Mexico shipped $4.2bn of apparel and textiles to the US last year

Mexico shipped $4.2bn of apparel and textiles to the US last year

Mexico's textile sector is eyeing growth of 4% this year but faces looming threats including the Trans-Pacific Partnership (TPP) and Donald Trump's proposal to barricade its US border – which some executives estimate could trigger $2bn in annual trade losses.

A 6% to 7% jump in export value will drive this year's hike, predicts Juan Alfonso Ayub, president of main textiles trade lobby Canaintex, adding that domestic demand is also set to increase as a sagging peso fuels import substitution.

"It's going to be a better year," Ayub says, speaking only for textiles and not apparel manufacturers. "We are seeing more US demand and a sharp drop in sub-valued imports" from Asia, which were soaring two years ago before Mexico City introduced provisions that have largely stamped them out.

That said, Ayub notes the TPP is a rising red flag at a time when Mexico continues to lose market share to Vietnam and other formidable Asian rivals. The 12-nation pact – of which Mexico is a member – was agreed between the United States, Japan, Australia, New Zealand and other Pacific Rim nations such as Vietnam and Malaysia in October.  

"We are very worried, this country [Vietnam] is an evident risk to our country and enjoys big government subsidies," he says. "Fifteen years ago, we were the number one or two supplier to the US. Now we are the fifth or sixth."

As part of the game-changing potential of the TPP, Latin America's second-largest economy negotiated a 16-year, 25% average duty phase-out for 80 key apparel and textile products. Yet Ayub says that's insufficient to protect suppliers from Vietnamese competition and the lingering risk that China will use its neighbour to triangulate exports.

"Eighty products is nothing," he says. "There are 1,300 textile categories that could be affected."

Ayub claims US concessions to Vietnam give it an unfair sourcing advantage, notably the so-called Import Allowance Program and short-supply rules enabling it to import fabric from China relative to US cotton purchases.

Canaintex will lobby Mexican legislators to keep the textiles sector's concerns in mind when debating the TPP, whose timeline will be synced to US Congress discussions with an as yet uncertain time frame.

Ayub says spinners, which send mainly send cotton and polyester products to the US, are moving to develop more value-added items to supply local full-package firms looking to thwart Asian rivals.

More "intelligent fashion" and printed fabrics like denim with Tencel, modal or bamboo as well as polyester yarn, are some examples, he says, adding that Mexico is also boosting its output of synthetic, microfibre, thermal knit and thermo-cool fabrics. There are also plans to develop agave-based fabrics.

According to Ayub, Mexico is making 30-35% more value-added, niche products than five years ago. In jeans, for example, price points have risen to as much as $120 compared to $30.

Arturo Vivanco, president of the Guadalajara branch of apparel trade lobby Canaive, says the industry hopes to receive more information about the government's final deal with the 11 TPP countries.

"They haven't told us that much and the TPP is practically at our door front," he notes. Apart from Vietnam, "we are going to have more competition from Malaysia, Bangladesh and Afghanistan so we need to understand how all the rules will work."

Donald Trump wall

Meanwhile, Donald Trump's escalating animosity with Mexico and rising threats he would build a 3,200-kilometre fence on the Mexican-American border to stem immigration should he be elected the next US president, is putting both spinners and weavers on tenterhooks.

Canaive's general manager Jose Manuel Martinez estimates the wall could cut $2.2bn or 20% of the $11bn in US-Mexican textiles and apparel trade in its first year, if ever built.

Trump's "proposal is out of proportion," he charges. "I don't understand how he can say the US has a deficit with Mexico."

Mexico is the US's number one cotton and fabric customer, he emphasises, with several US firms churning out yarn and garments or sending fabric to be assembled in Central America and re-looped into Mexico for final stitching.

The Republican presidential front-runner "does not understand how integrated our economies are and how they are becoming more and more integrated each day," adds Martinez. "The amount of feedstocks we import generates US jobs, the amount of apparel we export creates US retail jobs."

"If Trump proceeds with this wall, the US will suffer. It will have a geopolitical problem."

US trade

The US exported $6.5bn of apparel and textiles to Mexico last year of which $4bn was fabric and $1.2bn apparel parts to be sewed in Mexico. There was $665m worth of textiles and yarn, according to American Apparel and Footwear Federation (AAFA) data.

In turn, Mexico shipped $4.2bn of which over $3bn was clothing and about $1bn textiles, Canaive executives say. Before the dollar climbed to its current 17.50 peso value, Mexico was exporting around $6bn annually.

Martinez says Mexico's apparel industry is also strengthening after winning new sourcing contracts from global fast-fashion retailers taking its high streets by storm. One such player is C&A, which last October launched a new campaign to locally produce 90% of jeans sold in Mexico.

"That also benefits US cotton," he concludes.