Are you worried about the impact of the US-China trade war on your business?

The ongoing trade war between the United States and China shows no signs of resolution after it began four years ago. In September 2022, the Office of the United States Trade Representative announced that it would continue to impose Section 301 punitive tariffs on Chinese products despite calls for a review of the policy.

The decision was made at the request of domestic businesses that have benefited from the tariffs, and U.S. Trade Representative Katherine Tai stressed that the tariffs will remain in place until China adopts more market-oriented economic principles. The continuation of this US-China trade war and the implementation of Section 301 tariffs will have a significant impact on global trade, especially on the apparel industry. In this article, we will explore how the US-China trade war affects apparel sourcing and examine potential future developments for the industry.

Important events in the Sino-US trade war

The U.S.-China trade war began in 2018 when the U.S. imposed tariffs on billions of dollars worth of Chinese imports, citing concerns about China’s unfair trade practices and alleged intellectual property theft. China retaliated with tariffs on U.S. goods, and the two countries escalated back and forth with tariffs on each other’s imports.

The United States and China reached a partial trade deal, known as "Phase One," in 2019 that included Chinese commitments to buy more American goods and address some U.S. concerns about intellectual property theft. However, many tariffs remain in place and talks on a more comprehensive trade deal have stalled.

The COVID-19 pandemic further strained relations in 2020, with the U.S. accusing China of mishandling the outbreak and covering up information about the virus. The Trump administration took a tougher stance toward China, imposing new sanctions and restrictions on Chinese technology companies.

In 2021, the Biden administration reviewed Sino-US trade policy and maintained a number of tariffs and restrictions on Chinese technology companies imposed by the previous administration. In September 2022, the Office of the United States Trade Representative announced that it would continue to impose Section 301 punitive tariffs on Chinese products, and the Sino-US trade war has not yet ended.

Background Information on Apparel Purchasing

To understand the impact of the US-China trade war on the apparel industry, we first need to have a clear understanding of apparel sourcing.

Clothing Purchasing

"Apparel sourcing" refers to finding and purchasing the materials needed to make clothing, such as fabric, zippers, buttons, and thread. This process includes everything from design and production to shipping and distribution. Historically, the United States and China have been major players in the global apparel sourcing industry.

In recent years, a shift in manufacturing and sourcing to low-cost countries such as Vietnam, Bangladesh and Indonesia has changed the dynamics of the industry. While China still leads in apparel manufacturing, other countries are catching up, and domestic manufacturing has grown in the United States.

The apparel industry is a vital component of the global economy, valued at approximately $2.5 trillion and employing more than 60 million people worldwide.

U.S. fashion brands and retailers strongly oppose punitive tariffs on Chinese products

American fashion brands and retailers have been among the loudest voices opposing the U.S. government’s punitive tariffs on Chinese products. These companies believe the tariffs are harmful to their business and the broader U.S. economy for several reasons.

Many American fashion brands and retailers rely too heavily on imports of clothing and textiles from China. Tariffs increase the cost of these imports, making it more expensive for companies to produce and sell their products. This, in turn, leads to higher prices for consumers and reduced demand for American-made goods.

The US-China trade war and its impact on apparel sourcing

The impact of tariffs on apparel purchases

The U.S.-China trade war has had a significant impact on apparel sourcing since tariffs on Chinese goods were imposed in 2018. The U.S. imposed tariffs on approximately $550 billion worth of Chinese goods, and China responded with tariffs on $185 billion worth of U.S. goods, including apparel and textiles. These tariffs have made it more expensive for U.S. companies to import goods from China, causing many companies to shift sourcing to other countries.

The impact of the Sino-US trade war on employment in the Chinese and US apparel industries

The impact of the US-China trade war on the apparel industry is far-reaching, affecting not only sourcing patterns but also pricing and employment. The imposition of tariffs has led to higher prices for US consumers as companies pass on the cost of tariffs to their customers. In addition, the US-China trade war has affected employment in both the US and China. US apparel companies have been moving production to other countries to avoid tariffs, while Chinese textile and apparel manufacturers have seen a decline in orders from US customers.

As the trade war continues, apparel companies consider diversifying their sourcing strategies and policymakers carefully consider the impact of trade policy on the apparel industry.

Case Studies

To illustrate the impact of the US-China trade war on apparel sourcing, we will examine two case studies.

A. Case Study 1: H&M

In 2019, Swedish fashion retailer H&M announced that it would increase production in Cambodia due to the US-China trade war. The company previously sourced a large portion of its products from China, but tariffs imposed by the US government made it more expensive to import these goods. As a result, H&M began moving its production lines to Cambodia, where labor costs are lower and the company already has an established business.

H&M's move to Cambodia is part of a larger trend among apparel companies looking to shift sourcing away from China. Cambodia's garment industry has seen significant growth in recent years, in part due to the US-China trade war, according to a report by the International Labour Organization (ILO). The country has become an increasingly popular destination for clothing manufacturing, with companies such as Nike, Adidas and Levi's setting up production facilities there.

B. Case Study 2: Levi's

In 2020, American jeans company Levi Strauss & Co. announced that it would expand production in Cambodia as part of its strategy to diversify sourcing from China. The company previously sourced a large amount of products from China, but tariffs imposed by the US government made importing these goods more expensive.

Levi's has been sourcing in Cambodia for many years and has established strong relationships with suppliers in the country. By increasing production in Cambodia, the company is able to take advantage of lower labor costs and a favorable business environment. Cambodia's garment industry has grown rapidly in recent years, employing more than 700,000 workers in 2020, according to the International Labor Organization (ILO). Levi's expansion in Cambodia is part of the apparel company's strategy to diversify its sourcing to other low-cost countries in Southeast Asia.