The Office of the United States Trade Representative (USTR) released a list of products imported from China that will be subject to additional tariffs on June 15th, 2018, announcing the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports. In addition to the $34bn in products the USTR had already listed, the trade bigwigs put out a second list covering another $16bn worth of additional imports from China it is considering adding to the tariff list.
Although Sino-US trade is still volatile, China Textile & Apparel Trade Show New York, Texworld USA, Apparel Sourcing USA, and Home Textiles Sourcing Expo (hereinafter referred to as “the New York Shows”) to be opened on July 23rd are indeed in full swing. According to the organizers, as of now, the overall scale of the exhibition is the same as last year. The backbone export enterprises and professional foreign trade groups in the major foreign trade provinces have adopted the New York Shows as the most important market platform for exploring the U.S. market. From the perspective of enterprise registration, the exporters of China’s textile and apparel industry still have high hopes for the U.S. market.
Structure adjustment for the middle- and high-end
“The United States is still our main market, and we will try our best to keep it.” When asked about the impact of Sino-US trade friction on the company’s export business, Ma Jiaqiang, GM Assistant of Jihua 3542 Textile Co., Ltd. replied categorically. “The annual capacity of the company’s home textiles is about 1.5 million sets. Last year, the total export value was 25 million U.S. dollars, of which the exports to the U.S. amounted to 19 million U.S. dollars.” According to Ma Jiaqiang, Jihua 3542 began exporting bedding products in 2008, and during nearly 10 years of export trade, the most profound feeling is that profits are getting thinner and thinner. “In 2010, the price of cotton skyrocketed, which caused a great impact on us, and the orders were lost a lot. Because of the large price difference between domestic and foreign cotton at that time, India’s cotton price advantage was obvious, which directly led to many of our orders being transferred to India. Moreover, the appreciation also caused China’s competitive advantage in the bedding package to shrink. Now, we are survival in the cracks.” Coincidentally, Qian Fang, GM of Home Textiles Trade Department of Changzhou Hua Er Rui which is also mainly about home textiles and has been in foreign trade with the United States since 2008, said that at this stage, although the company’s business has not been affected too much, the profit margin has been compressed to some extent.
Under such a difficult situation, when confronted with Sino-US trade frictions again, how can companies seek opportunities in the challenges?
“Industry upgrading is particularly important.” This is the way out for the company that Ma Jiaqiang has repeatedly emphasized with the reporter. “At present, the company mainly adjusts its product structure, and it is also why the company survived in these years. Now, in all products, non-cotton fiber products account for about 60%. As far as the current policy is concerned, once trade frictions escalate, cotton products are more likely to be impacted, so even if the tariff shocks are concerned, there is not much difference in raw material costs compared with foreign countries. In addition, we have own unique research and development advantages, for the company develops dozens of new products every year to promote to customers.”
In this regard, Qian Lixia, Business Manager of EUMETEX Company, feels the empathy, for the company is mainly involved in baby and children’s wear, and under the pressures from the comparative advantage of India and Pakistan cotton products, the company has almost abandoned the production of cotton T-shirts and other garments for adults. “Now many companies that are mainly involved in apparel for adults or of basic design have been suffering big loss of orders. We keep baby and children’s wear at present, because the related supporting industries are still available after so many years of cooperation which is also our competitive advantage. In our company, baby apparels are mainly made from velvet fabrics, accounting for more than 50%, and velvet is also the strength of Wuxi. Southeast Asian companies who would like to make such garments have to import fabrics from here, plus transportation costs, etc. , it’s just that we are more competitive.”
According to the organizers, the functional fabric companies participating in the New York Show have increased significantly year-on-year, and the number of companies producing high-end clothing has increased compared with last year, indicating that the technological content of Chinese manufacturing has increased significantly. “This time for the New York Shows, there are few cotton products, but mainly new products, including more than 30 products made from new fibers such as bamboo carbon fiber, coffee carbon fiber, silver ion fiber, seaweed fiber, recycled polyester fiber, recycled tencel fiber, etc. These products were exhibited at the Canton Fair in May this year with very good response, so we’d like to bring them to the New York for try. I have sent samples to customers in the U.S., and they are very interested. During the show this year, we can take the opportunity to visit old customers and see if there is any possibility of increasing follow-up orders for these products.” Ma Jiaqiang said with expectation to the reporter, “Our newly developed new products belong to middle and high-end products at a little higher price comparable to similar cotton products. The products, mainly for high-end customers, are mostly of various functions, such as antibacterial, moisture absorbing, deodorizing and so on.”
