When Apparel “Made in China” Become More Expensive, Will U.S. Consumers Have to Pay More?

(This study was presented at the 2013 International Textile and Apparel Association Annual Conference)

By

Sheng Lu (University of Rhode Island) and Jessica Ridgeway (University of Missouri)

China’s soaring labor cost in recent years has triggered heated discussions on the future of “made in China” and its implication for U.S. consumers who rely heavily on “made in China” products (Rein, 2012). This is particularly the case in the U.S. apparel retail market, where over 98% of consumptions are supplied by imports and nearly 40% of them come from China in value (AAFA, 2012). Although numerous studies have been conducted to evaluate the relationship between imports and the U.S. domestic apparel production or employment (Martin, 2007), the direct linkage between the price of imports and the U.S. apparel retail price has seldom been explored. Because such a price linkage is the key to understand the implication of a more expensive “Made in China” for U.S. consumers, this study tries to fulfill the research gap and specifically investigate to which extent the U.S. apparel retail price is influenced by the price of U.S. apparel imports from China.

Through investigating the impact of the average unit price of U.S. apparel imports from China, the average unit price of U.S. apparel imports from sources other than China and the annual U.S. apparel retail sales on the annual U.S. consumer price index from 2001 to 2011 based on a revised Armington model, this study finds that:

First, for menswear, more expensive “made in China” will result in a higher retail price in the U.S. market. Specifically, the U.S. retail price is suggested to change by 0.137% in the same direction given a 1% change of the price of U.S. imports from China. Second, for womenswear, there is no evidence showing that the price of U.S. imports from China has statistically significant impact on the U.S. retail price Third, the U.S. apparel imports from China and from rest of the world are suggested to constitute higher degree of price elasticity of substitution for womenswear than for menswear.

Findings of this study contribute to the understanding of the direct price linkage between the U.S. apparel import market and the U.S. apparel retail market and have several important implications:

First, the results imply that when “made in China” becomes more expensive, U.S. consumers may not have to pay more, largely because of increased substitution supply from other apparel exporters. Second, the results suggest that the U.S. apparel market is highly competitive and suppliers may not own much market power in price determination despite their large market shares.Third, the results imply that although “made in China” may lose market share in the U.S. market when it becomes more expensive, the magnitude could vary by product categories.

References:

  1. American Apparel and Footwear Association, AAFA (2012).Apparelstats 2012. Retrieved from https://www.wewear.org/industry-resources/publications-and-statistics/
  2. Armington, P.S. (1969). A theory of demand for products distinguished by place of production. International Monetary Fund Staff Papers,16(1), 159-178.
  3. Martin, M. (2007). U.S. clothing and textile trade with China and the world: Trends since the end of quotas. Congressional Research Services, RL 34106, Washington, D.C..
  4. Office of Textiles and Apparel, OTEXA (2013). U.S. imports and exports of textiles and apparel. Retrieved from http://www.otexa.ita.doc.gov/msrpoint.htm
  5. Rodrigo, P. (2012). Re-shoring US apparel making tough but not impossible. Just Style. Retrieve from http://www.just-style.com/analysis/re-shoring-us-apparel-making-tough-but-not-impossible_id115455.aspx
  6. Rein, S. (2012). The end of cheap China: Economic and cultural trends that will disrupt the world: Wiley.
  7. U.S. Bureau of Labor Statistics, BLS. (2013). Consumer Price Index.  Retrieved from http://www.bls.gov/cpi/
  8. U.S. Census Bureau, Census. (2013). Monthly and annual retail trade. Retrieved from http://www.census.gov/retail/
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Author: Sheng Lu

Professor @ University of Delaware

27 thoughts on “When Apparel “Made in China” Become More Expensive, Will U.S. Consumers Have to Pay More?”

  1. Since the United States is a highly competitive market, I think retailers of apparel that is “made in china” will take all possible measures to avoid raising their prices. Retailers will try to avoid raising prices for the consumer because they may not know the game plan of other the retailers sourcing from China. The behavior of competing retailers will greatly effect the given establishment because the American consumer seems to always seek out the lowest possible price. If all retailers don’t raise prices, it will negatively affect the one retailer who actually does raiser the price.
    Another point is that if “made in china” apparel rises in price, the demand for domestically made apparel goods could rise; especially if the price difference lessens. This could have both positive and negative effects US based apparel brands. A benefit of US made apparel is more jobs for US citizens. However, with our minimum wage as well as working condition regulations this would definitely be more costly for the company designing and manufacturing the clothes. China made apparel would definitely result in more profit for the given company.

