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From Field to Shelf — Tariffs and the cost to sustainability

By admin-demo 28 Sep 2018 (Last Updated September 28th, 2018 10:31)

In a world of trade wars, disrupted supply chains, and rising raw material costs, can the apparel industry afford sustainability? Throw tariffs into the mix, and now things become problematic at best, believes Robert Antoshak, managing director at Olah Inc.

From Field to Shelf — Tariffs and the cost to sustainability

In a world of trade wars, disrupted supply chains, and rising raw material costs, can the apparel industry afford sustainability? Throw tariffs into the mix, and now things become problematic at best, believes Robert Antoshak, managing director at Olah Inc.

For environmentalists, this is an essential question. After all, before the recent bout of tariffs between the US and China, the apparel industry – despite its rhetoric to the contrary – had a spotty record in its adherence to sustainability. 

The use of tariffs often results in unforeseen consequences. Actions designed to protect specific industries can, at time, result in the exact opposite. For example, Trump’s import tariffs on motorcycles and motorcycle parts were intended to protect domestic manufacturers like Harley Davidson: only now the company finds that tariffs have just added to its cost structure, resulting in its decision to move more production offshore.

To date, regarding China, we’ve only seen the Trump administration levy tariffs on textiles. It’s just a matter of time before the tariff crossfire traps finished apparel

The same is true of apparel. To date, regarding China, we’ve only seen the Trump administration levy tariffs on textiles. It’s just a matter of time before the tariff crossfire traps finished apparel. And I don’t suggest that lightly: it’s possible folks. Moreover, prices would rise not just because of higher tariff costs, but also because supply chains established over the past 25 years between buyers in the US and manufacturers in China would face disruption.

Alternative sources

Faced with the prospect of higher tariffs, US buyers would of course have little choice but to shift sourcing out of China in favour of cheaper countries such as Vietnam and Cambodia. Long before the trade war, Chinese manufacturers were showing signs of higher production costs, resulting in some buyers looking elsewhere for cheaper production – only now, the prospect of tariffs on finished apparel will only accelerate that trend.

But for how long would safe-haven countries like Vietnam keep prices down? If demand continues to soar, and China continues to decline, as we’ve seen over the past year, then it’s only a matter of time before prices from such countries will begin to rise. And it’s possible that China will continue to play with the CNY-US dollar exchange rate – which may help in the short run, but will wreak havoc with prices over time as such currency manipulation is only a short-term strategy, and ironically can lead to inflation over the long haul.

Implications for sustainability

Which brings me to sustainability. For many clothing companies, sustainability initiatives only add to cost structures. Properly managed, sustainability initiatives should promote efficiency, resulting in supposed cost neutrality for apparel brands and retailers. However, in practice, there are at least as many companies that save money because of sustainability as there are those that spend more because of the very same initiatives. It’s a mixed bag.

For some apparel brands and retailers, sustainability is barely sustainable

Indeed, for some apparel brands and retailers, sustainability is barely sustainable. With today’s retail business, any added cost becomes unaffordable. Enter Trump’s tariffs. Suddenly, imports from China cost as much as 25% more. Who pays for that? If the importer of these products tries to absorb the tariff costs and minimises pass-through costs to consumers, then it will have to cut costs elsewhere. Suddenly, things like sustainability programmes look more like a luxury than a necessity.

A hard industry on the environment

It’s worrisome. Let’s face it. The apparel industry is hard on the environment in everything from carbon-spewing global supply chains, to garment dyeing, to dead stock buried or burning in landfills. Add higher costs via Trump’s tariffs and all of the uncertainty that brings, and many companies may care less about sustainability and more about maintaining profit margins. 

Generally speaking, our industry operates on two types of production – one that favours high-volume, quick turn product fulfilment, and another that prefers smaller-run production. The latter may sound great, but the reality remains that the former is more in demand for most consumers, who are okay with cheap; after all, the retail wars of the past 20 years have conditioned many to only buy on sale. Indeed, products are cheaper, readily available, and frequently change styles (if only marginally in some cases). Although some companies in our industry may aspire to higher-value-added products, cheap reigns supreme for now.

A worsening environment brought to you by tariffs

I don’t think it was Trump’s explicit goal to harm the environmental movement by his tariff actions. It probably didn’t even occur to him. His motivations were strictly to play to his political base, and he’s had some policy traction on trade. He may even think that he’s saving jobs in the US by taking such a draconian approach to trade with China and other countries. But there is a side result where environmentalism takes it in the neck. Collateral damage.

Let me be clear: Trump is out to get the environmental movement. Only I don’t think he ever thought his tariffs could exacerbate an already tenuous relationship between brands and environmental groups. Higher costs will only encourage managers in many apparel companies to re-evaluate how and if they use sustainable production programmes in their supply chains – and if they are prepared to pay for those costs. It’s an awful prospect and another lesson in how restricting trade can result in unforeseen consequences.

A couple of months ago, I attended the Better Cotton Initiative (BCI) annual meeting in Brussels. It was a good event, chock-full of exciting speakers and relevant topics. In some ways, the meeting was the culmination of many years of hard work. Dozens of brands sent their representatives. But oddly, despite all the warm feelings of success promoting sustainably-grown cotton to the apparel industry, there was virtually no mention of the looming trade war between the US and China. 

I suggest that environmentalists had better keep an eye on the trade front. Until there’s some change in US trade policy, environmentalism faces an existential threat from this administration, either directly via policy mandate or indirectly via trade spats. Does BCI want to become incidental road-kill of Trump’s drive for trade glory? Of course not. But don’t be naïve, NGOs. Trump is coming after you – in one way or another.