Changzhou Hua Er Rui has always been looking forward to getting close to the U.S. market to promote its products and tap potential customers. Qian Fang said that the company is confident in the upcoming New York Shows in July. All the samples have been sent to New York, and the new and old customers have also been invited. It is worth mentioning that new designs, fabrics and products have been specially designed for the New York Shows, and green bamboo fiber products have also been added to meet the target market demand.
Fenghua Hengxiang Garment Factory, a company that will participate in the New York Shows for the first time this year, is a pure export-oriented enterprise mainly engaged in men’s wear. According to sales manager Zhuang Fangfang, “The company plans to develop some mid-to-high-end customers and bring products to the exhibition for business men’s wear, casual men’s wear and some women’s wear which are mainly made from cotton, linen and some functional fabrics, such as moisture wicking and non-ironing. At present, the company has a small market share in the United States, and most orders are mainly from intermediaries. Moreover, the customer level is uneven. Based on communication with the customers through the middlemen, information asymmetry often occurs. Therefore, we’d like to use the New York Shows as a platform to communicate face-to-face with the guests to better understand the customers’ demands and achieve effective communication.”
Product upgrade to win the market
Under the conditions of China’s current loss of labor, raw materials and other dividends, for textile and garment enterprises exporting to the U.S. market, product upgrades for medium and high-end customers are undoubtedly a powerful grip. Taking the road of differentiation and making niche products to win the market has become a corporate consensus. According to the organizers, from the current exhibition situation, among the exhibitors, the number of enterprises making small orders has increased compared with last year.
Ma Jiaqiang said: “Although cotton products still occupy the mainstream consumer market, when the national cotton storage price was high, India has built up a quite perfect industrial chain in the past two years relying on its cotton cost advantage. Compared with China, it enjoys lower energy, raw material and labor costs. At present, China’s cotton sheet and cover products only occupy a small share in the United States, probably about 10%. The share of eighty or ninety has been occupied by India and Pakistan. So it is very difficult for us to seize market share in cotton products. We can only take the road of differentiation and do some niche products.”
According to Qian Lixia, the orders that EUMETEX has received from the U.S. market are relatively random with various quantities, which are basically small and multi-variety orders. However, there will still be high profits based on good cooperation. “This kind of customer is more suitable for trading companies like us. At present, we have more than 40 customers, and we always recommend the popular things for some customers to other customers who have needs. Customers in the U.S. and Canada will also come China to look for fabric suppliers to get some samples, and then ask us to buy what they have selected, so that we can do a lot of small-lot, multi-variety orders.”
“The number of orders placed by customers can not be particularly large, but there are requirements for the quality of fabrics. The company is also upgrading its industry, which will eliminate some customers with little profit, and at the same time carry out a series of upgrades to the factory, such as technology training for workers, updating equipment from time to time, etc., in order to improve production capacity.” According to Zhuang Fangfang, the company often visits some customers, and the feedback they have received now is that for those high-end customers who do not have very big orders, if they put their orders in India or other countries in Southeast Asia, there is no advantage, because some fabrics still need to be imported from China. After all, China has more advanced equipment and more experience in fabric production. It may be that for some guests who are a little bigger and have a lower quality requirement, there are some advantages to go there.” And we also consulted with customers, responded by that if they calculate the price of the fabric and directly cooperate with the factory without the middleman, it is more cost-effective to do it on our side.”
It is learned from the news released by the National Council of Textile Organizations (NCTO) official website that the person in charge of a specialty yarn spinner reminded the U.S. textile and apparel industry: “We have learned that we must innovate to survive. We didn’t have a choice. ”
So it the the development of the textile industry in the United States, under the current complex situation, China’s textile industry needs enterprises to face market demand and continue to innovate. In recent years, with the strong advantages of the textile and garment industrial chain, China has made great progress in product quality, production efficiency, equipment technology, process flow and logistics. The brand building, product service, product design and development, etc. Have been stepping towards the middle and high end. In addition, the new positioning of “technology, fashion, green” is to make the advantages of China’s textile and garment industry stand out again.
As Zhuang Fangfang mentioned earlier, in order to increase production capacity, EUMETEX will provide technical training for workers and will update equipment from time to time. In addition to upgrading the product structure from cotton-based to mid-to-high-end functional non-cotton fiber, Jihua 3542 is planning new plants, eliminating outdated equipment and replacing new equipment to better respond to competitive pressures.
When talking about how to continue to maintain the advantages of China’s textile and garment industry, Ye Erlai, CEO of Shanghai Gaixin Trading Co., Ltd., said that with the rapid development of China’s textile and garment industry, the industrial structure of the textile and garment industry has become increasingly mature. During the key stage when the industry is experiencing a transformation from intensive to brand and design as a competitive point, textile and garment enterprises must change the traditional concept of production and management and promote from product quality, design and development, improve production efficiency, reduce production costs, personnel training, brand strategy, marketing promotion as well as product and services, in order to enhance the company’s comprehensive competitiveness, not only to become a major exporting country, but also to become an export power.
