Donald Trump is the presumed Republican Party nominee for US president

Donald Trump is the presumed Republican Party nominee for US president

Taking a closer look at threats by Donald Trump to slap steep tariffs on US imports from China, Robert Antoshak, managing director at Olah Inc, believes they would batter Chinese exporters but not take them out of the market entirely. In fact, he concludes, all the Republican presidential front-runner's plans would do is accelerate the move out of China that is already underway.

As America's presidential election cycle barrels along, international trade has become a favourite target of derision, a vehicle for populist anger resulting from a rapidly changing world.

Of course, this isn't the first time trade has been singled out for criticism during a US election. In fact, were it not for the importance of the election to the future of the United States and the world, such criticism of international trade would be comical.

If only that were the case. Playing to populist anxieties, the presumed Republican Party nominee for president, Donald Trump, has singled out China as the main culprit behind US trade deficits which, according to his way of thinking, is to blame for massive job losses across the country in a wide range of industries.

Make no mistake: for Trump, China is a bogeyman. But what is his solution to slay this apparition? Impose a unilateral across-the-board 45% tariff on imports of manufactured products from China.

How would that work? Trump says it would be easy; he would just do it.

China, on the other hand, would just simply retaliate. The global trading system – ironically, a framework originally devised and supported by the United States in the first place – would be undermined. A trade war between the two largest trading partners in the world would likely fracture that system. Moreover, the World Trade Organization would go the way of the League of Nations.

But leaving obvious political and economic fallout from such a policy aside for a moment, how would a 45% tariff rate affect US imports of textiles and apparel from China? On the surface, it would appear that such barriers to trade would price China out of the market. However, there's more to the story.

Sourcing from China has waned in recent years. Import statistics suggest that the US already imports fewer textiles and apparel from China than it did only a year ago, down 5% year-to-date March 2016. At the same time, imports from more cost-competitive countries such as Bangladesh and Vietnam have steadily gained over the same period (up nearly 9% and 3.5%, respectively).

A Trump tariff, then, would only accelerate current trends, although the duties in some cases would fail to price Chinese producers out of the US market. Let me explain why.

Several product examples help to make the point. China currently maintains a dominant position in the US market for cotton trousers, slacks and shorts; women's and girls' cotton trousers, slacks and shorts; and denim fabrics. These are key import markets. For instance, both garment categories include jeans. In all three cases, China is either the first or second largest supplier and offers some of the highest quantities for some of the lowest prices.

Like most countries in the world today, the US measures imports utilising the Harmonized Tariff Schedule (HTS) classification system, but aggregates similar products under broad product groupings as well, formally known as MFA (Multifibre Arrangement) quota categories. Moreover, these imports are counted based on values exported before duties, freight and insurance – commonly referred to "general imports."

Hence, the US groups men's and boys' cotton trousers, slacks and shorts in Category 347; women's and girls' cotton trousers, slacks and shorts in Category 348; and denim fabrics in Category 225.

For imports in Category 347 (Men's & Boys' Cotton Trousers, Slacks and Shorts), China lost share in the US import market through the first quarter of 2016. Even so, this decline occurred while Chinese prices fell this year to about $68 per dozen units, down from nearly $71 per dozen units from the same period in 2015.

Nevertheless, prices from China remain more or less in the middle of prices for the top ten suppliers to the US, and below total world levels. However, if those unit prices were adjusted upward by 45% per the Trump plan, then China's prices would rise just above those of Mexico and Nicaragua ($99.13.per dozen units versus $95.02 and $92.35, respectively).

So, does that mean China could be priced out of the market? Not at all, though at higher price points due to a Trump tariff, the current decline in unit exports to the US would likely accelerate some production to lower cost suppliers such as Bangladesh and Vietnam.

US General Imports – Category 347: M&B Trousers, Slacks and Shorts

Quantities in Dozens Price per Dozen
Calendar Years Year-to-Date Calendar Years Year-to-Date
Country 2014 2015 Mar-15 Mar-16 % Change 2014 2015 Mar-15 Mar-16
WORLD 76,671,300 80,443,468 20,486,862 20,958,864 2.3% $78.64 $76.72 $75.32 $71.55
Bangladesh 21,053,487 22,949,725 6,571,785 7,285,256 10.9% $62.49 $60.59 $62.94 $58.75
China 15,428,279 16,298,776 4,307,474 4,073,123 -5.4% $73.75 $73.47 $70.73 $68.37
Mexico 11,886,997 11,435,789 2,659,317 2,516,352 -5.4% $102.24 $102.76 $98.78 $95.02
Vietnam 5,097,095 5,126,738 1,331,874 1,601,798 20.3% $75.61 $71.63 $69.43 $64.19
Pakistan 3,035,977 3,307,045 762,505 629,902 -17.4% $64.91 $70.25 $66.21 $74.65
Indonesia 2,537,349 2,657,202 626,572 585,670 -6.5% $72.77 $75.98 $73.78 $72.56
Cambodia 2,415,874 2,404,894 477,913 582,809 22.0% $82.11 $74.33 $74.15 $73.02
Nicaragua 2,280,430 2,346,262 486,840 492,446 1.2% $95.54 $91.83 $93.07 $92.35
Honduras 1,809,564 2,023,541 370,397 439,462 18.7% $43.33 $44.84 $42.17 $39.35
Egypt 2,064,488 1,961,457 475,897 415,100 -12.8% $88.95 $92.63 $90.58 $88.79
China Price
plus 45% $106.94 $106.52 $102.56 $99.13

Source: Office of Textiles and Apparel, US Department of Commerce

A similar situation holds for imports in Category 348 (Women's & Girls' Trousers, Slacks and Shorts). Although the average price of these products from China fell to about $53 per dozen units this year, down from a year-ago average of about $55 per dozen units, China remains in the middle of the average for the top ten suppliers.

