Earlier this month, Supply Chain Matters unveiled our 2017 Predictions for Industry and Global Supply Chains (Available for complimentary download in our Research Center). Our last grouping of predictions focused on unique, industry-specific supply chain challenges, and included apparel and footwear supply chains. Somewhat like the automotive industry, there is no industry as globally supply chain linked as that of apparel, and the new trade agenda being pursued by President Donald Trump has the potential to provide significant impact to this industry’s supply chains.

The geopolitical forces of increased trade protectionism are expected to hit U.S. apparel producers and retailers rather significantly in 2017. High volume, lower-margin apparel and footwear producers must continue to rely on global lower-direct cost manufacturing sources such as China, Bangladesh, Indonesia and other lower-cost regions for production of goods. Similarly, U.S. based apparel brand owners can source fabrics and yarns in the United States while Mexican or Central America based apparel firms perform cutting and sewing operations. Under the existing North American Free Trade Agreement (NAFTA), the goods flow freely and duty-free across borders in North America.

Since publishing our specific apparel and footwear industry specific prediction, this Editor had the opportunity to reach out to the American Apparel & Footwear Association (AAFA) to garner additional insights on the industry and its challenges in the coming year.

We spoke with Nate Herman, senior vice president of supply chain at AAFA regarding current industry challenges and impacts. Our discussion referenced a report from global business network CNBC regarding the potential impact of a trade war among the United States and Mexico. We provided AAFA a copy of our 2017 predictions related to the industry and the impact of revisiting the existing North America Free Trade Agreement (NAFTA) governing trade among the United States, Canada, and Mexico.

The CNBC report included some definitive data on apparel and footwear retail categories exported from China to the United States. We asked on specifics related to Vietnam and Bangladesh. The AAFA referred us to the U.S. Department of Commerce, International Trade Administration, Textiles and Apparel Import Report. The latest reported dated February 7th, for the category: United States Imports of Cotton, Wool, Man-Made Fiber, Vegetable Fibers Except Cotton ad Silk Blend Textiles provides the following data related to Top-Ten import countries for 2016. (Data expressed in million square meter equivalents-SME)

Textile Imports 2016



The data indicates that total U.S. imports of textiles and apparel was down 1.0 percent in 2016 over that of 2015. That is an important indicator of product demand. Of the top ten countries importing to the U.S. China remains as top exporter of apparel to the U.S., but overall volumes were down 2.4 percent from the year earlier period. India ranks #2 with a significant 5.8 percent increase while Vietnam ranks #3 with a 2.5 percent increase. Mexico ranks #5 with a 2.4 percent increase while Honduras ranks 9th with a 2.5 percent decrease.

Besides NAFTA, there is also the Central America Free Trade Agreement (CAFTA) that includes trade with the countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. We wanted to explore whether a cross-border or import tax involving the existing CAFTA would have an impact to existing industry supply chains. Many supply chains of U.S. based apparel and footwear providers extend to Central America, as well, now estimated to be as much as 15 percent of total U.S. imports. The region is particularly to manufacturers and retailers that are anchored in quick turn-around “Fast Fashion” supply chain response.

We asked Herman if the Trump Administration has made any indications toward revisiting the CAFTA agreement in addition to NAFTA. His response was that there has been little reference thus far. Today, advanced yarns and fabrics produced in the U.S. transit to Central American countries under duty-free conditions where they are cut and sewn into finished apparel and distributed back to U.S. entities. Herman further pointed to the appointment of Wilbur Ross as the new Secretary of Commerce and chief strategist for trade policy.

Ross’s previous business investment interests included in 2005, combining the then bankrupt Burlington Industries and Cone Mills, a leading supplier of Levi Strauss denim, to create International Textile Group. Ross then lobbied for what became CAFTA. Thus, the industry currently views Ross as knowledgeable of U.S. centric apparel supply chains flows and needs for access to lower-cost, duty-free manufacturing sourcing.

We then asked if higher volume apparel products can be economically produced solely in the United States. Herman indicated that since 2009, there has been a small but sustained 50 percent resurgence in domestic apparel manufacturing. The trend is likely to continue but there are also certain realities relative to any higher-volume manufacturing presence. They include the need for advanced factory automation and access to a trained and skilled workforce, not to mention a inherent domestic based supply chain. The Administration’s current anti-immigration environment could prove to be a detriment to growth in domestic manufacturing. The fact remains that much of apparel’s supply chain value-added remains sourced in lower cost manufacturing regions.

We honed-in on the fast fashion sector where brands tend to rely on Central America and Mexico for sewing and production. We asked if U.S. trade policy changes could impact this specific sector. Herman believes that fast fashion provides great opportunities for the Western Hemisphere to regain market share from Asian producers, and that the industry should be moving in this direction. That stated, the industry was stated as being “in-pause” pending the outcome of any Trump Administration trade policies.

Specifically regarding Vietnam, which would have been a significant benefactor of the now in-doubt, Trans-Pacific Partnership Agreement (TPP), AAFA cites this country as a #2 supplier for clothes and shoes imported into the U.S. The industry views this country as a growing supplier currently growing at double-digits. One of the important tenets of TPP was protections for intellectual property as well as counterfeit goods protections among trading partners. Such provisions remain a concern for U.S. importers.

As the industry moves forward in 2017, Herman indicates that AAFA’s mission is to make sure association members have all the information related to any changing trade policies, but the current perspective is that it’s anyone’s guess as to what’s in the cards for trade policy changes. It will require constant diligence and analysis by AAFA and its industry members.

To that end, Supply Chain Matters will check back at mid-year to ascertain any additional industry developments.

We would like to thank Nate Herman and the American Apparel & Footwear Association for their time and perspectives on what supply chains should anticipate in 2017.

Bob Ferrari

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