US textile import aberrations
The lifting of quotas in 2005 should have led to an increase in the number of garments imported into the US, particularly from China. But according to the latest US government data, it didn't turn out like this at all. Here, David Birnbaum looks at logic and reason - the garment industry way.
There is something about the garment industry that defies logic and makes nonsense of any attempt at reasonable explanation.
For example, when garment professionals first sat down to project the effects the quota phase-out, they all agreed that logic dictated two points:
1: The new free market would increase the number of garments imported into the US; and
2: US imports from China would rise inexorably.
But something happened. Once again logic and reason have taken a running jump.
First, let me rush to assure you that there was nothing wrong with the logic.
Unit imports should increase. The end of quota would bring FOB price reductions because quota premiums would disappear and the open market would result in greater competition among suppliers. The laws of supply and demand dictate that lower prices bring increased demand.
China should dominate the global garment market. Made-in-China garments were the most heavily restricted by quota. As a result China's FOB (free on board) prices rose to the point where they were 30% higher than world average, yet customers stood in line to buy their garments. The end of quota would reduce made-in-China FOB prices. Demand would shoot up and China would take over the garment world.
But events did not follow logic - and in the second half 2005 disturbing trends began to emerge.
Unit imports did not shoot up as expected. In fact the opposite occurred. Monthly imports did rise compared with 2004; however, the rate of increase was falling. By December 2005, import increases had reached zero.
Imports from China did not rise inexorably. In fact the opposite occurred here as well. In the second half of 2005, imports of made-in-China garments began trending down compared with the same month in 2004.
Let me rush to assure you there were good and proper reasons to account for these seeming anomalies. Here's how the reasoning went:
1: Unit imports did not shoot up as expected because importers and suppliers were slow to adjust to the new free market paradigm. Instead, 2006 would bring the expected import shoot-up garment professionals said.
2: Imports from China did not inexorably rise as expected because the perfidious US government imposed safeguard quotas and embargoed the key categories in July. In 2006, when these products come off embargo, we will all see the great China garment takeover industry experts reckoned.
Now 2006 is here, we know the score
Garment industry unreasoning irrationality: 2
Logic and reason: 0
The US government last week released preliminary data for January 2006.
As the chart below shows, the US imported just 3% more garments in January 2006 than in January 2005. The trend that began in July 2005 is maintaining stubborn consistency in the face of all logic and reason.
click table to enlarge
The same trend occurs in virtually every strategic product, with cotton T-shirts (category 338/339) showing the largest decline. The pattern repeats itself in the other big import products - cotton woven shirts (cat 340), cotton woven trousers (cat 347/348, and underwear (cat 352/652.
The situation with regard to China is even worse. As the next chart shows, US garment imports from China have been trending down since July 2005.
click table to enlarge
In June 2005 the US imported 159% more pieces than in June 2004. By December that figure had been reduced to 53% and in January 2006 reached only 10%.
click table to enlarge
What does it mean?
Logic and reason dictated that things were not supposed to work this way. There must be a reason for these most unusual events. In the case of the missing China exports, the problem becomes even more confusing.
Here are some of the explanations on offer:
1: The entire mess is the result of safeguard quotas. US imports from China declined after June 2005 because major product categories were embargoed.
This reasoning may explain the decline in the second half of 2005. However, January 2006 was the beginning of a new quota year, so US imports of the previously embargoed made-in-China products - T-shirts, cotton and MMF trousers, cotton and MMF woven shirts, and underwear - should have returned to normal. In fact, in January 2006 these imports declined by over 73% compared to the same month in 2005.
2: January 2005 was a unique month - the first month in over 40 years that was free of quota. Importers and retailers rushed to take advantage of the new environment
This reasoning may be logical, but does not correspond to the facts. Traditionally January has always showed increased imports followed by decreases in February and March. However, 2005 was the exception. Last year the spike occurred in February.
3: January 2006 was simply an aberration. February will return to normal.
This does not appear to be the case. The US government publishes daily data on quota utilisation - and the figures for imports from China do not show any improvement for February.
4: We do not know what is happening.
All things considered it is too early to reach any conclusions. However, based on my logic and reasoning, I prefer explanation number four.
By David Birnbaum.
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