The Fashion Industry Is Disproportionately Affected by the New Tariffs

As part of the newly initiated “trade war” with China, an additional 10% tariff will be placed on many finished-product pieces of apparel being imported into the US from China. (Note: In addition to this 10% tariff, the Trump administration announced its intention to impose tariffs on all $500 billion dollars of imported goods from China. On July 6, a 25% tariff on 1,102 products including LED light bulbs and thermostats went into effect). Put simply, this new tariff means that imported goods being taxed, for example, at 15%, will now be taxed at 25%. The tariffs are currently scheduled to take effect on September 1, 2018. However, James Metcalfe said it is likely that the actual start date of the new tariffs will be some time in the latter half of September, due to the various processes that changes in tariff policies must go through before implementation. Although they acknowledged that there is uncertainty around the exact implementation date, both Metcalfes agreed that the tariffs will likely come into effect between September 15 and October 1. Once the tariffs do go into effect, they will have a disproportionately large impact on the fashion industry. In 2017, 33.7% of all apparel imported into the US was brought from China, according to the US Commerce Department. Furthermore, Lisa Metcalfe informed the audience that while fashion goods compose only 6% of all incoming products to the US, they account for 51% of all import tax revenues. The fashion industry is already targeted by import taxes, and its reliance on China means that the upcoming tariffs will only make things worse.

There Is No Quick-Fix to Get Around New Tariffs

The Metcalfes acknowledged that many brands in the room may be thinking of different ways to avoid suffering the negative effects of the new tariffs set to take effect in September. However, they cautioned the audience that most seemingly easy solutions to the inconveniences created by the tariff hikes can be anything but. They suggested that brands in the audience keep two things in mind when considering strategies for minimizing damage from new tariffs.

• Moving production to other countries is not as easy as it sounds. Even if brands can secure factories in regions such as South America, these factories are rarely as productive as their Chinese counterparts, and brands must develop relationships with manufacturers all over again. The Metcalfes, and members of the audience, largely agreed that Vietnam is often the best place to turn for production outside China, but even that relocation requires huge amounts of time and effort.
• Apparent loopholes to get out of paying tariffs are usually more trouble than they are worth, according to James and Lisa Metcalfe. Duty-savings initiatives require huge amounts of paperwork and go through numerous regulatory hurdles, making them particularly costly for smaller brands. Free trade zones are often too small to be useful, and generally are not a smart use of brands’ resources.

No Need for Panic, Just Diligence

Tariffs almost always mean increasing costs, and the upcoming 10% hike on tariffs on Chinese-produced apparel has understandably made many brands uneasy about the viability of their production in China. Furthermore, red tape and convoluted regulations accompanying the tariffs can be hard to navigate, and companies are often at risk of not fully understanding the duties and taxes on products that they import. In dealing with these issues, James and Lisa Metcalfe offered two pieces of advice:

• It is important to understand that these new tariffs move away from the current strategy of informed compliance and towards enforced compliance. In practice, this means that US Customs authorities will more heavily scrutinize specific industries that are most effected by tariffs. In other words, with upcoming tariffs having an especially big impact on fashion, the industry’s imports will be monitored closely by the government. According to James Metcalfe, this is an inconvenience, but not something to panic over. Companies simply need to make sure they understand the new regulations and avoid cutting corners on their imports.
• Now more than ever, brands should focus on creating and maintaining good relationships with their suppliers to ensure all members of the supply chain—from manufacturers, to logistics, to retailers—are on the same page about the consequences of the new tariffs. Furthermore, brands should consider speaking with customs attorneys to enable them to deal with the new tariffs in a cost-effective manner.