The on-going trade war between the US and China has sparked debate on the long-term outcome of tariffs and counter tariffs to both sides and the common consumer alike. As early as March this year, 24 of the biggest retailers in the US, including Walmart, Target, Best Buy, Macy’s, Abercrombie & Fitch Co, American Eagle Outfitters, JC Penney, and Kohl’s Department Stores signed a letter sent to the President, requesting him not to impose heavy tariffs on China, as it would not only affect business, but also cripple the average American for whom prices of household basics like clothing, shoes, electronics, and home goods would jump manifolds. AAFA has supported the argument, claiming that a tariff on textile and apparel products would be a hidden tax on US consumers, particularly since China represents such a large source of US imports of these products.
Economists too warned against the long-term implications, but President Trump went ahead with his plans and in June the Trump Administration announced the imposition of a 25 per cent punitive tariff on a list of Chinese goods based on the results of its Section 301 investigation, which targeted against China’s unfair trade practices related to the forced transfer of American technology and intellectual property. In a tweet earlier this year, Trump categorically justified his crack down on ‘unfair’ trade, stating– “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down US $ 100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” Trump is equating higher tariffs to lower imports and hence, more jobs coming back to the US.
Tariffs and counter tariffs…
The US Trade Representative (USTR) clarified that the additional duty imposed would initially apply to 818 lines of products, starting July 6, 2018 and cover approximately US $ 34 billion worth of imports from China. In its communication, the USTR also added that a final determination on the second set of 284 proposed tariff lines, which would cover approximately US $ 16 billion worth of imports from China would be announced shortly.
In a swift and ‘tit-for-tat’ response to the US action, China’s Ministry of Commerce (MOFCOM) quickly announced its proposed counter-measures, including a 25 per cent punitive tariff on approximately US $ 34 billion worth of US soybean, autos, and fruits, also effective July 6, 2018, adding that it was prepared to impose the punitive tariff on another list of products, which covers approximately US $ 16 billion worth of medical devices, chemicals, and energy imports from the United States.
This counter move was not appreciated by the US government and an official statement announced, “As a result of China’s retaliation and failure to change its practices, the President has ordered US Trade Representative (USTR) to begin the process of imposing tariffs of 10 per cent on an additional US $ 200 billion of Chinese imports.” Earlier the office of the US Trade Representative (USTR) said it would, to which China countered that it was also ready.
It is interesting to note that the 1,102 tariff lines targeted by USTR focusses mainly on products from industrial sectors that are in-line with the ‘Made in China 2025’ industrial policy, which includes industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.
NCTO supports import Tariffs, pushes for textiles to be included in fresh list
In a significant move, the textile sector has come out in open support to the ongoing tariff war with the National Council of Textile Organisations (NCTO), praising the Trump administration’s tariff announcement. Further, the NCTO has also suggested that any future list made for tariff purpose under Section 301 should include finished textile and apparel products. “The Trump administration is right to confront China’s unfair trade practices. Section 301 tariffs show the world that countries who cheat the United States on trade will be held accountable,” said NCTO President & CEO Auggie Tantillo.
This is completely in contrast to how the retail industry sees the situation. Earlier on, when the initial list under Section 301 was made public, the American Apparel and Footwear Association (AAFA) called it a victory that no textile and apparel products are subject to the punitive tariff proposed by USTR. The June 15 USTR list also removes the majority of the textile machinery initially on the retaliation product-list back in April 2018. Even the United States Fashion Industry Association (USFIA) opposed adding apparel (items classifiable under chapters 61 and 62 of the HTSUS) and other fashion products (such as footwear, handbags, and luggage) to the retaliation list against China, arguing that imposing tariffs on imports of fashion products would do nothing to solve the concerns about China’s IP policies and practices outlined in USTR’s Section 301 report.
However, the NCTO stands firmly in favour of including textile and apparel products in the future list. “NCTO is convinced that the Trump administration’s Section 301 tariffs would be far more effective if Chinese apparel and sewn non-apparel end products were included in the 301 list because that would benefit the entire US textile and apparel supply chain,” said Tantillo. He further added that if properly targeted, Section 301 tariffs would not only address the underlying illegal activity on the part of China, but also help re-shore American jobs and boost U.S. exports to the NAFTA and CAFTA regions. “That’s why NCTO will continue to engage the Trump administration on ways to maximise the benefit of Section 301 tariffs to American industry and workers,” emphasised Tantillo.
In response, the USFIA argues that the U.S. tariff rates on apparel and fashion products are already the highest among manufactured goods, reaching 32 per cent for man-made fibre apparel and 67 per cent for footwear. “Any additional tariff would constitute a huge, regressive tax increase, and have a negative impact on the American jobs,” says the Association. The Tax Foundation predicts 48,585 job losses from the tariffs Trump has already enacted, claiming that the job loss figure would soar to over 250,000 if Trump moves forward with tariffs on another US $ 200 billion worth of Chinese products.
The situation has become a matter of concern. Adding textile and garments to the list would impact not only the US market, but also the textile and garment industry world over. Other manufacturing destinations in Asia like India, Bangladesh, and Vietnam could benefit from the move. But if Trump decides to extend the tariffs to other countries, it could be a major damper on trade. All eyes are on how the situation will play out, as of now, it’s anyone’s guess.