The US textile and apparel industry is a critical stakeholder in the US-China tariff war

The US textile and apparel industry is a critical stakeholder in the US-China tariff war

With the US-China tariff war seemingly on the brink of either an end or an escalation, Dr Sheng Lu, associate professor in the Department of Fashion and Apparel Studies at the University of Delaware, evaluates its potential impact on US textile and apparel manufacturing and related trade activities.

Triggered by US concerns over China's unfair trade practices, a large-scale tariff war broke out between the United States and China in mid-2018. As of May 2019, as much as US$260bn worth of China's exports to the US and US$110bn in US exports to China – including some textile products – were subject to punitive import tariffs ranging from 10% to 25% on top of the regular tariff rate.

While the two sides are thought to be close to striking a deal to end the trade dispute, tweets from President Trump on 5 May warned of plans to increase the current 10% punitive tariff on US$200bn of Chinese imports to 25%, effective from Friday 10 May 2019. Trump also threatened to impose a 25% punitive tariff on all remaining imports from China (worth around US$325bn).

The US-China bilateral tariff war has raised a heated debate regarding its impact on the US economy and businesses. Notably, the US textile industry and many domestic apparel manufacturers see the Trump administration's tariff action against China as an opportunity to boost 'Made in the USA.' Whereas others argue that tariff wars have produced no winners in history.

Given the debate and high stakes, this article evaluates the potential impact of the US-China tariff war on the US textile and apparel industry, including manufacturing and related trade activities. It also offers an insight into the state of US textile and apparel manufacturing in today's interconnected world economy.  

The quantitative evaluation is based on the Global Trade Analysis Project (GTAP) model. Data comes from the latest GTAP9 database, which covers trade, employment and production in 57 sectors in 140 countries.

The analysis focuses on the following three scenarios in the US-China tariff war:

  • Scenario 1: 10% punitive tariff + base year tariff rate in 2017 applied to products traded between the US and China, except textiles and apparel.
  • Scenario 2: 10% punitive tariff + base year tariff rate in 2017 applied to products traded between the US and China, including textiles and apparel.
  • Scenario 3: 25% punitive tariff + base year tariff rate in 2017 applied to products traded between the US and China, including textiles and apparel.

Comparing the results in scenarios 1 & 2 can illustrate both the direct and indirect impacts of the tariff war on the US textile and apparel industry. Whereas scenarios 2 & 3 together can reflect the extent to which a full-scale escalated US-China tariff war may affect US textile and apparel production and related trade activities.

Three findings are of note

First, the tariff war with China will increase the market price for textiles and apparel in the United States and consequently incentivise more production of 'Made in the USA' products. As shown in Table 1, annual US textile and apparel production will increase when the punitive tariff is imposed on textile and apparel imports from China. The most significant increase will happen in scenario 3 (textile output expands by US$8,829m and apparel output expands by US$6,044m) when a 25% punitive tariff is imposed, and the market price of textiles and apparel in the US also goes up by nearly 1.5% compared with the base year level in 2017.

Table 1: Impact of the US-China tariff war on US textile and apparel manufacturing (base year = 2017) (US$m)

Sectors Scenario 1Scenario 2Scenario 3
Textiles -$406.8$4,233.7$8,829.0
Apparel-$400.2$3,042.6$8,829.0

Second, the tariff war with China will hurt US textile exports. The results show the tariff war will increase the production cost of 'Made in the USA,' and result in a decline in US textile exports due to reduced price competitiveness. This is the case even in scenario 1 when the tariff war does not target textiles and apparel directly, but nevertheless raises the price of intermediaries for producing textiles in the United States.

As shown in Table 2, the results show that annual US textile exports will suffer the most significant decline in scenario 3 (down US$1,136m), especially to China and other Asian countries where US textile products are facing intense competition from local suppliers. In comparison, US textile exports to the western hemisphere will also suffer a loss – but to a much lesser extent due to the strong supply chain relationship with the region.

Table 2: Impact of the US-China tariff war on US textile exports (base year = 2017) (US$m)

Export market Scenario 1Scenario 2Scenario 3
World -$36.2-$767.7-$1,136.1
Western hemisphere-$17.1-$63.7-$44.9
Rest of world-$19.0-$704.0-$1,091.2

Third, the trade diversion effect of the tariff war will bring more apparel imports into the US market from Asian suppliers other than China. As shown in Table 3, when the punitive tariff is imposed on textile and apparel products, the value of US apparel imports from China will decline ranging from US$4,673m (10% tariff) to US$8,858m annually compared with the base year level in 2017. This result reflects the mounting concerns of US apparel importers and retailers about sourcing costs.

However, the tariff war will apparently do little to help US domestic apparel manufacturers reduce the competitive pressure from imports. Particularly, in scenario 3, US apparel imports from suppliers other than China will increase as much as US$10,400m, further worsening the US trade deficit in the apparel sector.

Table 3: Impact of the US-China tariff war on US apparel imports (base year = 2017) (US$m)

Scenario 1Scenario 2Scenario 3
World -$705.4$547.8$1,542.2
China$723.8-$4,573.3-$8,858.1
Rest of world-$1,429.1$5,121.1$10,400.3

The findings of this evaluation have two important implications.

On the one hand, the results confirm the US textile and apparel industry is a critical stakeholder in the US-China tariff war. Since textile and apparel manufacturing uses inputs from many other sectors, the ripple effect of the tariff action may still affect the production and export of 'Made in the USA' textiles and apparel – even when these products are not targeted directly.

On the other hand, the findings question the US textile industry's overall support for the Trump administration's tariff war with China. In particular, the tariffs do not seem to serve the financial interest of the US industry given the expected decline of US textile exports and a further increase in apparel imports into the US market.