Active cooperation for a win-win situation
According to the US Department of Commerce's Office of Textiles and Apparel (OTEXA), as of April 2018, China’s exports of textiles and apparel to the United States were about 10.927 billion U.S. dollars, while China’s imports of textiles and apparel from the United States were about 300 million U.S. dollars. Even though the trade situation between China and the United States is uncertain, the above series of considerable figures seem to show that China’s enthusiasm for exporting U.S. textiles and apparel is not diminished, and there are some good expectations. China and the United States are each other’s largest trading partners. To maintain normal international trade is a win-win situation for both parties and is in the common interest of the two peoples.
17 associations, including American Apparel & Footwear Association (AAFA), North American Association of Uniform Manufacturers and Distributors (NAUMD), National Retail Federation (NRF), Retail Industry Leaders Association (RILA), etc., wrote to Robert Lighthizer to express their very strong opposition to any tariff increases on U.S. imports of consumer products, such as clothing, shoes, home goods, fashion accessories, or travel goods from China. Such tariff increases would hurt U.S. consumers, U.S. workers, and U.S. companies, and would not address the underlying concerns regarding illegal technology transfer and intellectual property rights theft in China. The United States already imposes a significant border tax on these products. Some tariffs are extraordinarily high. For example, ski jackets, baby garments, and tennis shoes face U.S. duties as high as 27.7%, 32%, and 67.5%, respectively. China is the top supplier of these items to the United States – by far. In 2017, China accounted for about 41% of all apparel, 72% of all footwear, and 84% of all travel goods imported into the United States. Because duty rates in these product categories are so high and because China is such a dominant supplier, U.S. imports from China already account for most of duties collected by the U.S. Government. In fact, duties on U.S. imports of these consumer products from China already represent more than 22% of all tariffs the U.S. collects from all countries on all products. And to be clear, such duties are paid by U.S. workers, U.S. consumers, and U.S. companies – not China. Imposing additional tariffs on U.S. imports from China will raise the price of these articles in the United States. China’s dominance, plus the fact that every American buys these consumer goods, means that every American will feel the adverse effect of this action. At a 25% additional duty rate, Americans may balk at those price increases and purchase less. Fewer purchases would only shift the harm to another part of the economy – the jobs of the more than four million Americans currently employed in the U.S. apparel, footwear, travel goods, and home goods industries.
On May 16th, USFIA President Julia K. Hughes testified at the Office of the U.S. Trade Representative’s hearing on the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, urging the Trump Administration to leave fashion products off the list of products subject to tariff increases under Section 301. Imposing tariffs on imports of these fashion products would do nothing to solve the concerns about China’s IP policies and practices outlined in USTR’s Section 301 report. We need multilateral action, not tariffs. Tariffs on clothing, footwear, and other fashion products would constitute a huge, regressive tax increase. And tariffs on these products are already the highest among manufactured goods, reaching 32 percent for man-made fiber apparel and 67 percent for footwear. Why burden American families even more? And for many of these products, China remains the #1 supplier in the world, with no realistic options for other sourcing destinations that could replace China. Perhaps most importantly, these tariffs would have a negative impact on the American jobs created by USFIA members. Today, trade supports high-quality, high-paying design, product development, logistics, sourcing, e-commerce and service jobs, to name a few. In fact, according to studies of our industry’s global value chains, 70 percent of the value of imported clothing remains here in the United States — even if the clothing is manufactured outside of the United States. The Administration should foster, not discourage, the growth of these jobs at America’s most innovative and iconic brands.
Warren Shouldberg, Business Journalist - Contributing Editor to The Robin Report, Forbes.com and Progressive Business Media Home Furnishings Publications, also stated that “China remains a critical supplier to the U.S. market for home textiles products like bedding and bath merchandise because it has proven time and time again it is the most reliable source for the large-scale programs that dominate the business in America. While other countries can provide similar goods, they rarely can do it in the quantities giant American retailers like Walmart, Target and Bed Bath & Beyond need on a regular basis. China’s infrastructure, manufacturing base, work ethnic and access to raw materials makes it an ongoing resource for the U.S. market and that is not likely to change over the foreseeable future.”
It is gratifying to note that in interviews with exhibitors, most companies can take a positive attitude towards current trade frictions and hope to do everything possible to maintain old customers and develop new ones.
