Despite a “phase one” deal that put a partial pause on the trade war between the United States and China, anxieties over the impact of tariffs still plague footwear and apparel businesses.
Today, at the 2019 Sourcing Journal summit, industry leaders addressed those worries, discussing the trade scenarios that could play out as the world’s two largest economies seek an agreement to end a financial dispute that has persisted for more than a year.
At a panel moderated by American Apparel and Footwear Association president and CEO Rick Helfenbein, four experts took the stage to share new business strategies to help mitigate sourcing costs amid economic uncertainty.
Here are five takeaways from the event.
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Businesses might have to reconsider sourcing in China
Customs and international trade law attorney Harold M. Grunfeld: “There are several different realities — the tariffs themselves and the question of whether or not [companies] can pass them along and whether they can stay in business as these numbers continue to increase. The question then becomes whether or not to remain in China, and the answer is very difficult. Folks understand that you can’t get the same capacity and production overnight. … It’s a moving playing field and one that presents a lot of complicated issues. Part of it is really looking at your clients’ businesses and determining how you’ll be able to minimize the impact of some of the tariffs.”
Consumers are going to feel the tariff hikes
AAFA EVP Stephen Lamar: “Nobody wants to accept price increases from the person below them in the supply chain, but at the same time, these are real tariffs. Everybody in this room knows that tariffs are not paid by the Chinese; tariffs are paid by the US importers. … You’re going to start to see more and more of those costs being passed along to consumers, [and] I think there’s this condition in the American public that they’re expecting these price increases to come.”
Vietnam and neighboring countries are running low on capacity…
China BrightStar CEO Michael Zakkour: “Right now, the bottom line is there are no new roads, no new rail systems, no new ports — which is why you end up with three-day lines of trucks coming in from the countryside waiting to just get into the port area. … You’ve got three main problems in trying to diversify out: No single country or region can absorb all of the capacity that China will shed naturally. Number two, if you are a brand or retailer whose second largest market today is China, you might want to think [about] the ramifications of leaving China for production. Finally, even if you do go outside of China for final production or assembly, often you’ll find that the material component or raw material supply chain is still in China, so now you’re going to have to import your hardware or fabric from China [to wherever your production line is].”
…and not all other countries are viable for sourcing
Michael Kors SVP of accessories and footwear production and sourcing Nathan Serphos: “We moved production to Ethiopia thinking that was a slam dunk, but it was a disaster. We’ve [since] moved away from that. You’re dealing with a lot of different parts. … We’ve been successful in Cambodia and Vietnam. We’re doing a little bit in India, and we’re looking at the Dominican Republic and Nicaragua. It’s about mitigating the risk [because], between Vietnam and Cambodia, [China] is still the largest portion on the footwear side.”
The future of U.S.-China trade isn’t so bright
Zakkour: “The bigger issue here is [whether there’s] going to be a significant decoupling of the U.S. and China — not just on trade, but also technology. The trade war is just the tip of the iceberg of the bigger issues between the U.S. and China — and China is not going to back down on this. They view the U.S. right now as trying to infringe on their growth and retake their rightful place in the world. … China is not dependent on the U.S. for its existence. In the foreseeable future, China is still going to be one of the top three manufacturing sources for the U.S.”
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