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Trade war escalates, how will textile and apparel industry fare?

2019-05-20 11:00:23 CCFGroup

On May 9, 2019, the United States Trade Representative (USTR) published a Federal Register notice increasing the duty rate on the third tranche (List 3) of Section 301 tariffs for Chinese imports worth approximately USD 200 billion from 10% to 25%.  According to statistics, there are more than 900 HS codes in the tariff list and 927 textile products were also included, covering all products in HS-code heading 50-60 which covers all yarns and fabrics made of various raw materials like cotton, wool, silk, hemp, and chemical fibers, , as well as textiles for industry and some textile machinery products. Exports amount to US was around 4 billion USD. But apparels and most home textiles are excluded.



On May 13, Office of U.S. Trade Representative (USTR) announced that it had officially initiated legal procedures to impose tariffs on USD 300 million worth of Chinese imports. It will hold a public hearing on Jun 17 and seek advice within the next week, which means that additional tariff on USD 300 billion worth of Chinese imports will impose as early as Jun 24. The remaining covers apparel products in HS-code heading 61-63. So what are impacts of Sino-US trade war on Sino-US apparel trade?



As for export product structure, apparel and textiles accounted for 57% and 43% respectively in 2018 China textile and apparel exports. Compared with that in 2017, it was easy to find that China apparel exports decreased while textile exports increased.



As to global trade share, China apparel exports accounted for 32.84% of global exports in 2017, and its market share decreased by 1.7%. It is expected to inch down by 0.51% in 2018. China apparel exports dropped for the third consecutive year after reaching a peak of 38.35% in 2015.



The main markets of China textile and apparel exports are in US, Japan, EU and ASEAN. Since 2004, US export amount of textile and apparel from China has surpassed Japan and has become the second largest export market of China. As for trade value, China total exports of textile and apparel to US remained above $40 billion USD in 2013-2018. In 2018, it amounted to $49 billion USD, up by 7.8% on the year.



Judging from share of China textile and apparel in US market, the proportion has been increasing since 2001. In 2018, China textile and apparel accounted for 51.57% in US imports, up by 2.7% year-on-year.

As to US textile product structure, US mainly imported apparel, and the proportion of textiles was low mainly due to high labor cost, low-end textile production and apparel processing transferring to other countries such as Asia. However, it did not mean the decline in US textile industry. The United States had great competitive advantages in high-end and high-tech specialty yarns, high-end fabrics, industrial textiles and high value-added self-brand apparel industry.



Nowadays, Sino-US trade friction escalated. As for proportion of trade amount and trade surplus contribution, textiles and apparel may become one of chips for US to hinder China. According to HS-code heading classification standard, top five industries in China exports to US in 2018 were mechanical and electrical products, furniture, toys, miscellaneous products, textiles and raw materials, base metals and products, plastics and rubber. Textiles and raw materials export amount to US was about $40.5 billion USD, accounting for 7.5% of China exports to US, up by 3.9% year-on-year. It was also the third largest contribution of China to US export trade. That is to say, once list of tariffs on $325 billion USD worth of China imports is officially launched, textile industry may become one of victims of Sino-US trade war in terms of importance in Sino-US export trade.

Southeast Asian countries will become the biggest winners affected by Sino-US trade war. Since textile and apparel industry is labor-intensive industries, production costs including raw materials, labor, land rent and manufacturing costs, directly affect price of textile and apparel. It is one of the primary reasons for transfer of China textile industry to Southeast Asian countries. Hidden costs, including tariff preferential policies promote the rise of textile industry in Southeast Asia. Take Vietnam as an example. In 2018, Vietnamese textile and apparel exports totaled more than $36 billion USD, up by 16% year-on-year. In 2019, amid intensifying Sino-US trade war and launch of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnamese textile and apparel industry will usher in a new round of growth. However, due to imperfect industrial chain layout of Southeast Asian countries, textile semi-finished products are still heavily dependent on imports. In addition, the quality of workers is generally low, and work efficiency is not as good as that of Chinese workers, hindering development of textile industry in Southeast Asia. Therefore, Southeast Asian countries still have a long way to go if they want to surpass or even replace China in global textile and apparel industry.

In summary, amid current escalating Sino-US trade war, China textile and apparel export-oriented enterprises will become victims of Sino-US trade war, and impacts on export-oriented enterprises are obvious. In this case, it is urgent for textile and apparel export enterprises to establish own apparel brand, improve competitiveness of products, and explore a larger foreign market.

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