EUMETEX has only started to work in the American market in the past three or five years, which accounts for about 20% of its export share, and is in a growth trend. In the face of Sino-US trade frictions, Qian Lixia hopes that the company can show itself well in the platform of the New York Shows. “I feel that there is no impact at present and guess that later the impact will not be great. The company’s products have always won by product quality, service and delivery, not by high-volume and low-price competition. Otherwise, we will not be able to completely compete with Southeast Asia. Because we can do business with a win-win situation. We must have our value, and customers will choose us, and our value is that the price is moderate, not arbitrarily quoted; the second point is that under the same price, we are more competitive in terms of service, quality, delivery, etc.”
Qingdao CHY Home Fashions Co., Ltd. mainly deals in home textiles, window curtain, shower curtain, tablecloth, beddings, etc. Wang Meng, manager of the company’s trade department, said that the company began to trade with the United States in 2008. Summarizing the past experience of foreign trade with the United States, exchange rate fluctuations and raw material costs have always been the main factors determining the company’s foreign trade. The company has been trying to control the printing and dyeing costs with reasonable prices and quality products, which cannot only stabilize customers but also bring smooth foreign trade. Although Sino-US trade relations have been “fluctuating” this year, so far, the home textile industry has not been involved, and corporate managers are also in danger, paying close attention to the latest policies of the two countries. In addition, the company is also making new adjustments to the market layout – expanding the new market.
Shanghai Gaixin Trading Co., Ltd., which has just started foreign trade with the United States this year, is mainly engaged in the import and export of textiles, knitted cotton fabrics and accessories, clothing, shoes and hats. Ye Erlai said, “Although the initial stage coincides with the tight trade situation between China and the United States, we will respond with a usual mind. We have prepared the right products to the New York Shows based on the market information we have mastered in advance. I believe that the company can achieve a good start relying on the platform.”
As an import and export enterprise mainly engaged in fabrics, Wujiang Dahe is an enterprise integrating industry and trade with independent import and export rights. Niu Zheping, general manager of the company, said: “The business in the U.S. market started in 2011 and has been developing smoothly. During this period, the company’s products have been continuously updated; the company’s fabrics have gradually expanded their share in the U.S. market with good development prospects. In the future, Dahe will pay close attention to the policies of the two countries and the changes in the U.S. market. At the same time, it will put more energy into the company’s own product construction, continuously improve product quality and competitiveness, and actively meet the challenges.”
Qian Lixia believes that if you really face the trade war, you must first protect the customer, preferring to lower the profit, and for some, break even is also OK. Because for any company, the cost of maintaining old customers is definitely lower than the cost of developing new customers. Therefore, in this case, the first priority is to maintain the customers, and maintain the orders, without caring about how much to earn. At the same time, we will consider providing better services to our customers in future cooperation.
Zhuang Fangfang also believes that “Product is ultimately based on quality and service. If you sincerely want to cooperate and want to win together, I believe that customers will not care about the simple tax rate. Last winter, a U.S. customer came to check the goods, and he stated that the current trade policy was very unfavorable to us. However, we feel that although there are trade disputes between the two countries, business is business, and cooperation is still the first choice if possible. No matter where the customers are from, as long as there is demand for our products, we are willing to cooperate. It is not that there is trade friction between the two countries today, I will not cooperate with you, and I will cooperate with you, when you are open to me tomorrow. When there is opportunity, just do it, and when there is any problems, just think of a solution.”
Most companies believe that under the current complex trade environment, the best plan for the U.S. market is to adjust and adapt to each other, and cooperation can achieve a win-win situation.
Three exhibitions co-located for an internal recycle
The three major professional exhibitions ((China Textile & Apparel Trade Show New York), Texworld USA, Apparel Sourcing USA, and Home Textiles Sourcing Expo) were held co-located in the same time. The fabric-clothing-home textile industry chain system resources promote the upstream and downstream linkage of the industry. The New York Shows is a platform for integrating upstream and downstream resources in the supply chain, as well as a platform for launching and promoting new products and technologies.
With the effect of the three exhibitions, the huge audience resources are also one of the unparalleled advantages. The huge audience resources of the upstream and downstream are shared. The three exhibitions have achieved the integration of the upstream and downstream of the industrial chain from fabrics to home textiles and garments, forming an irreplaceable industry centripetal force and linkage trend. By then, multi-domain buyers and professional visitors will flock to and share unlimited resources.
Sino-US trade frictions continue, and uncertainties in corporate development are strengthened. In this context, cooperation between upstream and downstream of the production chain has become increasingly urgent and important. Obviously, the New York Shows will not only provide exhibitors at home and abroad with a space to display image, exchange and cooperate, and expand the development of the industry, but also bring more business opportunities and more opportunities for enterprises. The upstream and downstream enterprises jointly explore the symbiotic channels of mutual cooperation and promote the benign development of the industrial chain with the power of industrial integration. Only when the upstream and downstream of the industry chain go hand in hand can we better promote product iteration, meet consumer demand, and lead the all-round development of the textile industry.