United States Trade Policy Update – and the impact on NAFTA and TPP

U.S. TRADE POLICY UPDATE: IMPACT ON NAFTA, TPP
… & BUSINESS
Presented By:
Julia K. Hughes, President

United States Fashion Industry Association (USFIA)

August 20, 2018
www.ApparelTextileSourcing.com/canada/
UNITED STATES

FASHION INDUSTRY ASSOCIATION

1
About the United States Fashion Industry Association
USFIA Members & Affiliates include…
• Brands, retailers, importers, and wholesalers of apparel, textiles, footwear,
accessories, travel goods, home products, and other fashion products

• Service providers, including customs brokers, freight forwarders, law firms,
logistics providers, steamship lines, and testing and certification companies

• Manufacturers and suppliers of finished products and inputs

• Supplier associations, business councils, and promotional groups and agencies

• Academic institutions

2
The New U.S. Trade Policy
Trade Policy in the Trump Administration
• Let’s look beyond the campaign trail rhetoric and see what the new Administration
has said and done in the first twenty months in office.

• During the first year, the trade policy debate was “ferocious” between the
“globalists” and the “protectionists.”

• Who are the key decisionmakers today?

3
Trade Policy in the Trump Administration – Cabinet
Robert Lighthizer Wilbur Ross Steven Mnuchin
United States

Trade

Representative
Secretary of

Commerce
Secretary of the

Treasury

4
Trade Policy in the Trump Administration – White House
Peter Navarro
Director of the White

House National Trade

Council
Larry Kudlow
Director of the

National Economic

Council

5
What has the Trump Administration done so far on trade?
• Withdrew from the Trans-Pacific Partnership (TPP)

• Five Executive Orders and four Presidential Memoranda on trade

• Renegotiation of key Free Trade Agreements

• New trade actions and retaliation starting in 2018

6
President Trump’s Authority on Trade
Statute Presidential Powers
NAFTA Implementation Act of 1993 May terminate agreement with six months notice. Ability to proclaim a return to most-favored-nation tariffs on
imports from Canada and Mexico. Ability to proclaim additional duties following consultations with Congress.
International Emergency Economic
Powers Act of 1977
Regulation of all forms of international commerce, including the power to freeze all kinds of foreign-owned assets,
if the President declares a “national emergency” with respect to a foreign threat
Trade Act of 1974, Section 122 Imposition of tariffs up to 15%, quantity restrictions, or both, for up to a 150-day period, when large US payment
deficits exist, or to prevent a significant depreciation of the dollar
Trade Act of 1974, Section 301 Ability to take retaliatory actions (e.g., tariffs and quotas) against any country that violates or otherwise denies
benefits under any trade agreement with the United States
Trade Expansion Act of 1962, Section
232(b)
Ability to take action (e.g., impose tariffs or quotas) against imports to mitigate a threat to or impairment of
national security when the Secretary of Commerce finds certain imports to impose such a threat
Tariff Act of 1930, Section 338 Provides broad authority to raise tariffs and block imports in situations where the President determines that a
foreign country has unfairly affected commerce in the United States.
Trading with the Enemy Act of 1917 Regulation of all forms of international commerce, including the power to freeze all kinds of foreign-owned assets,
during a time of war

7
US Section 301 Tariff Measures on Chinese Products
List 1 Products that generally fall into the
technology sector and cut across the
aerospace, information and
communications technology, robotics,
industrial machinery, and automotive
industries (818 Tariff lines)
July 6, 2018 25% on $34 billion
annual trade value
Exclusion instructions
published in July.
Deadline in October.
List 2 Products principally identified under
China’s “Made in China 2025” policy
(279 Tariff lines)
August 23, 2018 25% on $16 billion
annual trade value
Public hearing in July.
Exclusion process TBD.
List 3 Many products including consumer
items such as headwear, leather
apparel, handbags, luggage, gloves,
and furniture. (6031 Tariff lines)
TBD 10% or 25% on $200
billion annual trade value
Public hearing August
20-27. Exclusion process
TBD.
Affected products Effective date Tariff rate Process

8
• Self-initiation of Section 232 cases to safeguard the U.S. economic national
security: steel and aluminum

• As of August 7, U.S. raised more than $2 billion in new tariffs

• The biggest trade decision yet – and the potential to ignite a global trade war.
232 case on autos

9
• 301 Case on Chinese practices related to forced technology transfers, unfair
licensing requirements and IPR Violations. This has the potential for the highest
penalties and biggest retaliation.

