This trade war has resulted in an initial, substantial fall in Asian markets. How is it going to affect the apparel industry in a long-run?

2. Trade War - Introduction
• On July 6, 2018, 25% border tax was imposed by the US on $34 billion worth of Chinese
goods being imported into the US.
• China responded to this policy with a 25% tariff on $34 billion worth US goods like
soybeans, cotton linters, uncombed cotton, lobsters, and automobiles.
• The intent behind the US imposing 25% trade tax on Chinese products like flat-screen
televisions, medical devices, and aircraft parts, etc. was to punish China for its
controversial trade policies, by making their products expensive for American
consumers, pushing them to seek similar products elsewhere.

3. Trade War - Introduction
• China has been accused by the US, of forcing foreign businesses to handover
their technological might to Chinese companies in exchange for market access
in China and indulge in cyber theft to acquire trade secrets. In turn, China has
accused the US of starting the biggest trade war in the economic history.
• The US is expected to impose these border taxes on additional $16 billion
worth Chinese goods, followed by tariffs (10%) on another $200 billion worth
Chinese goods, including cotton, cotton yarn, cotton linters and pulp, cotton
waste, cotton sewing threads and cotton woven fabric, amongst others.
• The US in this bid is targeting high-tech Chinese goods which are bound to put
pressure on Beijing’s “Made in China 2025” program targets.

4. Immediate Results of the Trade War:
• This move has surely resulted in initial, substantial fall in Asian markets. Owing to
Trump’s ‘America First’ trade strategy, the US is threatening heavy tariffs on many
of its major trading partners including China, the EU, Mexico, and Canada.
• This move is also expected to affect the middle-class American citizens, as China
imports around $200 billion of US goods only, whereas America’s dependence on
Chinese goods is huge, and fulfilling the gap created by these tariff will not only
increase the prices within the American market substantially is also going to be
tough for American industry to match the demands.

5. How Is Going To Affect The Rest Of The World
• Companies with global supply chains are surely biting their nails.
• The trade war is going to create barriers to free international trade, which can be
detrimental to the movement of their goods.
• Also, the costs of basic products like smartphones, other electronics, toys, and
clothes are expected to go up.
• When superpowers argue, the entire world feels the heat.
• And this action of the American government has surely sent shivers down the global
financial markets.
• Moreover, as the supply chains around the world start contracting, the cost for
everyday goods will go up for global consumers also.

6. Effects of the Trade War on Apparel Industry:
• 41% of US’s apparel consumption, 72% of America’s footwear consumption and
84% of travel goods sold in the US, are made in China. This makes the US consumer
highly vulnerable to the trade war.
• The US is the traditional export market for China’s textile and apparel production.
• Although China has substantial penetration in the EU, ASEAN and Japanese markets
as well, 17% of China’s textile and apparel exports go to the US. China’s imports, on
the other hand, from the US makes up for only 3% of its total imports in this
segment. If we look at the US market, 48.9% of apparel and textile imported by the
US in 2017 was from China.
• So, if we look at the comprehensive picture here, US accounts for 17% of China’s
textile and apparel exports, while China accounts for nearly 50% of the US.
• This clearly highlights that the US has a much higher import dependency on China,
in this sector.

7. Effects of the Trade War on Apparel Industry:
• This trade war has also given an opportunity to China’s Asian competitors like India,
Bangladesh, Vietnam, Cambodia, and Pakistan to pick up their respective market shares in
the US market.
• Some African countries like Ethiopia also have the chance to show their strength as growing
suppliers to the US market.
• Both the US and China are imposing tariffs on cotton.
• The impact of this move is going to have a wider macroeconomic impact on the industry.
• This tariff war will have direct implications on China’s raw material costs, and hence its
finished product costs. But, this will also open India’s avenues of gaining more market share
in China’s cotton imports.
• There are although several categories for cotton imports in China, and varying levels of tariffs
will have a complex impact on the cotton process. But it is evident that the prices will go
upward. But what is more challenging for the global players in this scenario is the uncertainty
this trade war brings regarding the cotton prices in the long term.

8. Conclusion
• A U.S. Fashion Industry Association’s benchmark study claims that to make the industry
more globalized and fast-paced, it is important for businesses to maintain a balance
between their sourcing costs, speed, flexibility, reliability, and risks.
• To strike this balance, most companies in the industry are diversifying their sourcing
base. Such trade wars put in more meaning to these diversification efforts.
• Being said that, almost all apparel businesses globally are more or less source from
China.
• Hence, cost fluctuations due to the trade ware after effects will affect the global
apparel and textile industry substantially.
• Moreover, consumers around the globe should get ready to face higher apparel costs
as a result of the two giants facing each other off in this trade war.

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