Driven by the Trump administration’s hard line stance on global trade, the U.S. is set to lose its position and credibility on the world commercial stage.
Whether it’s the potential of killing trade deals like the North American Free Trade Agreement and the Korea-U.S. FTA, or “the mistake” of pulling out of the Trans-Pacific Partnership, expert panelists at the Sourcing Journal Summit Tuesday said the U.S. is taking a back seat to countries like China and hurting U.S. industry in the long run.
Steve Lamar, executive vice president of the American Apparel & Footwear Association, said, “The administration is focusing on trade deficits and trying to promote manufacturing in the United States, but I would say the focus really tends to ignore all of the jobs that are created by the global value chains that exist throughout the United States and in our industry, as well.”
Lamar said apparel and footwear importers generate many jobs in the U.S., but the White House ignores that and concentrates its policies on trying to create jobs that existed years ago.
What’s NAFTA’s fate?
On the current talks to renegotiate NAFTA, Lamar said, “The U.S. is still proposing very troublesome provisions” relating to areas such as a sunset clause that would have NAFTA turn off after five years, and tougher rules of origin on a variety of products, including apparel and textiles, as well as on investment and government procurement.
In a meeting with Canadian Prime Minister Justin Trudeau ahead of the fourth round of NAFTA talks last week, President Trump’s response to a question from the press of “Is NAFTA dead?” was: “We’ll see what happens.”
[Read more about NAFTA: Could NAFTA End Up Being a US-Canada Bilateral Trade Deal?]
Lamar said, “The president seems to be pushing what I call a ‘my way or the highway approach’– my way meaning the things that he wants to see happen and if you don’t agree with those things I’m willing to walk away and withdraw from the agreement.”
Lamar said Trump doesn’t seem to care about the ramifications or true negotiations, but is willing to let the agreement fail if he doesn’t get everything he wants.
Speaking from the Oval Office after a meeting with Canadian Prime Minister Justin Trudeau, Trump said, “If we can’t make a deal it will be terminated and it will be fine. They’re going to do well, we’re going to do well. Maybe that won’t be necessary, but it has to be fair for both sides.”
Gail Strickler, president of global trade at Brookfield Associates, said looking at overall trade policy, “You have to look at what it’s doing to the overall credibility of the United States” and what it’s going to do about the U.S. global standing.”
She continued, “My concern now is the United States as a global trading partner and who the hell is going to invest foreign direct investment of billions of dollars to take advantage of the U.S. market knowing that the U.S. is willing to walk away from trade-level agreements that people spent years negotiating, from promises that we made, and that many of the brands in this room…have to think about in their strategies.”
The business community needs to speak out, Strickler said noting that U.S. Chamber of Commerce president and chief executive officer Thomas J. Donohue “finally did” at a gathering of business leaders in Mexico City.
“We’ve reached a critical moment and the Chamber has had no choice but to ring the alarm bells,” Donohue said. “Let me be forceful and direct. There are several poison pill proposals still on the table that could doom the entire deal.”
Strickler, a former assistant U.S. Trade Representative, said, “This administration seems to think that trade deficit is the buzzword. Whether that is part of their dog-whistle politics for their base or whether they actually believe it, which I find kind of hard to understand, they are willing to walk away from trade deals like NAFTA and KORUS.”
Strickler said she doesn’t think the Central American Free Trade Agreement would be next because there is a trade surplus for the U.S. and noted that true changes in NAFTA have to pass through Congress. She also questioned whether the business community “is going to get louder” and lobby against the anti-trade policy.
Kimberlie Freund, senior international trade analyst at the chemicals and textiles division of the U.S., International Trade Commission, said the domestic textile industry wants to get rid of tariff preference levels (TPLs) that allow inputs that aren’t from the NAFTA region to be used in finished goods such as clothing.
Adding to that, Lamar said one of the big fights in the NAFTA talks is over TPLs and if they should stay in place. The domestic textile industry considers them loopholes, he noted, while AAFA argues that “they are negotiated as part of the fabric of the agreement.” If they were removed, it would take away the flexibility that companies rely upon to produce goods in the United States, Mexico and Canada and ship them back and forth, and to comply with yarn forward provisions of the pact that qualify goods from tariff-free imports.