• As of August 7, raised $477 million

• “ We have a very big IP potential fine going, which is going to come out soon.”

10
• 301 Case on Chinese practices related to forced technology transfers, unfair
licensing requirements and IPR Violations.

• Penalties focused only on China and the proposed retaliation lists contains many
types of products.

11
Section 232
“National Security”
Steel & Aluminum
Section 301
“IP Theft”
Intermediate/Capital
Goods
US imposes
$34b on July 6
$16b proposedChina retaliates
$34b on July 6
US imposes
$2.8b on March
23
China retaliates
$2.4b on April 2
1
2
3
4
5
US counter-
retaliates $200b
on July 10
Pledges $16b
retaliation

12
• Bloomberg News highlights the potential for major impact from the 301 case.

• “Chinese manufacturers won’t be the only ones hurt in a trade was, as their close
relationships as suppliers to American brands will likely create a ripple effect.”

13
Bloomberg News “Trump’s China levy threat puts Walmart, Nike suppliers on notice”

14
Bloomberg News “Trump’s China levy threat puts Walmart, Nike suppliers on notice”

15
• Began official re-negotiation of NAFTA with the goal to finish by the end of 2017.
Still talking in August 2018 BUT rumors that there will be a deal soon.

“I personally don't think you can make a deal without a termination but we're going
to see what happens. Okay? You're in good hands, I can tell you.”

16
NAFTA Renegotiation
“A lot of people don't realize how good it would
be to terminate NAFTA because the way you're
going to make the best deal is to terminate
NAFTA”
President Donald
Trump to Reuters
Jan 17, 2018

18
Trade Update from Deputy USTR Jeffrey Gerrish  
at CBP 2018 Trade Symposium
• “Our trade agenda is driven by a pragmatic determination to use the
leverage available to the world’s largest economy to open markets, obtain
more efficient global markets, and receive fairer treatment for American
businesses and workers.”
• “This is certainly true in our ongoing renegotiation of the North American
Free Trade Agreement where we are seeking to have Mexico and Canada
offer treatment that is reciprocal to our world-leading customs service
and border procedures. In the NAFTA renegotiations, we have called on
Mexico and Canada to increase transparency, simplify processes, and
ensure a high level of integrity and fairness.”

21
• Re-negotiation of the U.S.-Korea Free Trade Agreement

• Less media coverage than the NAFTA talks but still the potential to start a trade
war

22
2018 Trade Policy Agenda
Introduction to the 2018 Trade Policy Agenda
“In 2016, President Trump told Americans, “Ladies and Gentlemen, it’s time to
declare our economic independence once again.” Less than two years later, the
Trump Administration has begun fulfilling that promise.”

23
NAFTA at the August 16 Cabinet Meeting
Trump Lighthizer

24
What’s Next?
• More trade restrictions based on National Security concerns (Section 232)

• More trade enforcement measures

• More self-initiated trade remedy cases

• Uncertain future for the World Trade Organization

• New FTAs:

– with the United Kingdom (after Brexit)

– with Asia – Japan? the Philippines?

– with Africa

24
What’s Next?
• Potential for additional import duties – Reciprocal Taxes
“When a country Taxes our products coming in at, say, 50%, and we Tax the same
product coming into our country at ZERO, not fair or smart. We will soon be starting
RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800
Billion Trade Deficit-have no choice!”

26

27
Options for Expanded Protection
• Self-Initiation of Trade Remedy Cases

• Section 201 Safeguards (a global safeguard)

– Solar panels

– Washing machines (except Canada)

– As of August 7, raised more than $263 million

28
Focus on China
“ Under President Trump’s leadership, we will use all available tools to discourage
China – or any country that emulates its policies – from undermining true market
competition. … In short, our trade policy – like our national security policy – will
seek to protect U.S. national interests.”