    1. Paige, I agree with your comment about the article above, the US is a very competitive market. We will always seek out the cheapest price to manufacture goods and consumers will always want to buy the goods at the lowest price. If the made in china label and prices rise then companies will no longer want to manufacture their goods with those more expensive chinese companies. They will find another country to manufacture in that will be cheaper than China; there will always be someone who will do the work for less. I also agree that if made in china goods become more expensive for the US then US consumers may be more drawn to US made goods because there will not be as much of a price difference. Companies who are still manufacturing in China despite the higher costs may also choose to use even cheaper fabrics to try to lower the price of the goods being produced. I found this article to be interesting because consumers are always buying products made in china because they are cheap and we want the best deal, but what will we do when the prices of made in china products rise?

      1. good thinking. In the study, we empirically evaluated the relationship of related variables based on historical data. But you may also think about this issue from a retailer’s/importer’s perspective: if made in China (from where I currently source my products) becomes more important, then what I should do? Where else can I source the product from (Made in USA is one option, of course)? Often times, the answer based on a reality check could be different from “imaginations”. For example, because of the manufacturing capacity, China can fulfill order in any size throughout the year (including the Christmas season). But who else in the world can do that? This might be the reason, in my view, that for some apparel categories there is very limited substitution for “made in China”.

  2. China’s rising prices, although minimal to retailers and buyers from the United States at this point, only exhibit the ever changing global marketplace for goods and labor. As we saw textile production shift from the United States to China and other countries, we may see another shift from China to even different countries in the future, although the change in cost at this time does not point towards this shift in the near future. To a certain extent, I agree with Paige’s comment about the shift in demand for US goods if China’s prices continue to rise, but I think we should also look at other textile producing countries around the world. Indonesia, Vietnam and Mexico, for example, might make up the slack caused by rising prices in China, shifting the global supply chain as a whole.

    In relation to this blog post, I found another interesting article which talks about the rising labor costs in China:
    http://www.ft.com/cms/s/0/166d3e96-450a-11e3-a751-00144feabdc0.html#axzz2lCIZiCT2

  3. It is interesting to hear that U.S. consumers would not necessarily have to pay more. Although I knew there are other countries we can import from instead to keep costs down, I did not realize this was something the U.S. would actually do. I remember learning in macroeconomics about the U.S. and China having a mutually assured economic destruction relationship. The U.S. continues to go into debt importing from the country, and China offers America loans. If America stops importing from the country, the U.S. massive debt is in trouble and China’s massive exporting abilities are in trouble; both countries loss. China’s economy is growing so labor prices are expected to continue to increase. The type of apparel production in China now is expected to move to countries with cheaper labor. Although moving this production elsewhere, making costs stay relatively the same for apparel in America, I wonder what this will do to the U.S. and China in their mutually assured destruction relationship. I also wonder how long clothing can be imported so cheaply before America runs out of places with cheap labor and production capabilities to suit our needs. So much was built and invested in China to produce apparel, how will this affect the companies relying on this production? The U.S. and China’s relationship is complex. Such news of prices not having to increase on American apparel with increased wages in China are surprising.

    1. I agree with you Marta. I also found it interesting to find out that if “made in China” becomes more expensive the U.S consumers would not have to pay more. This was surprising to me because usually if cost goes up for the supplier then cost gos up for the buyer. You asked a very important question, “how long clothing can be imported so cheaply before America runs out of places with cheap labor and production capabilities to suit our needs?” I also wonder this and if there comes a time when prices increase for the U.S consumers will we demand to get textiles/ apparel from other countries? “Made in China” symbolizes cheap labor and a way for us to pay low prices for apparel in the retail stores. If prices go up I think the U.S consumers will expect better quality products but is that possible?

  4. I don’t think prices will necessarily rise in the US. Because manufacturers are competing for US business, they will naturally try to lower their other costs – aside from labor – so that they can still offer the US attractive deals. There is such a variety of inputs and related expenses in manufacturing that I think manufacturers will first try to adjust those to balance rising labor costs. Whether or not they adjust those in a manner that will produce the same quality, and maintain evironmental or social concerns is another issue altogether.

  5. After reading the above article and my classmates comments, I couldnt help but think of our most recent case study about “Made in America” and the idea of important domestically vs. internationally from countries like China. Marta made a great point when she stated, “China’s economy is growing so labor prices are expected to continue to increase.” Its a crazy and a bit confusing because this article is expressing that if these cost go up for “Made in China” americans will not suffer with price increase. In my own personal opinion, I feel that china is trying to alway have the approval on America because they know without all there involvement (in terms of trade) keeps the Chinese economy going. Without the American economy, who knows, Chinas economy could slowly shut down.