He said he understood the textile industry’s stance against TPLs, but that the reality is they are also utilized by apparel companies that manufacture in places like Los Angeles that need some foreign inputs, or they would have to shift their production and U.S. jobs would be lost.
There are more than 200,000 apparel and textile jobs still in the U.S. that are dependent on NAFTA, Lamar said, “and if you make it harder to trade or get rid of NAFTA outright, those jobs are at risk.”
Made in America
But in a broader aspect, if Trump decides to pull out of NAFTA, “you’re looking at a larger economic problem. That’s the kind of change that could put us back into a recession or a depression if NAFTA is looked at as a precursor of what’s to come.”
He said the domestic textile industry should be demanding that the White House not get rid of NAFTA, since 50 percent of all industry exports are part of the agreement.
“Getting rid of TPP was a huge mistake that’s going to haunt us forever, but if you look at some of the other changes that the president has been threatening haven’t occurred…in part because the industry has spoken out,” Lamar said, citing the derailing of the Border Adjustment Tax.
Freund noted that U.S. apparel manufacturing has increased to 2.8% of all goods sold at retail from 2 percent in 2010.
“We’re seeing new investment of textiles and even in apparel,” she said. “There’s been a lot of cotton yarn investment coming from countries such as China and India, and in apparel.”
Lamar said there’s a falsity that says “we don’t make anything in the U.S. anymore, but we actually make quite a bit. And when you look at that 2.8 from 2 percent, that’s significant.”
“We’re not going to get back what we lost,” he said. “What we should think about is what we want to be making in the future, what are the things we can compete at competitively,” from using technology to cut costs to using advantages the U.S. might have in energy or infrastructure.
Around the world
In other trade areas, Strickler said she thinks a TPP 11, without the U.S., will go forward, while Japan and the European Union are negotiating an FTA. China is also working on its own global trade agreement, RCEP.
As for the African Growth & Opportunity Act and the U.S. review of certain country’s eligibility over their desire to ban U.S. used clothing exports, Strickler said, “I have never been as horrified or embarrassed as I was when the president announced that he wants to review eligibility over several countries’ refusal to allow any more U.S. garbage to be shipped to their shores.”
The East African countries of Rwanda, Kenya, Uganda, Tanzania, South Sudan and Burundi have been trying to phase out imports of secondhand clothing and shoes over the last year. The countries claim the enterprise undermines their efforts to build domestic textile industries and they want to impose an outright ban by 2019.
In March, USTR threatened to remove four of the six East African countries included in the Africa Growth and Opportunity Act, a preferential trade deal intended to lift trade and economic growth across sub-Saharan Africa. Burundi and South Sudan, gripped by upheaval, had already been expelled from the trade deal because their governments were accused of perpetrating state violence.
In June the U.S. initiated a review of AGOA eligibility for Tanzania, Uganda and Rwanda, which came about when the East African Community decided to ban imports of secondhand clothing. The U.S. Secondary Materials and Recycled Textiles Association, which initiated the petition for review with the USTR, said the move to curb incoming used clothing is a barrier to U.S. trade, which goes against certain requirements under AGOA.
Strickler said to punish countries such as Tanzania and Rwanda that have used AGOA to help lift their standard of living is “absurd” and should go against basic U.S. beliefs.
Freund said the AGOA countries are small suppliers but have been steadily growing in recent years. Countries such as Tanzania have been building up their industry.
Companies sourcing in Mexico will very soon be facing labor costs that are 10 percent higher.Read more
The North American Free Trade Negotiations have turned into a blame game about which party is doing the most to damage the deal. Needless to say, little progress seems to have been made at the fifth round of negotiations that wrapped in Mexico City Tuesday.Read more
These retail technology startups are enabling retailers to boost operational efficiency and improve consumer purchasing journeys on multiple channels.Read more
Neiman Marcus revenue up on e-commerce initiatives and women's, Burlington income surges on strong assortment and off-price model, Madewell boosts J Crew's top line and Free People leads Urban Outfitters.Read more
FDRA data revealed that footwear consumers may be shopping more in stores for the holidays.Read more
Price may be king but convenience governs much of the way traditional retailers are thinking about their customers today.Read more