29

30
Key Findings from USFIA’s 2018 Benchmarking Study
About the Benchmarking Study
• Based on a survey of 28 executives at leading U.S. fashion companies (76% with 1,000+
employees; 20% with 101-999 employees; 4% with <100 employees) from April to May 2018.
• Respondents represent various business types in the U.S. fashion industry: retailers, brands,
importers/wholesalers and manufacturers.
• Survey covers three topics:
➢Business environment and outlook
➢Sourcing practices
➢Viewpoints on trade policy related to the fashion industry

31
Issue 1: Business Environment 
Top business challenges in 2018
❖ Top challenge in 2018: “Protectionist trade policy agenda in the United States”
Trump Administration’s Trade Record in 2018
• Section 301 action against China

• Section 232 action on steel and aluminum

• New Section 232 investigation on automobiles

• Section 201 for washing machines and solar cells

• Uncertain future of NAFTA

…

Uncertainty…

32
❖ The pressure of “increasing production or sourcing cost” is coming
back this year (#3 top challenge in 2018)

33

34
Respondents’ five-year outlook for the fashion industry

35
• The best since 2014: 100 percent of respondents this year say they plan to
hire more employees in the next five years
• Positions most likely to increase hiring:

1. Market analysts

2. Data scientists

3. Sustainability/compliance related specialists or managers

4. Supply chain specialists

• Positions least likely to increase hiring:

Sewing machine operators

General management administration

36
• Respondents report sourcing from 51 countries or regions in 2018, the same as in 2017.

• 8 out of the top 10 sourcing destinations are based in Asia
#1 China (100%), covered from 91% in 2017

#2 Vietnam (96%), a new record high

#3 Indonesia (79%)

#4 India (75%)

#5 Bangladesh (75%)

#9 Mexico (50%)

#10 USA (46%)

• Almost all leading sourcing destinations in Asia are with a higher utilization rate in 2018

• Sourcing from the Western-Hemisphere is growing in popularity, including members of
NAFTA and CAFTA-DR

37
Issue II: Sourcing Practices
Sourcing Base
Larger companies (1,000+
employees) continue to use a
more diversified sourcing
base
Respondents with less than
1,000 employees are actively
diversifying their sourcing
base

38
Sourcing Base
“China Plus Vietnam Plus Many” is the most popular sourcing model, and it is
evolving
“China”
• Gradually shifts from 30-50 percent of a company‘s sourcing portfolio to
“11-30 percent”
“Vietnam”
• Typically accounts for 11-30 percent of a company‘s sourcing portfolio
“Many”
• Include the United States, North America, South & Central America, Africa, and
Europe
• Each typically accounts for <10 percent of a company‘s sourcing portfolio

39
Sourcing Base

40
Rating of Sourcing Base
Strength
Average
Weakness
Most balanced:
Vietnam
China
Mexico
CAFTA-DR

41
Source in Socially Compliant & Sustainable Ways

42

43

44
100 percent audit;
96.3 percent use third-party
certification program

45

46
Brands and retailers overall conduct more comprehensive audits

No clear pattern between the size of the company and the scope of audit

47
Emerging Sourcing Trend
Keeping a relatively diverse sourcing base will remain a key element of U.S.
fashion companies’ sourcing strategy in the next two years.
• Only 10 percent plan to consolidate their sourcing base(i.e., source from
less countries and work with less suppliers.)

• Close to 80 percent plan to source from the same number of countries or
more countries.

• Respondents are equally divided regarding whether to increase (54 percent)
or decrease (46 percent) the number of suppliers they will work with

48
67 percent plan to
somewhat
decrease sourcing
from China,
a significant
increase from 46
percent in 2017

49
Cost concern may
not be the most
critical factor that
drives U.S.
companies to source
less from China

50
Respondents appear to
be more optimistic
about the prospect of
sourcing from
Vietnam over the next
two years.
Nevertheless, still
very few respondents
plan to substantially
increase apparel
sourcing from
Vietnam

51

52
Respondents express
more interest in
expanding sourcing
from Bangladesh in
the next two years as
companies are actively
seeking China’s
replacements.
Respondents still
regard “risk of
compliance” a notable
weakness of
Bangladesh

53
Issue III: Trade Policy
Utilization of FTAs
FTA overall remain underutilized for sourcing

As an encouraging sign, the utilization rates of NAFTA (65
percent), CAFTA-DR (58 percent) and AGOA (50 percent)
reached 50% this year.

54
Utilization of FTAs

55
Duty-Free Apparel Imports Are Underutilized
NAFTA and CAFTA represent 76% of the duty-free apparel imports

56
Usage of Exceptions to the Yarn-Forward Rules of Origin
Respondents also say they use the exceptions to the “yarn-
forward” RoO mostly when importing under CAFTA-DR and
NAFTA.

