Lin­ger­ing uncer­tainty

Fash­ion firm strug­gles to deal with tar­iffs amidst China-US trade fric­tion

Global Times - Weekend - - FRONT PAGE -

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 sourcingjour­ 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.

Photo: IC

Shop­pers de­scend on the JCPen­ney store in New York on Novem­ber 23, 2017.

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