COMMENT: Where next for US apparel imports from China?
The long-term import trend may be negative, but count China out
Every month the US Government's Office of Textiles and Apparel (OTEXA) publishes industry import data, and every month professionals pounce on this data to provide the latest information on China's import trends. Yet they all draw different conclusions.
- China is moving up
- China is moving down
- China is moving sideways
We all start with the same data, so why do we draw separate conclusions? Here are some of the reasons.
1: Looking at the wrong place
We often use data based on units rather than value. Economists do not measure trade in units because units tells only half the story. Data based on value shows both units and price.
If we examine data for China we see the following:
a: Unit imports from China have been rising comfortably every year since 2011, while imports by value have been rising very modestly.
b: FOB prices for made-in-China garments have been declining rapidly since 2011.
c: When we compare imports from China with total US garment imports (market share), it is clear that China has become trapped in a classic price squeeze.
2: Failure to put data in the correct time frame
To understand the most recent data, we have to consider trends measured in months.
a: China follows a classic seasonal pattern — with almost a textbook chart. Highs and lows follow the same pattern year after year.
2015 shows a slightly different pattern. The year opened poorly with January showing substantial declines and February showing only slight improvement. March, on the other hand showed a spike. Clearly this unusual activity was due to the West Coast port go-slows. We can see clearly that once the backed-up goods finally cleared customs, imports from China, once again continued their decline. While May showed a great increase on April, it was still below the same period is almost every preceding year.
b: Monthly market share by value brings the 2015 decline into focus. The March spike is reflected by the higher value when compared with previous years and the May increase shows a decline when compared with previous years.
3: Failure to keep the latest data in context
Whatever we think May tells us, when all is said and done, the long term trend for Made in China garments is negative.
a: The trend line is quite clear. China’s US market share peaked in 2010-2011 and has been declining ever since.
b: The year-on-year trend supports the possibility of a secular decline.
4: Looking at the numbers takes you only so far
Despite the data, it would be a serious mistake to count China out.
a: The actual declines, while substantial in numbers, are relatively small when compared with China’s overall market share. Market share decline for YTD May 2015 was -2.2%.
b: Customers are finding it very difficult to replace China, even with regional industries.
c: In the past, betting against China has almost always been a fool’s game.
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