Tariff issue: the biggest expectation of textile industry amid Sino-US summit

Since the start of the China-US trade conflict in 2018, the United States has imposed additional tariffs on textile and apparel products from China. Among the second round of $200 billion worth of goods imported from China to the US, it covers all types of textile yarns, fabrics, industrial-made products, and some household textile products. The third round of $300 billion worth of goods covers most of the clothing and household textile products.

China is the largest import market for the United States. However, after the change of Sino-US economic and trade relations, the United States began to guide the market to reduce its dependence on Chinese textiles and clothing. In the following years, the proportion of textiles and clothing imported from China decreased significantly. Data showed that the proportion of imported Chinese textile and clothing in US reached 49.3% in 2018, but it fell rapidly to 33.3% by 2022 and extends lower in 2023.

The imposition of tariffs on textiles by the United States on China has led to a significant decline in China's share of the U.S. textile market. In recent years, China's textile and apparel export orders have shifted significantly to Southeast Asian countries like India, Bangladesh and other countries, and China's export orders have decreased significantly. Although export orders ushered in a phased outbreak from 2020 to 2021 due to China's epidemic situation control in place, since 2022, with the gradual regression of overseas epidemic situation, China's exports weakened again. Coupled with the destocking cycle of overseas market, China's textiles and apparels export value decreased by 10% in the first three quarters of 2023.

At present, China-US relations are developing in a positive and favorable direction. At the invitation of US President Joe Biden, President Xi Jinping will go to San Francisco, USA, from November 14 to 17 to hold Sino-US summit, and attend the 30th APEC Economic Leaders' Meeting on invitation. The market players have the greatest expectations for this Sino-US summit, especially the tariff negotiations.

At present, under the background of failing to solve the problem of domestic supply cost in the United States, there may be new iterations in the future of inflation in the United States. Therefore, if considering partially canceling the tariff and restriction measures on Chinese-made goods, it can also help reduce the current high inflation risk, so there is also a certain possibility of tariff reduction. Quote market analysts' outlook for the tariff negotiations, as follows:

Looking forward to the tariff negotiations, considering that the Trump administration almost imposed tariffs on all China-US trade goods in 2018 and 2019, it is difficult to remove all tariffs in the short term. However, "gradient reduction" of tariffs is probably possible for China and the US in reality: Tariff exemptions on a large range of consumer goods (about $130 billion) will help alleviate pressure on US CPI; Reduce tariffs on general industrial manufacturing, chemical materials, and machinery and equipment (about $200 billion), with the aim to lower the average tax rate to below 15% or even exempt it; Maintain a 25% tariff rate or continue to ban "national security" products such as artificial intelligence and military high-tech equipment; Provide market preferential treatment for special products such as new energy, aircraft, and software services to meet the interests of the Democratic government. Additionally, in the past six months, China and the US have had numerous talks around structural issues such as economic systems and developmental models. The new trade agreement may also involve China's economic system, such as the positioning of state-owned enterprises, industry subsidy policies, labor protection, and policy and market coordination.

If the tariffs on textile and apparel can be reduced or exempted, the quantity and value of textile and apparel exported from China to the United States will be increased, thus having a certain positive impact on raw materials such as polyester fiber and cotton. In addition, overseas market is at the end of destocking, and at a certain time point in the future, it will enter the inventory replenishment channel again. If the tariff can be reduced, it will undoubtedly be of great help to the promotion of China's textile and apparel export in the later period.