Excluding tariffs, average global apparel prices have risen by 1.4% over the past year

Excluding tariffs, average global apparel prices have risen by 1.4% over the past year

An effect of the US-China trade war is that prices on imports into the US have gone up. But not just those from China – the cost of apparel sold to American importers from countries other than China has also risen. Robert Antoshak, managing director at Olah Inc, ponders the implications.

One of the most challenging things to anticipate in a world of globalised trade is what happens when one of the foundational pillars suddenly weakens. Indeed, globalisation grew from the underlying assumption that markets would be open or become more accessible over time, as import restrictions were gradually lowered.

This was particularly the case with import tariffs, and has typified global trade since the advent of the World Trade Organization (WTO) more than a quarter-century ago.

Enter the Trump Administration, which starts a trade war against China in the name of correcting economic and societal imbalances created by the WTO system of free trade. China, of course, countered US tariffs with higher tariffs of its own, in a race where both sides struggle to penalise each other.

Hence, over the past year, the ensuing trade war raised import tariffs on exports from both countries to levels not seen in decades – and in doing so, set off a series of events that have not been entirely predictable. And here we are today: an essential pillar of globalisation, significantly weakened, subject to unforeseen market forces and psychological uncertainty. Yikes.

Even so, we've witnessed some direct effects of the trade war. Many Chinese textile and apparel producers have been priced out of the market, while Chinese imports of US agricultural products – such as cotton – have suffered in turn, reeling under the weight of higher import tariffs imposed by China in response to the US actions.

Nevertheless, we're left with an imperfect choice of either embracing globalisation and lower tariffs, or moving in reverse to higher tariffs and less global economic integration.

Price implications

But there are also unexpected consequences of the trade war. Let's take prices. They've gone up. One would expect that for exports from China to the US, but I'm talking about the cost of apparel sold to American importers from countries other than China. Take a look at this table:

US apparel imports – Quantities, value, and average unit price

20172018 Year to 10/18 Year to 10/19% Change
Million SME27,080.4127,837.2823,721.1923,997.881.2%
US$ million80,166.0182,856.2070,663.2872,512.012.6%
Unit prices ($/SME)$2.96$2.98$2.98$3.021.4%

Source: Office of Textiles & Apparel, US Dept of Commerce

Note: Quantities are in Square Metre Equivalents (SME)
Value is declared Customs Value of merchandise excluding tariffs

I should explain that these prices are based on US Customs value – that is, the declared value of goods before tariffs are added. So, excluding tariffs, average global apparel prices have risen by 1.4% over the past year as higher tariffs took hold.

To put that into perspective: prices in aggregate have risen by millions of US dollar since the outbreak of trade hostilities. And again, I'm not even talking about higher costs measured in terms of tariffs. I'm referring to fundamental costs – the declared value of merchandise at the port.

So why is this? I believe that as the trade war took hold in the marketplace, uncertainty took centre stage. Sourcing companies, looking to exit China as a major supplier of apparel, fled to other countries in search of safer sources of supply. But by doing so, the supply chains of neighbouring countries, like Vietnam, strained to meet orders.

In fact, for many countries, the inflow of orders flooded supply chains and, in some cases, outstripped the ability of many manufacturers to meet the newfound demand for their products.

And why shouldn't prices increase?

As a consequence, major supplier countries raised prices. And why shouldn't they? After all, with each round of increased tariffs, Chinese apparel becomes more expensive – in many cases, far beyond the prices charged elsewhere for the same products.

Even more, the hikes gave many exporters in other countries the room to raise prices. They were still well below Chinese prices, including tariffs, but higher than would have usually been the case if China had not become embroiled with the US in a trade fight in the first place.

