US and China Tariffs Impact on the Global Textile Economy

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The textile industry in China

The market cap of the global apparel manufacturing market is estimated to be totaled $900.3 billion in 2018, with an estimated annual growth of 6% during 2019. In the past years, the global textile manufacturing market has witnessed a significant growth rate, benefiting from relatively comfortable trade economics.

China is the world’s top textile exporter with 40% of the world’s textiles and clothing exports. The textile and clothing industry is the largest manufacturing industry in China with about 24,000 enterprises. It has the largest production capacity for textile products consisting of cotton, synthetic fibers, and silk. To better understand the scale of the Chinese textile industry, its worth noting that it accounts for about 5% of the energy used for manufacturing in China, while this share is less than 2% in the US.

Effect on US retailers and brands

As 41% of the goods manufactured in China are being sold domestically, the rest is being exported to other markets throughout the world, with the US market is the biggest of them (16%). On August 2018, the office of the US Trade representative has announced by the order of the US President, a new 10% tariff on $200 billion worth of Chinese imports will be imposed. The list includes more than 6,000 Consumer goods such as clothing, handbags, cosmetics, leather, and soap. Later that month US President, Donald Trump, threatened to increase tariffs to 25% by the end of February 2019, making the Chinese Ministry of Commerce file a claim to the World Trade Organization (WTO).

Donald Trump’s trade war with China is expected to affect the retailers and brands of US as the outcome of the new tariffs would be higher prices on those consumer goods listed for American shoppers, something that American brand and retailers selling those items have feared for months now. The nation’s top retailers aren’t keeping quiet about the tariffs and potential for revenge tariffs. More than 100 companies including Nike and Walmart urged Trump not to put new duties on products coming from China arguing they would hurt American Consumers and businesses as they hiked up prices while having no effect on China’s attitude towards Us intellectual property.

The US vs China trade war has also given the opportunity to the Asian competitors of China like Cambodia, Vietnam, and Bangladesh to pick up their market shares in the US market.
Nonetheless, the migration of customers from China to other countries of origin might cause the global industry to lose key benefits and advantages that the Chinese industry still hold.
Advantages such as a well-developed production infrastructure, that enable the Chinese industry to be more efficient compared to its foreign counterparts, will be eliminated once retailers will migrate to other, smaller and less developed manufacturing origins.

 

Up and coming

On January 7-9, a delegation from the United States Trade Representative office (USTR) held meetings in Beijing with Chinese officials to discuss ways to achieve fairness and balance in trade relations between the US and China. The meetings were held as part of the agreement between President Donald J. Trump and President Xi Jinping during the Buenos Aires G20 summit. The announcement following the Beijing meetings did not mention the end of February deadline for the 25% tariff threat but noted that the delegation will report back to receive guidance on the next steps. (The official statement can be found here)

As of now, both the countries are imposing tariffs on cotton which is going to have a wider macroeconomic impact on the retailers and brands of US, but they agreed to hold Tariffs on textile manufactured goods until end of February 2019. The US and Chinese teams are working to have a deal made, concluding this latest affair that will certainly have a major effect on the global economy, if mishandled.

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