57
Usage of Exceptions to the Yarn-Forward Rules of Origin
Barriers that prevent U.S. fashion companies from using the exceptions
more often:
68.4 percent: We do not use the short supply list mechanism because the list
is too limited (i.e., not enough products on the list).
21.1 percent: We do not use the short supply list mechanism because the
documentation requirements are too complicated.
26.7 percent: We do not use cumulation because we are not familiar with the
rule.

58
Trade Policy Priorities
Respondents predominantly support the
policy initiatives to eliminate trade
barriers of all kinds

59
Respondents predominantly support the
policy initiatives to eliminate trade
barriers of all kinds

60
More divided policy issues
among respondents

61
Sourcing Trends for 2018
Do No Harm To NAFTA
Barriers that prevent U.S. fashion companies from using the exceptions
more often:
Many respondents say the North American Free Trade Agreement (NAFTA) is
important to their business.
“NAFTA is VERY IMPORTANT. We own a factory in Mexico that uses NAFTA eligibility to
keep our cost low.”
“(NAFTA) is important to support speed initiatives.”
“NAFTA re-negotiations are a concern for our industry, especially with any precedence
that is set.”

62
Sourcing Trends from 2016 and 2017
• 2016 was a difficult year with
declines in most imports:

– Apparel -1%

– Fabric +5%

– Made-Ups -4%

– Yarn -5%
• 2017 was better for U.S. imports
but apparel imports are steady:

– Apparel 0.79%

– Fabric -2%

– Made-Ups 4%

– Yarn 10%

63
Sourcing Trends for 2018
• The first six months of 2018 were strong for all
imports:

– Apparel 1.22%

– Fabric 6.53%

– Made-Ups 6.74%

– Yarn 8.91%

64
Top 2017 Apparel Suppliers
Rank Country Million SME Million $ % Share % Growth
1 China 11,365.24 27,649.58 41.9 1.8
2 Vietnam 3,601.85 11,560.18 13.2 7.4
3 Bangladesh 1,854.23 5,067.96 6.8 -0.3
4 Indonesia 1,228.72 4,565.92 4.5 -2.9
5 India 1,064.74 3,682.19 3.9 1.9

65
Top 2018 Apparel Suppliers – YTD
Rank Country Million SME Million $ % Share % Growth
1 China 4,844.436 11,276.229 37.44 -0.83
2 Vietnam 1,838.751 5,724.742 14.21 3.33
3 Bangladesh 1,005.472 2,702.272 7.77 4.23
4 Indonesia 619.043 2,245.128 4.79 -5.43
5 India 595.271 2,075.060 4.60 2.38

66
Sourcing Outlook
China Remains The Dominant Supplier
• 48% of U.S. total textile and apparel imports continue to come from China.

• 41% of U.S. apparel comes from China.

• Even with shifts in sourcing patterns, no other country challenges China.

67
Sourcing Outlook

68
Sourcing Outlook

69
Sourcing Outlook
Vietnam Continues To Grow
• Vietnam remains the third-largest supplier of textiles and apparel
combined, and ranks second for apparel.

• Vietnam supplies 8% of total imports, and 13% of apparel.

• Even without TPP, Vietnam market share continues to grow.

70
Sourcing Outlook
Economic Trends Affecting American Brands and Retailers
• Store closings

• Expanding e-commerce

• Global uncertainty and risk

71
What Is the Outlook for 2018 and Beyond?
Uncertainty
• Political and Economic challenges and volatility will continue to
influence companies and consumers
Positive Outlook from the C-suite
• In the PwC Global CEO Survey, a majority of CEOs are optimistic
that global economic growth will “improve” during the next year.

72

73
CEOs are more optimistic in the U.S.

74
Top Investment Destinations are the U.S. and China

75
RESOURCES
Julia K. Hughes, President

United States Fashion Industry Association
(USFIA)

www.usfashionindustry.com
2018 Seminars
See More Seminars from the

ATSC 2018 Show:

ApparelTextileSourcing.com/
Canada/Sessions
UNITED STATES

FASHION INDUSTRY

ASSOCIATION

First Link In Your Supply Chain
Sourcing | Wholesale | B2B eCommerce
www.ApparelTextileSourcing.com

United States Trade Policy Update – and the impact on NAFTA and TPP

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