See what I mean. Ten countries account for more than 80% of the apparel imported into the US. Of those ten countries, eight have raised prices while only two – China and El Salvador – have cut theirs:

Top ten suppliers of apparel to the US – unit prices ($/SME)

20172018 Year to 10/18 Year to 10/19% Change
World$2.96$2.98$2.98$3.021.4%
China$2.38$2.35$2.36$2.28-3.4%
Vietnam$3.21$3.28$3.28$3.424.2%
Bangladesh$2.74$2.79$2.80$2.965.6%
Indonesia$3.71$3.81$3.80$3.871.8%
India$3.46$3.50$3.53$3.612.3%
Cambodia$2.31$2.39$2.37$2.567.7%
Honduras$2.39$2.59$2.57$2.777.7%
Mexico$4.27$3.94$3.91$3.940.8%
El Salvador$2.47$2.50$2.50$2.47-1.4%
Pakistan$2.41$2.44$2.45$2.491.7%
Other$4.36$4.41$4.40$4.451.3%

Source: Office of Textiles & Apparel, US Dept of Commerce

Note: Average unit prices are calculated as Customs Value in US $/Square Metre Equivalents (SME)

It looks to me like many countries are raising prices just enough to build in some margin while still appearing to be cheaper than sourcing directly from China. At the same time, exporters must be assuring nervous buyers that they can assuage concerns over switching suppliers to new countries – only that such coddling comes with a cost.

Lower raw material costs

There's another factor to consider: Raw material costs have gotten cheaper. Take cotton, for instance. Prices have fallen over the past year as the trade war took hold. As a result, mills are paying much less for cotton than they did a year ago before the outbreak of trade hostilities – and that includes a recent slight uptick in cotton prices. The cotton "A" index tells the story:

Month-end Cotton "A" Index

Price/kg (US$)ChangePrice/lb (US$)Change
Nov-181.910.87
Dec-181.9-0.52%0.86-0.52%
Jan-191.82-4.21%0.83-4.21%
Feb-191.79-1.65%0.81-1.65%
Mar-191.853.35%0.843.35%
Apr-191.923.78%0.873.78%
May-191.77-7.81%0.80-7.81%
Jun-191.71-3.39%0.78-3.39%
Jul-191.67-2.34%0.76-2.34%
Aug-191.56-6.59%0.71-6.59%
Sep-191.570.64%0.710.64%
Oct-191.633.82%0.743.82%

Source: indexmundi.com

So, we have some suppliers benefitting from higher garment prices, while also saving on their cost of production thanks to lower raw material costs. This net margin is in effect the cost for brands and retailers to mitigate market uncertainty brought about by the trade war. What an ideal situation: one gets paid more for products that cost less to make. Now, that's a business.

Major end uses see higher prices

Fortunately, the US Department of Commerce collects consolidated 10-digit harmonised tariff system (HTS) classifications into broad three-digit buckets of categories, a carryover from the old days when quotas were set using trade measured in these categories. This consolidation makes it so much easier to derive trends from what would otherwise be an exercise in wading through thousands of HTS codes.  

Nerd excitement aside, the category analysis yields some intriguing results. But rising prices aren't limited to a narrow band of products. They affect all major apparel end-uses, including basics like knit tops and jeans. See what I mean:

US imports from world by category, units, value and unit prices

CategoryDescriptionUnitUnits YTD Oct/18Units YTD Oct/19% ChangeCustoms Value (US$) YTD Oct/18Customs Value (US$) YTD Oct/19% ChangeUnit Prices (US$) YTD Oct/18Unit Prices (US$) YTD Oct/19% Change
1ApparelSME23,721,189,25623,997,874,8271.2%70,663,283,11272,512,012,0712.6%2.983.021.4%
COTTON OR MMF
237PlaysuitsDoz5,004,0014,940,485-1.3%206,678,398220,979,0146.9%41.3044.738.3%
239Baby GarmentsKg100,055,84696,939,863-3.1%1,962,295,3171,889,178,742-3.7%19.6119.49-0.6%
Sub-Total2,168,973,7152,110,157,756
% Total3%3%
COTTON
330HandkerchiefsDoz4,741,8373,599,558-24.1%24,032,62218,573,258-22.7%5.075.161.8%
331Gloves/MittensDpr23,652,63422,558,204-4.6%61,207,43362,203,6571.6%2.592.766.6%
332HosieryDpr82,336,98477,952,399-5.3%486,677,915487,017,0860.1%5.916.255.7%
333Suit-Type Coats, M&BDoz477,447600,19625.7%95,837,388102,945,1567.4%200.73171.52-14.6%
334Other Coats, M&BDoz6,031,8656,237,0083.4%674,163,542749,783,07411.2%111.77120.227.6%
335W/G CoatsDoz7,426,4167,414,821-0.2%784,608,125800,382,9122.0%105.65107.942.2%
336DressesDoz12,516,63012,565,3940.4%876,128,950878,010,8020.2%70.0069.88-0.2%
338Knit Shirts, M&BDoz168,914,840179,198,1656.1%5,547,795,6086,091,265,7059.8%32.8433.993.5%
339W/G Knit BlousesDoz130,432,179129,621,589-0.6%4,552,239,2394,616,825,3901.4%34.9035.622.1%
340Woven Shirts, M&BDoz28,026,54926,826,445-4.3%2,323,475,7342,245,211,122-3.4%82.9083.691.0%
341W/G Woven BlousesDoz13,447,33111,766,367-12.5%925,495,704830,861,170-10.2%68.8270.612.6%
342SkirtsDoz3,938,3484,421,90412.3%229,522,807246,418,2547.4%58.2855.73-4.4%
345SweatersDoz6,434,1947,255,35212.8%544,313,312565,693,4233.9%84.6077.97-7.8%
347Trousers, Slacks, M&BDoz71,141,87069,511,051-2.3%5,086,096,0755,183,273,4971.9%71.4974.574.3%
348W/G Trousers, SlacksDoz95,788,58889,094,972-7.0%5,271,661,7405,058,792,499-4.0%55.0356.783.2%
349Bras & Related GarmentsDoz4,375,8204,156,748-5.0%109,163,309111,203,6511.9%24.9526.757.2%
350Dressing GownsDoz4,165,3453,079,798-26.1%189,339,964162,842,896-14.0%45.4652.8716.3%
351NightwearDoz15,079,34115,136,3120.4%661,383,527654,493,458-1.0%43.8643.24-1.4%
352UnderwearDoz140,667,215143,203,5451.8%1,866,434,3251,956,170,7704.8%13.2713.663.0%
353Down Coats, M&BDoz16,05710,903-32.1%7,835,2567,959,3211.6%487.97730.0149.6%
354Down Coats, W&GDoz6,76211,73373.5%4,535,1397,226,77959.4%670.68615.94-8.2%
359Other ApparelKg57,964,79160,142,3303.8%985,265,398988,390,8630.3%17.0016.43-3.3%
Sub-Total31,307,213,11231,825,544,743
% Total44%44%
WOOL
431Gloves/MittensDpr273,760338,06023.5%14,394,00616,540,46714.9%52.5848.93-6.9%
432HosieryDpr2,195,2341,797,809-18.1%42,701,30732,686,453-23.5%19.4518.18-6.5%
433Suit-Type Coats, M&BDoz523,466523,6010.0%343,658,595356,512,1493.7%656.51680.893.7%
434Other Coats, M&BDoz221,260242,4929.6%130,021,967142,189,8169.4%587.64586.37-0.2%
435W/G CoatsDoz615,415587,698-4.5%338,122,587346,576,6602.5%549.42589.727.3%
436DressesDoz243,511231,616-4.9%72,934,42373,543,1630.8%299.51317.526.0%
438Knit Shirts & BlousesDoz1,396,4781,360,293-2.6%302,428,669296,638,125-1.9%216.57218.070.7%
439Baby GarmentsKg57,26534,686-39.4%2,630,3452,322,066-11.7%45.9366.9545.7%
