultation period running until late May.

These tariff lines did not include textiles and apparel. However, US President Donald Trump has instructed that the tariff lines be expanded to include US$ 100 billion worth of products, as he is unhappy with the U.S. trade deficit with China.

This follows after Trump imposed higher tariffs on aluminium and steel, which affected Chinese industries disproportionately, and resulted in China imposing US$ 3 billion worth of retaliatory tariffs on US products. Neither Trump nor his Chinese counterpart Xi Jinping appears to be backing down.

In this context, Fernando said that some of the members of the Sri Lanka Apparel Exporters Association have already been approached by top U.S. clothing buyers to partially manufacture some of the orders currently being serviced by China.

“We don’t have the economies of scale that China has to deliver the size of orders China receives. So we will produce partial orders, around 20 percent of regular order sizes, while other countries like Bangladesh and Vietnam which have cheaper costs will produce the rest,” Fernando said.

The U.S. currently sources approximately one third of its apparel imports from China, and just 2.4 percent from Sri Lanka.

Sri Lankan apparel manufacturers, some of whom are considered the world’s best with regard to the quality of products and technology utilization, have extensive operations in such countries in South Asia and South East Asia as well, potentially allowing Sri Lankan firms to capitalize on the opportunity to a great degree.

Fernando opined that once the orders previously placed with China begins to come Sri Lanka’s way, the situation won’t reverse easily, even if the US and China reconcile their differences.

“China won’t be a threat in the apparel industry in the future because their costs are rising. That is why we’re witnessing a movement of production from China to places like Vietnam. But even though Sri Lanka’s costs also are also not that low, buyers prefer our quality,” he said.

Fernando said that the impact from the U.s.-china trade war would most likely be reflected in Sri Lanka’s export figures in another four to five months time.

However, the hurdle Sri Lankan apparel companies would have to overcome would be the acute labour shortage in the industry. The government’s statistics office released a report this January, which said that of the half a million job vacancies present in the country, 77,000 were for sewing machine operators.

The US market, during the first two months of 2018 was not in a favourable condition for Sri Lankan apparel exports, absorbing US$ 364 million, or 45 percent of Sri Lanka’s total apparel exports, while recording a 1.1 percent decline year-on-year (YOY).

Meanwhile the EU, which in May 2017 restored the duty free GSP Plus facility to Sri Lanka, took in approximately 42 percent of Sri Lanka’s apparel exports worth US$ 335 million, growing at a pace of 8.06 percent YOY, which was slightly lower than the average double digit growth experienced after the first few months of regaining GSP Plus, from July to December 2017.