With One Trade War Truce, AAFA Says Prepare for the Next Battle

Date: Monday, March 18, 2019
Source: Sourcing Journal

The March deadline for further escalation of the trade war between China and the United States has come and gone, leaving hope that the truce will be sustained. 

With further tariff actions on hold, apparel and footwear firms are left to count the carnage and prepare for the next fight. 

And there will be another battle, according to Rick Helfenbein, president and CEO of the American Apparel & Footwear Association. 

“We got hit on the edges but never got hit on the head,” he said, speaking at the AAFA Executive Summit on Wednesday. 

Helfenbein credited the AAFA with driving a narrative about how calamitous steeper tariffs on consumables would be—and he was particularly pleased that the group did so via the president’s favorite source of information: the 24-hour gab fests airing on every news channel. The trade group made the rounds to CNN, CNBC, BBC and Bloomberg, among others, making at least 28 appearances in total. 

The message: tariffs don’t work. Just look at the tariffs imposed in the ’30s to protect apparel and footwear manufacturers in the U.S., Helfenbein said. Even with those efforts, 97 percent of all apparel and 98 percent of all footwear is imported today.  

Further, Helfenbein said 41 percent of all apparel coming into the United States comes from China, as does 72 percent of all footwear. 

And while the PR campaign has resulted in only a glancing blow for much of the apparel and footwear industries, Helfenbein said it doesn’t mean the sectors have gotten out completely unscathed. 

“You’re being hurt by all the carnage being left along the road,” he said. 

The biggest impact has been the sustained uncertainty and retailers’ and brands’ scramble to insulate against a direct blow. 

The hours spent in contingency war rooms alone over the past year have caused major disruption. And for public companies, the impact has been even worse. For them the back-and-forth volley between the U.S. and China triggered an exodus from the country that surprised even Helfenbein. 

“I didn’t expect the degree of China flight, and what was pushing it was the fact that a lot of people in this room work for public companies and public companies take calls from analysts and what do the analysts love to ask? Question number one, ‘what’s your exposure in China?’ If you have a big exposure, that’s not good.”

The result, he said, was supply chain’s version of bumper cars.

As production moved from China to other regions with less capacity, one company moving into a factory resulted in another being squeezed out. So public or private, like it or not, that brand or retailer was on the move. 

The migration shows how even a glancing blow shifted the sourcing map—maybe for good. 

“What are we doing? We’re damaging a supply chain that was built to handle product safety, to handle human rights, to handle the environment, to plan for sustainability and you just blew it out of the water,” Helfenbein said. 

At this point, Helfenbein said his personal anxiety level has ebbed a bit, given how things typically play out when the U.S. is halfway thought a president’s term. 

“The first two years of an administration, you bring things up. The last two years of an administration, you bring things down. So I think we’re now entering a new phase, which is the resolution phase—let’s hope it’s the resolution phase,” he said. 

But while things would usually play out this way, not much about the Trump administration has been by the book. As a result, Helfenbein said the industry can’t get too relaxed. 

“I see things starting to settle down,” he said. “But then again I should tell you some of the hotspots in the world and tell you some of the things I’m worried about.”

Helfenbein said several countries are in danger of losing generalized system of preferences or GSP like Turkey, India, Thailand and Indonesia. Plus, the trade preferences for Haiti could come into question. And the list goes on with human rights and government unrest roiling myriad countries around the globe.

“What if they go after CAFTA? What about AGOA?” he said, referring to the Central America Free Trade Agreement and the African Growth and Opportunity Act. “These are all things we worry about every day.”

 

 

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