Since 2016, US President Donald Trump has been poised to affect America’s trading policies with a number of countries. After countless investigations, tensions between China and the US in particular have now reached boiling point, and The White House has imposed a protectionist trade policy on China. On 10th May, tariffs on billions of dollars of Chinese goods rise from 10% to 25%, including materials like leather, woven fabrics and wool yarns. Within this escalation, the fashion industry could be about to undergo a huge shift, as China is one of the most-used sourcing destinations in the world. As Trump arrives in the UK, ORDRE asks if tariffs are about to change that and how will they affect luxury?
According to academic Sheng Lu, associate professor at the University of Delaware who writes extensively on global fashion trade policies, it’s a highly nuanced situation. As he tells ORDRE, between January 2017 and April 2019, data shows that around only 0.1% of luxury apparel and footwear sold in the U.S. market came from China. On the other hand, he says that over the same period about 1.7% of luxury apparel and footwear sold in China were “Made in the USA.” Historically, Europe dominates high-end manufacturing, not America or Asia, and it’s expected to continue doing so. Hence why this might just be a fight for the mass market.
However, luxury labels might be affected as American fast-fashion retailers sourcing in China will be forced to increase prices by 2.3% according to a TV report by CNBC. Referring to his recent studies on fashion’s trade policies, Lu clarfies, “The continuation of a trade war could result in a higher retail price for luxury goods in the long run. Multi-brand retailers might price higher to compensate for their lost sales and profits in the mass markets. While the prices for luxury fashion apparel and footwear in the US market has stayed stable this year, apparel items targeting the mass market have seen some notable increases.”
“The continuation of a trade war could result in a higher retail price for luxury goods in the long run”
Thus, while price increases may result in a threat for the luxury market, so far they are just potentials on the horizon. But undeniably, Trump’s tariffs have caused widespread anxiety among US businesses, triggering reactions before they were even in action. In 2018, the Fashion Benchmarking Study of 2018 reported that China accounted for 11-30% of companies’ total sourcing value in the US, in comparison to a previous 30-50%. In short, these tariffs are causing fast-fashion brands to diversify their supply chains.
Indeed looking at the wider, fast-fashion led industry, there are reports of companies already migrating out of China to avoid the tariffs entirely - for example: shoemaker Steve Madden moved 15 percent of handbag production from China to Cambodia last year and is looking to be double that for 2019. Although some companies are already making alterations, it isn’t exactly straightforward for the huge powerhouses to move countries. Hence the 172 footwear companies who wrote a letter to Trump to lift the tariffs, including huge brands like Adidas, who currently has 128 suppliers and contractors in China. It appears that the only luxury players likely to suffer a hard hit are those with diffusion lines produced in China, which covers Ralph Lauren and Calvin Klein, as high-end lines are predominantly manufactured in Europe.
But in answer to the wider luxury question, Lu adds a final note, “Despite less worries for the high-end market, the escalation of the trade war could result in higher hidden market access barriers. For example, on social media, some Chinese consumers are already starting to call for boycotting U.S. branded products, such as Apple.” This pattern of behaviour could reach fashion too, especially as the world is already very aware of Chinese consumer power after events like the Dolce and Gabbana racism scandal last year. For now, though, the outcome is still unclear. Undeniably, the current deal between the world’s two largest economies will disrupt the global economy but only the future can present its true effects.