But if Trump's 45% tariff was added to the prices from China then average prices would approach those of Jordan and Pakistan ($76.39 per dozen units versus $79.18 and $70.44, respectively), but would stay within the range of prices exhibited by the top suppliers.

Put another way: such a tariff would not price China out of the market although it would likely hasten the movement of some production to other more cost-effective suppliers such as Vietnam, Bangladesh or Indonesia.

US General Imports – Category 348: W&G Trousers, Slacks and Shorts

Quantities in Dozens Price per Dozen
Calendar Years Year-to-Date Calendar Years Year-to-Date
Country 2014 2015 Mar-15 Mar-16 % Change 2014 2015 Mar-15 Mar-16
WORLD 106,837,791 110,133,147 28,440,101 29,471,461 3.6% $59.02 $57.40 $57.72 $56.07
China 40,442,960 41,368,059 10,339,381 10,401,637 0.6% $56.99 $55.67 $54.81 $52.79
Vietnam 14,908,545 17,019,441 4,332,461 4,543,953 4.9% $55.00 $51.78 $52.48 $52.68
Bangladesh 9,646,110 11,008,908 3,502,456 3,890,094 11.1% $60.18 $58.74 $56.04 $54.47
Indonesia 11,014,892 10,576,373 2,636,362 2,750,097 4.3% $48.67 $47.25 $51.13 $45.91
Cambodia 5,114,822 4,863,108 1,209,894 1,093,455 -9.6% $56.45 $55.32 $55.62 $53.06
Pakistan 3,169,820 2,845,741 784,363 765,230 -2.4% $67.42 $73.28 $69.94 $70.44
Sri Lanka 2,621,553 2,645,928 670,744 652,188 -2.8% $83.90 $83.53 $81.61 $88.28
Nicaragua 2,841,079 2,395,184 625,944 696,604 11.3% $36.26 $34.83 $34.07 $32.34
India 2,223,189 2,173,635 672,965 820,297 21.9% $62.57 $64.85 $68.91 $63.16
Jordan 2,157,844 2,153,351 635,063 558,023 -12.1% $82.72 $83.06 $76.48 $79.18
China Price
plus 45% $79.74 $75.09 $76.09 $76.39

Source: Office of Textiles and Apparel, US Department of Commerce

Finally, US imports in Category 225 (Denim Fabric) exhibit a similar trend to the previous apparel examples. The US does not import from a wide range of sources in this category. So the top four suppliers illustrate the point that if China's prices were theoretically adjusted upward by Trump's 45% tariff, China's prices would remain well below the averages maintained by Japan ($3.02 per square metre versus $6.17 per square metre for the first quarter of 2016).

 US General Imports – Category 225: Denim Fabric

Quantities in Dozens Price per Dozen
Calendar Years Year-to-Date Calendar Years Year-to-Date
Country 2014 2015 Mar-15 Mar-16 % Change 2014 2015 Mar-15 Mar-16
WORLD 20,589,633 25,053,094 7,429,853 6,692,755 -9.9% $3.24 $2.96 $2.94 $2.69
China 7,406,955 9,082,354 2,415,821 2,334,735 -3.4% $2.24 $2.14 $2.14 $2.08
Mexico 3,854,037 6,222,366 1,792,691 1,890,576 5.5% $2.09 $2.06 $2.02 $1.87
Japan 3,538,001 3,391,620 938,651 832,642 -11.3% $6.22 $6.33 $6.29 $6.17
Turkey 966,459 1,564,380 407,566 367,530 -9.8% $5.36 $4.79 $4.86 $4.48
China Price
plus 45% $3.24 $3.10 $3.10 $3.02

Source: Office of Textiles and Apparel, US Department of Commerce

Of course, market psychology could accentuate any of these trends. On a more concrete basis, though, product mix would also come into play in the form of quality measures. But in all three examples, China would not be eliminated from the market outright. However, currently exhibited loss of market share would likely be accelerated. Bottom-line: although perhaps battered, China's exports would survive in the market.

For sure, sourcing companies would be in a bind were it not for the fact that they have lots of other places where they can source their products. Additionally, under such a scenario, Chinese investment in other countries would only grow, and many companies in China would simply ship to the US via third countries. In any event, products would continue to enter the US market whether a Trump tariff existed or not.

Regardless, it is hard to see how such a duty would bring jobs back to the US. There are too many options for sourcing, too many competing nations in the market. After all, dozens of countries export textiles and apparel to the US.

For all of Trump's bluster, his proposed 45% tariff is little more than a cynical, high profile sound-bite.

For some Americans, globalisation has indeed come with some serious costs. But politically motivated tariffs don't solve those problems. If anything, such actions will only reinforce the feelings of neglect that brought Trump to the surface in the first place. Which is perhaps the point: what is good for Trump's political fortunes benefits no one other than Trump.

About the author: Robert Antoshak is managing director at Olah Inc, a New York-based global textile and apparel development and marketing firm that supplies US companies with denim, corduroy and piece-dyed fabrics. It is also producer of the Kingpins denim shows.

Earlier this year, Antoshak attributed the rise of Donald Trump in the American presidential race as going hand-in-hand with the decline of America's working class.

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