Trump, China, Tariffs Op-ed
One thing that companies have found true over the years is that no one has a crystal ball that can predict the future…that said this last election gives everyone a lot of insight in the direction that collectively we are going. The world is entering a new era of a tariff rich environment. This will have huge impacts on the apparel industry. Some very positive and some extremely negative. Here are some overarching thoughts to help you best position your brand for the upcoming 4 years and hedge tariffs.
The proposed new China tariffs under Trump's administration, or similar future policies, will significantly impact the apparel business in several ways:
Increased Costs for Apparel Brands Producing Globally but specifically China:
Higher Production Costs: Many apparel brands source materials and finished garments from China. New tariffs which are estimated to be between 25% to 100% additional, would increase the cost of these goods, either through higher duties or through inflationary effects on labor and material costs within China.
Price Hikes: To maintain margins, many brands will be forced raise the prices of their products. This would particularly affect mid-range and lower-end apparel, where price sensitivity is high.
There is an opportunity in this though, outside of manufacturing in China should be a relative strategic advantage as currently there are duty free opportunities and potential for tariff only being 10%-20%. Compared to a 60-100% tariff there is strength.
Supply Chain Shifts:
Diversification of Sourcing: Brands are already feverishly looking to other countries for manufacturing to avoid the tariffs. This shift will take time and incur additional costs related to setting up new supplier relationships and manufacturing operations.
Supply Chain Disruptions: Sudden tariff increases could disrupt the smooth flow of products, especially if companies are heavily dependent on Chinese factories. This could cause delays, shortages, and inventory problems.
Order Rush: Companies are pulling orders up to get them out before potential increases of China Tariffs. This is creating bottlenecks in China manufacturing as they take as many orders as possible in a pre-increased tariff environment.
Effect on Consumers:
Price Increases for Consumers: The additional tariffs would likely be passed down to consumers, particularly in more price-sensitive categories of apparel. This could lead to reduced spending or a shift to lower-priced or alternative products.
Shift in Consumer Behavior: If prices rise significantly, some consumers might seek out alternatives from non-tariffed countries or prioritize purchasing fewer items.
Non-Tariff Countries: are already seeing the effect of increases from companies hedging new China tariffs.
Retailer and Manufacturer Responses:
Increased Focus on Automation and Technology: Companies may explore options for automation and more efficient manufacturing technologies to offset rising labor and production costs.
Pressure on Smaller Brands: Smaller or independent apparel companies, which don't have the same economies of scale or flexible supply chains as larger brands, could be disproportionately affected by tariff increases.
Overall, the apparel industry could face a mix of cost hikes, operational shifts, and changes in consumer behavior because of new tariffs on China. While larger brands might manage these challenges better, smaller players could find it difficult to stay competitive without adjusting their pricing or supply chain strategies.
On a positive note, in a tariff rich environment potentially hitting China hard, brands with manufacturing outside of China will gain in relative strength as the tariffs will disproportionally hit China based manufacturing.
Articles of Interest
https://www.nytimes.com/2024/11/08/us/politics/trump-tariffs-china.html
https://www.cnn.com/2024/11/08/economy/steve-madden-china-trump-tariffs/index.html
https://www.cnbc.com/2024/11/12/trump-tariffs-companies-scramble-lobbyist-loopholes.html
https://www.yahoo.com/news/trump-ups-ante-tariffs-vowing-001501760.html