Poll results suggest the China trade war is set to continue for the foreseeable future

Poll results suggest the China trade war is set to continue for the foreseeable future

While cautious optimism on the future of global trade may be evident in US financial markets – notably because the United States and China are apparently nearing agreement on a new interim trade deal – representatives of the textile and apparel sectors are still expressing significant caution about future prospects.

On a day that saw the Dow Jones Industrial Average and other US stock indices hit record highs, Trump Administration officials and industry insiders also signalled that ratification was looming for the United States-Mexico-Canada Agreement (USMCA) intended to replace the NAFTA (North American Free Trade Agreement) between these three north American countries.

But participants gathered in New York for the 31st annual Apparel Importers Trade & Transportation Conference, co-sponsored by the American Import Shippers Association (ASIA) and the United States Fashion Industry Association (USFIA), were bleaker in their prognosis – at least as far as China is concerned.

Some 63% of attendees responding to a real-time poll at the event expected the China trade war to continue "for the foreseeable future," 31% predicted a resolution before the next US November 2020 election, while 6% expected a deal to come the next time US president Donald Trump and China's president Xi Jinping meet, an event that has not yet been scheduled.

"There's a lot of angst in the room here about our ongoing trade issue with China" - Bill Jackson, assistant US Trade Representative for Textiles

The outlook was decidedly better when it came to intra-North American trade. The USMCA received the approval of 84% of respondents, the remainder wishing that NAFTA would continue as it was. Significantly, 88% predict that the USMCA will win Congressional approval. Indeed, the US Chamber of Commerce has been pushing lawmakers to ratify the agreement by the end of November.

"There's a lot of angst in the room here about our ongoing trade issue with China," Bill Jackson, assistant US Trade Representative for Textiles, told the event. "I fully acknowledge that there's been an impact on many of you."

Jackson noted that since the first list of 15% tariffs imposed on 1 September on a wide range of imported Chinese clothing and textile products, and with the further set of 15% duties expected on 15 December, in the absence of a deal manufacturers have been jamming his office with requests for exclusions on a product-by-product basis. Some 44,000 such requests have come in so far, he said, but only "more than a dozen have been formally approved."

"We are analysing each one of these requests on a case-by-case basis, and actions will be taken retroactively. Any tariffs that have been paid will be refunded."

Keen to show progress

David Spooner, USFIA Washington counsel and partner at Barnes & Thornburg, noted that these two tranches of tariffs have hurt and will continue to hurt, should they be expanded next month. The 15% tariffs include most of the key clothing and textile tariff chapters 61 and 62. But he stressed: "All this will be moot if the US and China come to an agreement."

"I feel like I have a little intel and to me it's clear that the administration does not want to impose Section 4B tariffs [the 15 December duties]," he said. While agreement "could be delayed to December," he predicted: "I think we will have at least a Phase I deal in the near future. Both China and the White House want to show progress."

Underscoring the desire for this progress was Cao Jiaping, chairman of the China Chamber of Commerce for Import and Export of Textiles and Apparel, who also spoke at the event.

"I still believe that in the next few years China will still be the world's largest exporter of textiles and apparel" - Cao Jiaping, chairman of the China Chamber of Commerce for Import and Export of Textiles and Apparel

Cao charted the rise of his country's textile and apparel trade since it was opened to the world in 1978 and joined the World Trade Organization (WTO) in 2001. China, along with much of its supply chain partners, received a boost from the elimination of textile quotas worldwide in 2005. In 2018 the sector constituted 11.2% of China's exports and maintained its number-one status internationally by accounting for 36% of the global textile and apparel trade.

China's textiles and apparel exports weighed in at a massive US$48.96bn, an all-time high – with exports to the US up 7.9% – in 2018, but have since faced headwinds caused by the disputes between Washington and Beijing. Based on the first-half (US$21.23bn), this export trade will level off, declining by 1.6% year-on-year in 2019.

This, of course, is hardly a precipitous decline and Cao predicted that China sourcing will continue to predominate in textiles and apparel: "I still believe that in the next few years China will still be the world's largest exporter of textiles and apparel."

"China's supply chain is still in a favourable position," he argued. "Fast orders, fashion orders and high-end orders are still, and will stay, in China." Vietnam and China's Southeast Asian competitors are "still one month slower than China. The integrity and production efficiency of China's textile and apparel industry chain is beyond the reach of Southeast Asian" competing industries.

USMCA approval

Closer to home, Spooner expressed hope for approval of USMCA this year, a development he says would require 110 Democratic votes in the House of Representatives (in addition to the minority Republicans) to move forward to the Senate, where Republicans are in control and "approval is expected to run smoothly."

"There are 92 Democrats in Congress that have never voted for a trade deal," he said, underscoring the need to "make sure that we work both sides of the aisle."

He added he has received reports that the White House has been attempting to work with House Speaker Nancy Pelosi, and the Democrat currently heading the efforts to impeach President Trump, to resolve remaining labour and environmental issues connected to the deal. Indeed, hopes were high that USMCA could get the legislative nod in the US, with the "window of opportunity running from 12 November through 21 November," ahead of both Congressional recesses and the kick-off to the 2020 presidential election. Canada has promised to swiftly ratify the agreement once the US has approved its terms.

Moises Kalach, leader of the Mexican Coalition for USMCA and vice president of denim manufacturer Kaltex, said approval of the deal, which was signed last year and subsequently ratified by Mexico, is an existential matter for his country's textiles and apparel sector. "With it the industry can survive and without it, it couldn't," he declared.

"We see NAFTA or USMCA as a handrail for the entire economy of Mexico."