Fashion firm struggles to deal with tariffs amidst China-US trade friction
Like Kevin Cheung, vice president of a New York-based clothing company, many in the US fashion and apparel industry breathed a sigh of relief amid the temporary trade truce coming from the consensus reached by the presidents of the US and China on the sidelines of the recent G20 summit.
On December 1 in Buenos Aires, Argentina, the two leaders agreed not to impose new additional tariffs and to step up negotiations toward the removal of all additional tariffs, which means tariffs currently levied at 10 percent by the US on $200 billion worth of Chinese products will not rise to 25 percent on January 1, 2019.
Cheung was in Paris on September 24 when the 10 percent additional tariff was imposed by Washington. Items hit by the tariff include handbags, backpacks, luggage, hats and baseball gloves, among others.
In response, China imposed higher tariffs on some $60 billion worth of US goods, with a 5 percent increase for some items and 10 percent for others on a list of targeted products.
The initial response of the young company manager was to cancel his birthday celebration and call his broker to see which categories would affect his business.
“It did not include apparel, so for now we’re pretty safe,” Cheung recalled in a recent interview with the Xinhua News Agency at his office in downtown Manhattan.
Amid the tariff disputes between the two largest economies, the risk of cost escalation, however, was too great for the family business, which was started by Cheung’s parents and has had Chinese partners for more than 20 years.
As part of his mitigation tactics, Cheung has started to diversify his company’s supply base. “It is not really easy to shift from China on our side,” Cheung said. “We have such a wide range of customers, we really depend on the skill level that China has offered us, and so it is not going to be easy.”
Threat of tariffs
For now, the anxiety of Cheung and his industry counterparts over tariff hikes has been put on pause, but uncertainties emanating from the trade tensions remain.
China and the US stepped back from the brink of confrontation and sought to forge a working partnership to benefit both countries and the world, Robert Kuhn, a China expert and chairman of the Kuhn Foundation told Xinhua recently when referring to the Xi-Trump meeting on the sidelines of the G20 Argentina summit.
“No one should underestimate the difficulties of the work ahead: The structural complexities and divergent perspectives go well beyond the trade deficit. But with both presidents making a personal commitment, and both putting their personal credibility on the line so publicly, one can be justified in feeling optimistic, at least at this moment,” Kuhn said.
The ability of fashion brands and retailers to respond to the tariffs is complicated since apparel and textile supply chains are complex, involving inputs from multiple countries, industry analysts said.
“It takes at least two to five years to identify and approve a new vendor, because we are a long way from the days when apparel could be made any place [where] there were workers and a sewing machine,” Julie Hughes, president of the US Fashion Industry Association (USFIA), told Xinhua.
“In most cases, there are no alternative sources of supply for US companies,” she said, calling the tariffs “the top uncertainty and risk of volatility” that USFIA members see in the economy.
“It’s definitely a concern for everyone, we expect things to be resolved in a timely manner,” Cheung said. After all, the relocation of factories and sourcing partners from China could potentially disrupt the US fashion company’s supply chains as well as affect shipping times and sourcing strategies, he added.
The US imports from China add up to the largest market share of the US fashion industry – 41 percent of all apparel, 72 percent of all footwear and 84 percent of all accessories come from China, according to the American Apparel and Footwear Association (AAFA), the national trade association representing more than 1,000 brands in the industry.
Stephen Lamar, AAFA executive vice president, also called uncertainty “the watchword right now,” saying “finding ways to eliminate that uncertainty is ‘job N0.1.’”
“The uncertainty that has been created with the threat of tariffs is almost as troubling to markets as actual tariffs,” wrote Gail W. Strickler, president of global trade for Brookfield Associates, LLC., in an article carried by sourcingjournal.com on December 11.
Imports at major US retail container ports set another new record in October, reaching 2 million containers in a single month for the first time as retailers continued to bring merchandise into the country ahead of a now-postponed increase in tariffs on goods from China, according to the monthly Global Port Tracker report released on December 7 by the US National Retail Federation and leading consulting firm Hackett Associates.
Shoppers descend on the JCPenney store in New York on November 23, 2017.