The recently implemented Uyghur Forced Labor Prevention Act (UFLPA) is significantly impacting fashion executives’ sourcing plans.
More than 95 percent of respondents to a United States Fashion Industry Association (USFIA) survey said they expect UFLPA’s implementation will affect their company’s sourcing, according to the association’s 2022 Fashion Industry Benchmarking Study. More than 85 percent reported plans to cut their cotton apparel imports from China, while another 45 percent said they will further reduce non-cotton apparel imports.
USFIA based its new report on a survey of 34 executives at “leading” U.S. fashion companies, 81 percent of which have more than 1,000 employees. Approximately 70 percent self-identified as retailers, 67 percent as importers/wholesalers and 40 percent as brands. USFIA conducted its survey between April and June.
About one-third of respondents told the USFIA that they source less than 10 percent of their total sourcing value from China, up from 20 percent pre-pandemic. Half said they source more from Vietnam than from China. Asia as whole, but “especially” China, still plays a “very important and critical role” as the textile supplier for apparel imported into the U.S, Sheng Lu, the report’s author and an associate professor in the University of Delaware’s Department of Fashion & Apparel Studies, noted. Even for companies eager to diversify their textile material sourcing, Lu said “the process will be much longer than apparel.”
Though more than 92 percent of respondents do not plan on reducing apparel sourcing from Asian countries other than China, nearly 60 percent said they would also “explore new sourcing destinations outside Asia” in response to UFLPA, USFIA reported.
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“Because currently China still plays a very important role as a textile supplier for many Asian countries… even imports from other Asian countries still probably will be targeted by the enforcement of this new law,” Lu said Monday in a webinar unveiling the report. “Therefore, companies try to diversify sourcing from regions outside of China. So, where they are thinking about? Of course, CAFTA-DR.”
The Fashion Industry Benchmarking Study reported “considerable excitement about increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement.” About 20 percent of respondents said they place more than 10 percent of their regional sourcing orders from the region, up from 7 percent last year. More than 60 percent plan to increase apparel sourcing from CAFTA-DR members over the next two years.
For now, however, Lu said the trade data shows no “clear increase” in CAFTA-DR’s market share of total U.S. apparel imports. “The key bottleneck is about the textile raw material,” he said.
“Making textiles, you need technology, you need machinery, and for developing countries, it’s very hard to do so,” Lu added. “Currently, many textiles used by garment factories in Central America, they come from the U.S. However, if you look at what [the] U.S. textile industry is making, they’re trying to shift from making apparel-related yarns and fabrics into making more technical textiles, medical textiles because it’s more high-tech driven, or maybe it’s more profitable.”
If nothing changes, Lu warned, CAFTA-DR’s supply of textile raw material may grow worse. Those who want to reverse this trend should invest in “different kinds of products,” Lu suggested.
“Just like our university, we also want to expand our enrollment,” the University of Delaware professor said. “The most effective way is to launch some popular new majors. If you offer some really powerful majors like data science, sustainability, of course you can attract more students. The same if you want to really expand sourcing from a region.”
Overall, regional sourcing trends have stayed fairly static, Lu noted, with trade data showing more than 70 percent of U.S. apparel imports coming from Asia and about 15 percent originating in the Western Hemisphere. “This structure is pretty stable,” he said. USFIA’s survey results were “highly consistent” with this data, he added.
This doesn’t mean that companies aren’t changing how and from where they source their goods, however.
The percentage of respondents sourcing from 10 or more different countries, for example, shot up to 53.1 percent.
For the past few years, this metric had seen repeated declines, falling from 57.1 percent in 2019 to 42.1 percent in 2020 to 36.6 percent last year.
When asked from which countries or regions their company planned to increase their sourcing value in the next two years, India led the way, followed by CAFTA-DR and Bangladesh, with all three selected by more than half of respondents. Mexico ranked fourth, while Indonesia and Vietnam tied for fifth.