440Woven Shirts & BlousesDoz59,41363,1486.3%17,670,04019,049,4817.8%297.41301.661.4%
442SkirtsDoz95,03488,092-7.3%24,219,62524,586,9901.5%254.85279.119.5%
443Suits, M&BNos3,011,0722,712,454-9.9%317,652,783300,023,935-5.5%105.49110.614.8%
444W/G SuitsNos21,03348,032128.4%1,364,8381,038,762-23.9%64.8921.63-66.7%
445Sweaters, M&BDoz330,203340,4633.1%132,796,199140,897,7076.1%402.17413.842.9%
446Sweaters, W&GDoz1,221,0861,243,8291.9%425,662,525470,623,49910.6%348.59378.378.5%
447Trousers, Slacks, M&BDoz739,134722,450-2.3%212,274,606208,222,062-1.9%287.19288.220.4%
448W/G Trousers, SlacksDoz203,680210,9853.6%66,225,02764,239,681-3.0%325.14304.48-6.4%
459Other ApparelKg3,591,9913,977,50010.7%239,166,392260,238,3978.8%66.5865.43-1.7%
Sub-Total2,683,923,9342,755,929,413
% Total4%4%
MMF
630HandkerchiefsDoz1,807,0131,992,18410.2%8,724,70410,358,58318.7%4.835.207.7%
631Gloves/MittensDpr39,529,61743,057,0648.9%573,287,402605,651,9015.6%14.5014.07-3.0%
632HosieryDpr239,962,903245,645,0642.4%1,246,434,2721,329,469,5826.7%5.195.414.2%
633Suit-Type Coats, M&BDoz1,306,477965,130-26.1%174,638,505187,631,7557.4%133.67194.4145.4%
634Other Coats, M&BDoz12,999,80014,398,59710.8%1,853,448,3192,130,488,02914.9%142.58147.963.8%
635W/G CoatsDoz15,057,28317,138,57913.8%1,935,330,5302,256,978,79016.6%128.53131.692.5%
636DressesDoz35,498,83233,310,874-6.2%2,850,079,1772,752,198,322-3.4%80.2982.622.9%
638Knit Shirts, M&BDoz78,279,74784,470,4537.9%3,514,944,5053,744,027,9056.5%44.9044.32-1.3%
639W/G Knit BlousesDoz102,630,30598,806,830-3.7%4,232,175,0254,027,277,748-4.8%41.2440.76-1.2%
640Woven Shirts, M&BDoz6,712,1026,968,0403.8%514,109,072576,444,31712.1%76.5982.738.0%
641W/G Woven BlousesDoz29,027,56026,132,272-10.0%1,639,485,4211,525,958,663-6.9%56.4858.393.4%
642SkirtsDoz6,622,4596,498,969-1.9%410,843,648435,517,3506.0%62.0467.018.0%
643Suits, M&BNos3,619,0203,595,635-0.6%65,258,13568,090,0624.3%18.0318.945.0%
644W/G SuitsNos943,0391,174,31424.5%12,882,18911,896,849-7.6%13.6610.13-25.8%
645Sweaters, M&BDoz524,067556,1026.1%37,908,28542,575,50712.3%72.3376.565.8%
646Sweaters, W&GDoz6,052,8376,819,64112.7%335,292,880391,424,64716.7%55.3957.403.6%
647Trousers, Slacks, M&BDoz38,428,97537,293,328-3.0%2,365,249,6712,428,254,1882.7%61.5565.115.8%
648W/G Trousers, SlacksDoz49,060,64049,589,6541.1%2,816,089,3932,878,007,9242.2%57.4058.041.1%
649Bras & Related GarmentsDoz40,377,95340,118,427-0.6%1,853,569,9821,810,882,640-2.3%45.9145.14-1.7%
650Dressing GownsDoz9,337,9829,887,0545.9%421,904,394443,132,9725.0%45.1844.82-0.8%
651NightwearDoz20,394,12521,175,1663.8%850,504,111863,809,0101.6%41.7040.79-2.2%
652UnderwearDoz69,343,32168,435,352-1.3%1,243,120,3721,244,706,3270.1%17.9318.191.5%
653Down Coats, M&BDoz614,788740,12720.4%239,908,506293,360,84822.3%390.23396.371.6%
654Down Coats, W&GDoz1,138,3351,171,7522.9%392,812,670470,615,72919.8%345.08401.6316.4%
659Other ApparelKg204,523,011218,171,9826.7%3,970,777,2344,169,851,0175.0%19.4119.11-1.6%
Sub-Total33,558,778,40234,698,610,665
% Total47%48%
OTHER COTTON/WOOL/MMF BLENDS
733Suit-Type Coats, M&BDoz1,9854,845144.1%2,231,8772,889,43029.5%1124.37596.37-47.0%
