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The first month of the Trump administration has resulted in more news about trade, commerce, and taxes than most of us could possibly keep up with. And all the executive orders, policy proposals, and even threatening tweets may have tangible effects on how we shop and what we buy.
Here are the bullet points so far, and how they could impact you, the shopper.
President Trump wants companies to manufacture in America.
Donald Trump ran on a platform of restoring American manufacturing and bringing back factory jobs. Data from the Bureau of Labor Statistics counted 129,400 individuals employed in the US apparel manufacturing industry in November 2016. That number was 938,600 (more than seven times higher) in January 1990.
This dramatic decrease reflects the fact that the vast majority of what we wear is imported: a whopping 98 percent of shoes and 97 percent of clothing, according to the American Apparel and Footwear Association. (Even Donald and Ivanka Trump, it’s worth noting, manufacture their brands’ clothing and shoes abroad, mostly in Asia.)
President Trump wants to shift manufacturing back. But it’s cheaper to make clothes and shoes outside of the US; and as more and more companies have chosen to pursue overseas production, America’s domestic manufacturing hasn’t invested in the resources to keep fully manufacturing at home — from updated factories to experts who can fix machinery. And even if the factories did come back, jobs won’t necessarily follow suit, thanks to automation.
US apparel companies rely heavily on trade deals that Trump has called “horrible.”
Because of cost and resources, most companies’ entire manufacturing process, from sourcing to assembly, takes place overseas, with the finished product then imported to the US. The companies that do manufacture in the States mostly do so with imported textiles.
Sure, we export a bit, too, but when all was said and done, America exported $23.7 billion in apparel and textiles but imported $126 billion in 2015, according to the Department of Commerce’s Office of Textiles and Apparel.
All that importing is theoretically subject to tariffs, taxes that are intended to protect local industry and typically increase the price of imported goods. But free trade deals lessen or nearly eliminate those tariffs between partner countries, a reality many American apparel companies have grown reliant on.
The North American Free Trade Agreement, a.k.a. NAFTA, is one of those crucial free trade agreements. Enacted in 1994, the deal eliminated most tariffs on goods traded between the US, Mexico, and Canada, opening up the gates for the US to import products that were made more cheaply in Mexico than they are here.
Trade activity between Mexico and the US increased massively thanks to NAFTA, resulting in a $61 billion trade deficit with Mexico in 2016 — in other words, we buy a lot more stuff from Mexico than Mexico buys from us. NAFTA has led to a loss of jobs in US apparel manufacturing, particularly in states that were once manufacturing hubs, like North Carolina, but it also resulted in lower prices for American shoppers and created export opportunities for more US companies. It’s also helped solidify diplomatic relations between the US and Mexico with an interdependent system of manufacturing, with complex supply chains stretching across both sides of the border.
A similar dynamic exists with China, insofar as the US imports far more goods from China than we export to them. In fact, the United States’ biggest trade deficit is with China, at around $347 billion as of 2016. The two countries don’t have a free trade agreement, but thanks to China’s entry into the World Trade Organization in 2001, we trade relatively freely, with limited tariffs intended to prevent damaging either country’s domestic industries (although it doesn’t always go so smoothly).
"Our horrible trade agreements with China and many others will be totally renegotiated," Trump said over the summer. “That includes renegotiating NAFTA to get a much better deal for America and we’ll walk away if we don’t get the deal that we want.”
Trump has benefitted from these “horrible” agreements himself, as he manufactures the bulk of his own branded products overseas. His ties, for example, are made in industrial parks in Shengzhou, China; some of his shirts have been found with “Made in Mexico” tags.
Changing our trade deals and tax policies will hit the US companies that import most of their stuff.
The Trans-Pacific Partnership, a.k.a. TPP, was supposed to bring countries bordering the Pacific Ocean, including Japan, Vietnam, and Australia, into a free trade deal that would reduce barriers to trade with lower tariffs, among other changes. TPP would have been a boon to American companies, especially shoe brands like Nike and Reebok, which manufacture almost exclusively in Asia. That is, of course, before President Trump signed an executive order on January 23rd, 2017, formally ending US involvement in the trade deal.
