Tariffs spell marching ordersmoney-glitz | Tereza Cai 12 Nov 2018
American apparel and footwear companies have started to move their assembly lines elsewhere from China as uncertainties continue to increase along with costs as a result of the long drawn-out trade spat with the United States.
The US announced 10 percent tariffs on US$200 billion (HK$1.56 trillion) worth of imports from China and this is further expected to rise to 25 percent on January 1, 2019.
"Many people over the years have said we're going to leave China, but never did. The problem is that now they are going to leave and return [to the US]. It's not a good thing," says Rick Helfenbein, president and chief executive of the American Apparel and Footwear Association.
Some apparel and footwear companies have already left China.
"It's like driving a car and you have a flat tire. So you take it into the gas station, and the guy says I can fix it now but it might last a thousand miles, or I give [you] a new tire. It's the same scenario. If somebody is threatening you, you have to leave, or you have to reduce your exposure [to China]."
Businesses are more aggressively reducing their exposure to China, and are not going to wait until they get hit or don't get hit by US tariffs. "We don't know what he [Donald Trump] is going to do. Once he does, it's too late," Helfenbein says.
Clothes, shoes, textile and travel goods accounted for 6 percent of all the US imports in terms of value, yet generate 51 percent of all US import tariffs collected in 2017. In another words, they are the major import duty payers.
The reason for that is the fact that average duty rates on those categories, ranging from 10.8 percent to 14.2 percent, are significantly higher than the average duty rates for the other import categories.
For example, the duty for knitted apparel is a high of 14.2 percent, compared with 1.4 percent average duty rate for all US imported products.
"Ten percent, maybe, we could survive, and 25 percent we can't survive. That will force us to relocate," says Helfenbein, who has over 40 years of experience in the industry.
He says 25 percent duties would be unbearable.
The proposed tariffs of 10 percent could raise the overall cost for the US consumer and businesses by roughly US$19.7 billion a year. At the 25 percent level, the cost might rise to US$48.2 billion, according to an American Action Forum report.
The second best choice for those companies is to relocate factories to Vietnam, while that will take years. However, "tariffs force us to relocate. No choice." Helfenbein says.
In addition, China is the top supplier of these items. In 2017, China accounted for about 41 percent of all apparel, 72 percent of all footwear, and 84 percent of travel goods imported to the US.
Vietnam can only absorb a part of the production in China.
Taking apparel as an example, China and Vietnam make up 50 percent of all apparel imported to the US.
Furthermore, there is no comparison between China and Vietnam in making the footwear, which is more like assembling a car, as it is a labor-intensive industry, as well as with huge demand of diverse materials, which are easier to obtained in China than in Vietnam.
Given that manufacturers are scrambling to move product out of China, prices will go up globally.
At an additional 25 percent duty, AAFA expects that a family of four will have to pay at least US$500 more to buy basic consumer products every year. At the same time, non-Chinese suppliers may sell products at a higher price to the Americans during the Sino-US trade dispute.