734Other Coats, M&BDoz6,2014,066-34.4%2,454,6551,655,151-32.6%395.85407.072.8%
735W/G CoatsDoz24,98429,18016.8%13,805,16614,741,2436.8%552.56505.18-8.6%
736DressesDoz205,368223,0318.6%157,008,583141,980,544-9.6%764.52636.60-16.7%
738Knit Shirts, M&BDoz38,34031,147-18.8%7,202,9866,343,070-11.9%187.87203.658.4%
739W/G Knit BlousesDoz94,023115,55722.9%23,106,68518,632,849-19.4%245.76161.24-34.4%
740Woven Shirts, M&BDoz125,835112,847-10.3%32,648,64031,483,252-3.6%259.46278.997.5%
741W/G Woven BlousesDoz385,571364,554-5.5%168,111,472148,026,264-11.9%436.01406.05-6.9%
742SkirtsDoz27,31036,79334.7%14,668,95715,446,0615.3%537.13419.81-21.8%
743Suits, M&BNos51,28069,21835.0%996,0911,670,22467.7%19.4224.1324.2%
744W/G SuitsNos7,4007,037-4.9%842,973899,7696.7%113.92127.8612.2%
745Sweaters, M&BDoz1,27028,6212153.6%426,5911,078,885152.9%335.9037.70-88.8%
746Sweaters, W&GDoz8,6225,440-36.9%2,571,0362,223,355-13.5%298.19408.7037.1%
747Trousers, Slacks, M&BDoz6,3549,09043.1%1,836,4122,480,21735.1%289.02272.85-5.6%
748W/G Trousers, SlacksDoz34,43243,92227.6%18,344,04116,438,357-10.4%532.76374.26-29.8%
750Dressing GownsDoz7,90012,97064.2%2,862,9223,023,8515.6%362.40233.14-35.7%
751NightwearDoz22,79023,2772.1%6,653,6628,208,27723.4%291.96352.6320.8%
752UnderwearDoz37,87974,75997.4%6,484,6186,996,6747.9%171.1993.59-45.3%
758NeckwearKg982,652824,011-16.1%79,597,35661,986,712-22.1%81.0075.23-7.1%
759Other ApparelKg364,758955,578162.0%19,736,22220,805,1935.4%54.1121.77-59.8%
Sub-Total561,590,945507,009,378
% Total1%1%
SILK & OTHER VEG. FIBRES
831Gloves/MittensDpr2,472,2102,291,021-7.3%14,243,20121,571,05151.4%5.769.4263.4%
832HosieryDpr1,647,8941,829,11511.0%10,952,24011,267,1662.9%6.656.16-7.3%
833Suit-Type Coats, M&BDoz71,42187,02021.8%26,302,56828,377,3967.9%368.27326.10-11.5%
834Other Coats, M&BDoz29,36145,06453.5%7,977,9358,664,3598.6%271.72192.27-29.2%
835W/G CoatsDoz259,376561,420116.5%40,433,78869,373,64271.6%155.89123.57-20.7%
836DressesDoz542,631786,76645.0%88,461,027115,391,64430.4%163.02146.67-10.0%
838Knit Shirts & BlousesDoz1,869,2631,745,162-6.6%118,670,280128,358,7528.2%63.4973.5515.9%
839Baby GarmentsKg229,584444,62293.7%7,398,74811,085,33949.8%32.2324.93-22.6%
840Woven ShirtsDoz1,584,8932,153,69435.9%183,365,161225,909,19723.2%115.70104.89-9.3%
842SkirtsDoz107,689145,44635.1%13,906,34915,990,43615.0%129.13109.94-14.9%
843Suits, M&BNos64,62741,863-35.2%3,664,5613,613,055-1.4%56.7086.3152.2%
844W/G SuitsNos21,83016,742-23.3%813,4781,075,38932.2%37.2664.2372.4%
845Sweaters, Veg. FibresDoz223,682212,446-5.0%25,930,10821,563,777-16.8%115.92101.50-12.4%
846Sweaters, SilkDoz3,3892,611-23.0%1,629,5251,855,41513.9%480.83710.6147.8%
847Trousers, Slacks, M&BDoz2,509,9982,909,47915.9%188,475,080221,141,55317.3%75.0976.011.2%
850Dressing GownsDoz72,91254,801-24.8%4,425,5364,438,9630.3%60.7081.0033.5%
851NightwearDoz62,44531,884-48.9%3,058,4973,228,5035.6%48.98101.26106.7%
852UnderwearDoz76,557158,286106.8%7,788,26912,013,96554.3%101.7375.90-25.4%
858NeckwearKg132,164160,57621.5%7,641,2948,003,4804.7%57.8249.84-13.8%
859Other ApparelKg9,833,25311,446,83416.4%189,256,304208,846,41210.4%19.2518.24-5.2%
SubTotal944,393,9491,121,769,494
% Total1%2%