“We are extremely disappointed that the US has withdrawn from the Trans-Pacific Partnership,” the Footwear Distributors Retailers of America said in a statement in January. “[TPP] would have saved US footwear companies and consumers more than half a billion dollars a year.”
While TPP would have saved companies money, the other proposals will cost them: Trump’s threats on China have included a potential 45 percent tariff on all Chinese imports. His plan to renegotiate NAFTA will likely include higher taxes on imports from Mexico and Canada, disrupting cross-border trade. For Mexico specifically, Trump has threatened a flat 20 percent border tax on imports as a way to pay for his proposed border wall.
That would not only bump up the cost of goods from Mexico, but it could also prompt retaliatory action from the country in the form of mirror tariffs. “It would be a good idea if the government did something to compensate against this,” a source from a Mexican trade lobby told WWD regarding Trump’s border tax. Cue the trade war fears.
The border tax should not be confused with the border adjustment tax, a proposal not from Trump, but from the House of Representatives. Put forward by House Speaker Paul Ryan and leader of the Tax Reform Task Force Kevin Brady in June 2016, the BAT would exempt US exports from taxes while implementing additional taxes on imports — as high as 20 percent more for a single company.
Retailers like Target and Gap whose presence is mostly domestic will feel the impact more than international juggernauts like Nike, according to analysis by Cowen and Company via CNBC. It’s no wonder more than 100 companies, including Abercrombie & Fitch, QVC, and Levi’s, recently teamed up to create Americans for Affordable Products, a coalition to rally against the border adjusted tax plan. It’s also why, on February 15th, eight retailers sent their CEOs to Washington to meet with President Trump and Representative Brady to make it clear how much they oppose both of the proposed tax plans.
And while Trump sees more restrictive trade as a way to bring jobs back, many argue that increasing costs for American companies could have the exact opposite effect. Faced with higher tariffs, companies that manufacture in, say, Mexico, may just move their manufacturing to somewhere with lower import duties; they may also respond by cutting costs on the domestic end, laying off retail workers or closing stores. And it’s unlikely most companies will want to move manufacturing back to the US, given the cost of workers, supplies, real estate, and more.
Trump’s immigration policies could also hurt American brands and retailers.
There are countless aspects of the fashion industry that are bound up in politics, and trade is only one of them. Trump’s proposed policies on immigration could also impact companies negatively.
Trump has accused immigrant workers, and undocumented immigrant workers in particular, of “taking jobs from hard-working African-Americans and Hispanic citizens." With domestic manufacturing shrinking, the increased competition for the few jobs that are left puts a target on low-wage immigrant workers’ backs.
But hampering immigration can hamper growth and innovation. As 96 US companies, including Etsy and Warby Parker, stated in a recently filed amicus brief, Trump’s executive order against immigration “hinders the ability of American companies to attract great talent; increases costs imposed on business; makes it more difficult for American firms to compete in the international market-place; and gives global enterprises a new, significant incentive to build operations — and hire new employees — outside the United States.”
The cost to companies will almost certainly be passed off to you, the shopper.
Whether it’s due to NAFTA renegotiations, a trade war with China, changes to corporate tax code, or some other Trumpian idea, charging American companies more to import materials and products will have ramifications.
Higher costs for companies will mean higher prices for shoppers. We’ve been seeing this effect on sneakers for decades. As Marc Bain explored for Quartz, sneakers have been subject to high import taxes since the 1930s, when the Smoot-Hawley Tariff Act raised duties with the intention of protecting rubber and plastic footwear manufacturing in the US.
But as Marc Fleischacker, trade counsel for the Rubber and Plastic Footwear Manufacturers Association, told Quartz, “The protective tariffs have not served to overcome the enormous differences in labor and other manufacturing costs which give an advantage to production in low cost countries.”
In other words, it’s still cheaper for companies like Nike to make sneakers overseas, ship them to the US, pay the import duties, and charge American sneaker lovers a little bit more. Tweaking trade deals and tariffs won’t bring sneaker manufacturing back to America, and Americans will still have to cough up cash for their Air Force Ones.
The question is, what’s the tipping point?
“It won’t make people that happy if the price of tennis shoes goes up, if the price of clothing goes up, and if the price of motor vehicles goes up,” Donald Grimes, an economist at the University of Michigan, said to Business of Fashion. “That contradicts the idea of making people better off.”