The same day the USFIA published its annual benchmarking study, Reuters published its own report suggesting U.S. allies will introduce similar restrictions as those imposed by the UFLPA. The publication quoted Thea Lee, deputy undersecretary for international affairs at the U.S. Labor Department, who reportedly claimed she had engaged with her counterparts in the European Union and Canada on how to implement restrictions on products thought to be made with forced labor. “My sense is that this is moving,” Lee told Reuters.
Tariffs
Though the USFIA’s report suggests U.S. fashion companies are cooling on China, respondents demonstrated a clear desire for the removal of former President Donald Trump’s Section 301 tariffs. Seventy-three percent of respondents said they support the punitive tariffs’ removal, while 13 percent said otherwise. About 65 percent called for making all textile and apparel products eligible for exclusions, while 15 percent said the opposite.
Of the companies with more than 1,000 employees, 79.2 percent of respondents supported removing the China Section 301 tariffs, significantly more than the 50 percent of companies with less than 1,000 employees who said the same.
Two weeks ago, Politico reported that President Joe Biden was likely to announce changes to Trump’s tariffs this month. The publication cited three industry officials and former federal officials with knowledge of administration plans. According to Politico, new actions could include a rollback of duties on a small list of goods, the implementation of a new exclusion process and a new Section 301 investigation into China’s trade actions, conducted by the United States Trade Representative (USTR).
Robert Lighthizer, the USTR under Trump, defended his former boss’ tariffs in a Wall Street Journal op-ed Monday, arguing that repealing some Trump administration tariffs would hurt U.S. workers and businesses, increase the country’s trade deficit with China and “squander” Washington’s leverage with Beijing over intellectual-property theft.
Trade organizations including the American Apparel & Footwear Association (AAFA) and the National Retail Federation (NRF), which have long lobbied against the Section 301 tariffs, have more recently argued for the repeal on the grounds of easing inflation. Lighthizer, however, dubbed this “nonsense.”
According to Lighthizer, the tariffs Biden is targeting had “almost no price impact” when they were implemented and “couldn’t be responsible for today’s inflation.” Chinese imports, he added, only make up 2 percent of goods included in the consumer-price index and exclude energy and food.
“While eliminating these tariffs would do almost nothing to ease inflation, it would be a substantial concession to Beijing,” Lighthizer wrote. “The Section 301 tariffs were a response to decades of Chinese intellectual-property theft and other unfair trade policies and provided important leverage in achieving the Trump administration’s Phase One Agreement with China, which was implemented in February 2020. Rescinding any of them would signal that this president doesn’t take China’s intellectual-property abuses seriously and is willing to ignore that China is America’s primary geopolitical adversary—not a benign economic partner—which has dangerous implications for U.S. national security.”
Jonathan Gold, NRF’s vice president of supply chain and customs policy, acknowledged that eliminating the Section 301 tariffs is not the only action that can be undertaken to reduce inflation, but still insisted that they “certainly” have a price impact on affected goods.
“I think as many economists from both sides of the aisle and many different industry groups have all said, this certainly will have an impact on pricing,” Gold told Sourcing Journal. “I don’t think you can look at pricing pre-pandemic as to what’s happening now with inflation and make a comparison. They’re very different issues that are happening right now. But anything that’s going to help alleviate the cost pressure on businesses, that can then be shared by consumers, is a benefit.”
AAFA president and CEO Steve Lamar reiterated his organization’s repeated calls for the repeal of the Section 301 tariffs in an emailed statement.
“As American families start shopping for back-to-school necessities for their children, the ongoing supply chain disruptions and Section 301 tariffs mean higher prices for essentials like clothes, shoes, and backpacks,” Lamar wrote. “Thankfully, President Biden can relieve American families of the burden that Section 301 tariffs are imposing on these basic goods in about the time it takes him to tie his shoelaces. We urge him to do so before inflation trips up the American economy any harder.”