Something happened to the fashion industry this month that hasn’t happened since before the Great Depression. The U.S. government raised tariffs on U.S. apparel, footwear, and home textile imports into the United States. By a lot.
Starting Sept. 1, the U.S. imposed a new 15% tariff on 92% of the clothing, 68% of the home textiles, and 53% of the shoes we buy each year from China. These tariffs are on top of the average 13.2% tariff rate already in place on these products, and which already keep prices higher than what they might be.
These new tariffs amounted to a national sales tax on U.S. fashion, directly raising prices on about 30% of all imports and indirectly raising the price on everything else. Moreover, because women’s fashions are more likely to be imported from China and because sales taxes are regressive, this new tariff disproportionately hurt women and lower income Americans.
When the Trump administration launched investigations into Chinese practices regarding forced technology transfer and theft of intellectual property rights, it pledged to avoid hurting U.S. consumers while it went after high-tech industries associated with China’s national industrialization strategies. Instead, the collateral damage of the trade war will now make it more expensive for Americans to get dressed every day. Quite possibly, it’s making the original problem even worse as selling counterfeit clothes and shoes into the U.S. just got more rewarding as their legitimate competitors face higher taxes.
How can we move past this trade-turmoil wardrobe malfunction? Here are four steps the Trump administration can take to make sure the trade war doesn’t become a fashion war.
First, let’s get back to the negotiating table and be prepared to stay there for a long time. The business community, like many on both sides of the aisle in Congress, support the administration’s goal of a long-lasting, sustainable and enforceable deal with China. We crave certainty, and the right deal can set the U.S.-China trade partnership on a predictable path for many years to come. And we are also patient. We know that this deal will take a long time to negotiate and get right and we are willing to wait. It’s too important not too. That also means it’s important not to panic if the Chinese prove to be the tough negotiators we know they are.
Second, let’s immediately end the latest tariff hikes, which affect many fashion and non-fashion consumer items and which will cost American families about $1,000 per year, according to J.P. Morgan. This is not a sign of weakness, but rather a recognition that the U.S. consumer is currently driving the U.S. economy. Fortunately, the Chinese have given the administration an opening by pledging not to retaliate for the latest tariff hikes and by announcing several rounds of tariff exclusions. The president has recognized this by delaying the next tariff hikes for two weeks. As a further sign of good will, the administration should eliminate all the latest tariff hikes. In the world of tit-for-tat tariff policy, this action will surely trigger further tariff elimination by the Chinese too. While we are waiting for our crack negotiators to craft a deal with China, our exporters can reclaim markets and our consumers can keep buying affordable fashion.
Third, let’s get the U.S. Mexico Canada Agreement passed and implemented this year. Demonstrating the administration’s ability to steer a renegotiated trade agreement through Congress — especially one that updates the North American Free Trade Agreement — is a tailor-made way to tout negotiating prowess. Plus, once implemented the USMCA returns the North American trade partnership to a predictable path. Not only is that important for U.S. economic security, but it also sends an important message to the Chinese (and other trading partners for that matter) about the value of economic certainty in a sea of relative chaos. It would also showcase the ability of this administration to implement and stick to trade agreements.
Fourth, let’s reduce the hidden tax on fashion that U.S. consumers already face. In 2018, the U.S. fashion industry accounted for just 6% of all U.S. imports but paid nearly 40% of all tariffs. Not only is this disproportionate tax expensive for U.S. consumers, but it also hampers the ability of today’s global value chains to create jobs in America. Fortunately, there are options on the table, including:
- Allowing individual, non-trade sensitive apparel and footwear products to receive benefits under the decades-old Generalized System of Preferences trade program. This would create new opportunities for these products to be imported duty-free from developing countries if the products are not import-sensitive.
- A proposal currently before Congress would provide duty breaks for U.S. imports of clothes and shoes that incorporate U.S.-made inputs. Allowing companies to deduct the value of the U.S.-made textiles or leather contained in those imports before tariffs are assessed would encourage the use of U.S.-made materials and help U.S. exports.
- The Mongolia Third Neighbor Trade Act would provide duty-free access for cashmere clothing made in Mongolia, products that are not made on a commercial level in the U.S.
If helping U.S. consumers is not enough, the Trump administration can take solace in knowing that these initiatives help accomplish other oft-tweeted policy goals — be they to help diversify supply chains out of China, promote more U.S. exports, or both.
Defenders of the new tariff-heavy approach on trade often suggest that the current trade wars are necessary to accomplish a larger goal. “No pain, no gain” is what we often hear. But an endless trade war with no agreement in sight sounds more like “all pain, no gain.” And that’s never fashionable.
Stephen Lamar is Executive Vice President at the American Apparel & Footwear Association (AAFA).