Source: Office of Textiles & Apparel, US Dept of Commerce

I'm particularly struck by the price rises recorded year-over-year in cotton and synthetic fibre (MMF) clothing. Of all the categories listed in the above table, most of the trade (more than 80%) is in cotton or synthetic fibre categories. In fact, of the nearly 50 categories recorded in cotton and synthetic clothing, 33 witnessed higher prices in 2019 compared to the same period in 2018. So, this is not a one-off occurrence.

Some may say that higher prices are the result of a stronger dollar. Still, when the US dollar index is considered (a measure of the dollar against a backset of global currencies), it's apparent that exchange rates have not been a critical cause of these prices increases. In fact, the dollar has traded in a narrow range over the past year:

US dollar index – Trade-weighted against a basket of major currencies

DateClose
31/10/1897.13
30/11/1897.27
31/12/1896.17
31/01/1995.58
28/02/1996.16
29/03/1997.28
30/04/1997.48
31/05/1997.79
28/06/1996.13
31/07/1998.52
30/08/1998.92
30/09/1999.38
31/10/1997.35

Source: Marketwatch.com

What does this mean?

At the time of writing, the US and China have agreed to a partial deal to ease trade tensions – a so-called 'Phase-One' agreement to stop even more US tariffs and roll back some existing tariffs in exchange for market concessions by the Chinese. Whether this agreement is the first step to calming relations between the two countries, or merely a temporary respite, only time will tell. After all, we've seen this before: announcement of a "deal" only to see said deal evaporate.

Chinese prices have fallen in tandem with actual volumes of garments exported to the US as Chinese companies struggle to slash costs to partially offset the effects of higher US tariffs. In turn, many US sourcing companies, still committed to Chinese suppliers, have also helped to absorb some of the tariff increases.

Nonetheless, it is worth pointing out that US inflation remains tame. In fact, the US Federal Reserve has also cut interest rates charged to banks several times over the past few months, a clear sign that inflation is not concerning central bankers in the US at the moment.

If higher tariffs on clothing have somehow resulted in higher prices for consumers, they have yet to be reflected in official retail statistics. Having said that, though, makes me think that the effect of higher prices won't be seen in official inflation statistics until next year. Many companies bought products earlier than would have usually been the case in order to head off higher tariffs.

Yet, I'm still struck by the range of countries raising prices across such a vast list of products. The great question, of course, is whether such price increases are here to stay or are merely a by-product of the trade war? We'll wait until new data in published next year to answer that question.

Even so, I am left wondering if supply chains in China have been permanently disrupted by the trade war (which could be the case), and prices, in general, are somewhat higher as a result? I also wonder if nearshoring will gain traction in a way not seen in recent memory because domestically made products will be more price competitive.

Conventional wisdom suggests that nearshoring is a pipe dream, a small niche in the vast global marketplace. But Trump ran on a political platform to return manufacturing to the US? Has he succeeded? It's too early to know. But in 2020, I suspect will it be an important year for our industry.