As any devoted reader of Vogue knows, September is usually the time for a wardrobe refresh. This year, the new season may not be looking so good for the fashion industry which faces tariffs, changing consumer demand, and of course, fallout from the pandemic.
Going into 2020, fashion’s global leaders were already apprehensive about a difficult year ahead. They feared external economic shocks and were feeling pressure to adapt quickly to digitization and embrace the push for sustainability. Then, the COVID-19 pandemic upended their industry, cutting demand and disrupting supply chains. Meanwhile, escalating global tensions including the U.S.-China trade war added to the burden of trade barriers.
Though fashion can be seen as a luxury or even a hobby, the apparel industry is one of the largest in the world. Disruptions to this trillion dollar industry have meaningful impacts across the globe for the millions involved in making the world look good while clothing it.
The Big Players in the Global Fashion Trade
Fashion is a global business with global supply chains so tariffs, trade disputes, and transportation disruptions all play an important role in determining what we can buy and how much we pay for it. The global apparel market is valued at over one trillion U.S. dollars. The United States is currently the world’s biggest market for imports of apparel and footwear, importing around $85 billion worth of clothing, accessories and footwear in 2018.
“Knit apparel” is defined as any clothing made from the weaving of fibres. It’s the largest single apparel designation. The United States buys 18.95 percent of total knit apparel imports, twice that of the second-largest importer, Germany. Other top destinations for knit apparel around the globe include European countries such as Spain, the UK and France, and fashion-conscious Asian powerhouses like Japan and Hong Kong.
China remains at the top when it comes to exports of apparel. In 2018, China’s exports of knit apparel made up just shy of 31 percent of total world exports. Bangladesh and Vietnam take the number two and three spots, but with market shares of 7.52 and 5.66 percent respectively.
A look at longer term trends reveals that China’s market share has been slipping. In 2012, China commanded 41 percent of total knit apparel exports, meaning in the past six years it has lost ten percent of its market share. The below graph shows this decline, as well as the increasing share claimed by rising South and Southeast Asian competitors Bangladesh, Vietnam, and Cambodia. This can be explained partially by the escalating trade war between the United States and China, prompting businesses to shift all or part of their production away from China and to neighboring Asian countries to avoid the Made in China label and the tariffs that come with it.
An Industry at the Whims of International Policy – and Trends
Even before the pandemic hit, the industry was expecting a shake-up as both global relations and trends were shifting. Global value chains are morphing and new industrializing markets emerging. At the same time, e-commerce continues to accelerate; and expectations for brands to be sustainable and socially conscious are growing. The global pandemic, social movements and international relations of 2020 have forced the fashion industry to be more innovative than ever before to stay in business.
Trade Disputes & Barriers
The fashion industry has long suffered from tariffs — global average import tariff rates for clothing products stood at 17 percent in 2018, about twice as much as that for all other manufactured goods.
In the United States, tariffs are as high as 32 percent for clothing and 65 percent for footwear. In fact, around 75 percent of the total tariff burden on American households comes from apparel products. U.S. tariffs generally vary widely, but those on clothing tend to be higher than in almost any other category and affect a larger portion of U.S. imports, translating into higher prices paid by U.S. consumers.
Given China’s textile and apparel export dominance, it is unsurprising that tariffs on clothing originating in China have been significantly affected by the U.S.-China trade war. The United States levied tariffs ranging from 7 to 25 percent on knitted and non-knitted apparel; textiles including silk and cotton; fabrics such as lace and embroidery; and a whole host of other inputs the fashion industry relies on (like rubberized textiles). China retaliated with its own list of tariffs against American products, including U.S.-produced apparel. The existence of these tariffs, and the constant threat of more, make China a less appealing location for production. If they can find the right mix of cheap-but-skilled labor, manufacturers are likely to relocate factories. Those Made in China labels may instead read Made in Vietnam, Bangladesh or Turkey.
COVID 19: Decreased Demand & Shaky Supply Chains
The COVID-19 pandemic dealt a major blow to the fashion industry worldwide. The one-two punch of disrupted supply chains and a global population reining in luxury expenses hit designers, manufacturers and retailers of clothing and footwear particularly hard.
While people self-quarantined at home, retailers who rely on sales at their brick-and-mortar stores were impacted immediately. During the first six months of 2020, the sales of clothing and accessories at stores in the United States were close to 40 percent lower than one year prior. Department store Nordstrom has suffered a 53 percent dip in sales, and many retailers, including household names like Brooks Brothers, JC Penney and Neiman Marcus, have filed for bankruptcy. Tangentially, a whole population staying home did not demand the same types of clothes as before. No vacation meant no new summer wardrobe. No special events cut down on the need for fancy outfits, causing demand to fall even further.
Resilient and nimble supply chains are vital to any fashion house, as they must be able to react quickly to changing trends and draw on skills and resources spread throughout the world. This resilience was put to the test during the coronavirus pandemic as major production and transportation faltered. The clothing retailers that seem to be weathering the storm best are online-focused stores in a position to pivot quickly to the stay-at-home demand for comfy clothes and “athleisure” wear.
For Some Countries, Fashion Means Everything
Fashion houses and retailers are obviously struggling. Unraveling the threads of trade in fashion reveals the much larger number of people involved in the global fashion industry who have been impacted worldwide. They include millions of people employed as manufacturers of apparel and footwear, as well as producers of textiles and other materials, and farmers who produce raw materials, as well as myriad designers, creators and marketers who are part of the innovative “orange economy”.
Many countries are involved in apparel production, but for some South and Southeast Asian countries it forms a significant part, even the vast majority, of their total revenue. For example, 44 percent of national export revenue in Sri Lanka comes from apparel. That number is even higher for Cambodia, at 58.45 percent. Apparel is also Vietnam’s third-largest export sector, bringing in over $36 billion annually and accounting for 16 percent of GDP.
And nowhere is the apparel industry more important than Bangladesh, where 83 percent of total export revenue comes from the garment industry. The apparel industry, and more specifically the ability to trade the clothing and accessories manufactured in Bangladesh, has been a huge driver of economic development in the country and has given many the opportunity to earn a living beyond subsistence farming. About 80 percent of jobs are held by women, providing not only employment but autonomy and education to one of the world’s poorest and most vulnerable populations.
However, this specialization comes at a cost. Although trade in apparel has brought much needed revenue into the country, the heavy reliance on a single industry has also been a source of concern. For example, worldwide orders dried up at the height of the coronavirus pandemic, risking millions of Bangladeshi jobs and even prompting fears of starvation.
Trends in Fashion and Trends in Trade – Where Next?
Trends rule in the world of fashion. In this especially uncertain time, who knows what will win out as new autumn fashion appears on our shelves (and in our feeds)?
Will the growing shift to more sustainable and ethical fashion continue with a slow down of “fast fashion” in favor of investing in long-lasting pieces with a low environmental footprint? If so, we might expect a shift away from clothing produced in far-flung destinations to cut down on carbon footprints or to trace the origin of clothing made with free and fair practices. Or, as the world opens up post-COVID will the return of traveling and social events spur a worldwide shopping-spree and a desire for more clothing, more quickly? In that case, suppliers who can utilize large and diverse – yet agile – supply chains will come out on top.
Two things are certain: fashion will continue to be a global industry and trade will continue to play a vital role in shaping what we wear.
Alice Calder received her MA in Applied Economics at GMU. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.