  6. The information in this article was surprising to me but it also shows signs from the history in which the Textile and Apparel Market has existed globally. In the T-Shirt book we find many examples of how when one country was able to drop the prices of production they were able to take the competitive advantage over the countries who were in the lead. After reading about so many examples of this happening in the past I am no longer surprised to learn that the US will not end up paying higher prices when Chinas exports begin to cost more. It makes sense that the US will begin to look to other countries because there are so many in the market looking to win over their business. From history we have seen that this market place is always changing and there is always someone right behind the last person who will take over and be at the top. If China is not able to continue to offer the same prices America has no choice but to find a substitution.

    1. I also found the information from this article to be surprising and different from what I thought the findings might be. Before taking this class, I would have assumed that if something made in China became more expensive, we would in turn have to pay more for it but now I realize that this is not always the case. I agree with you about how the t-shirt book had many different examples of how countries can easily take the lead in exporting apparel just by lowering their prices since the countries who are importing this apparel are going to want to spend the least amount of money possible. Most people are not concerned about where their clothing is being made but rather how much it is costing them to buy it. Just like we saw in our last case study about crafted with pride in the U.S. even though producing things domestically is good for our economy and gives Americans more jobs, it can also harm it since prices will have to be raised and consumers usually are not willing to spend more money on something when it can be produced somewhere else for much cheaper.

  7. I enjoyed reading everyones comments on the topic. I agree with most that if China decides to raise their prices on exports, the US and many other countries will suffer. However, I believe that the US will look elsewhere and find another country to import products cheaper than China. The US is not concerned with where the products are being imported from, but more importantly, how they can save money and how they can import the cheapest products. After reading the T-shirt book and going over the last case study we have conducted in class, it made me think a lot about the whole “Made in the USA”. If the United States could realize how much it will benefit in the long run, they would also realize how many jobs it would create. Therefore, if the US continued to import from China, despite the price changes, consumers may be more likely to buy American-made products because prices will be very similar.

    1. I find it very interesting that if the prices of Chinese exports increased, United States consumers would not have to pay more. It is a relief for U.S. citizens because they are always trying to find the best and lowest prices, where as the best and lowest prices are usually Chinese imports. If they were to rise and actually effect retail prices, this may be more of an incentive for Americans to buy American made products. However, with many other countries in the global marketplace, there is sure to be various less developed countries than china trying to get their foot in the door. This would be the perfect opportunity for countries such as Vietnam and Bangladesh, who seem to struggle with China so far ahead of the global market game.

  8. I find everyone’s comments to be very interesting on “Made in China” becoming more and more expensive as our global economies shift. I believe that if Chinas exports become more expensive, the United States still will not shift labor to their own country. I personally think that everyone in the United States will continue to demand the cheapest prices for their clothing due to the economy in America. After we discussed our most recent case study with campaigns to be “Made in America” I still do not think people will be enticed to buy a 50$ shirt just because it is made in their own country. If Chinas exports rise to an unreasonable price, I believe the US will continue to find another developing country to provide the cheap labor for cheap product prices.

    1. I agree with your comment, as “Made in China” becomes more expensive, I don’t think that the US is going to move their factories into their own country. The US will always look for the cheapest prices for their apparel and cheapest labor prices. Therefore whether China becomes just as expensive as the US would or not, the US will always be searching for the cheapest prices.

  9. I enjoy reading your thoughtful comments. Because I observe some patterns of thinking, the followings are my responses:

    First, how to interpret the finding that “when apparel made in China become more expensive, the US consumers do not necessarily have to pay more?”. As we mentioned in the class, the US import apparel from over 150 countries. In addition to China, the US retailers/apparel firms can also import from other suppliers such as Vietnam, Bangladesh, India or the NAFTA & CAFTA region. For most US consumers, price rather than country of origin remains the decisive factor for purchasing decision. This implies that US consumers will only choose “made in China” when “made in China” is regarded as “price-competitive” and vice versa. There is no loyalty to “made in China” at all. That’s also why in the class we mentioned about the “flying geese pattern” in Asia. It should be further noted that for such a highly competitive market, owning market share does not imply owning market power—especially in terms of setting price (you may recall the content of ECN201).

    Second, despite the point above, more “expensive made in China” still may result in an increase of retail price for certain apparel categories. The reason is that China’s competiveness is far more than its “price”, but also includes its unpatrolled “capacity of supply”. As put in another post: “China has 37% of the world’s market share, so it’s a case of where else can you move to? There are capacity issues elsewhere – and relocating significant amounts of capacity to other economies will lead to similar price increases.”

    Additionally, I would encourage you to compare this post with another one: http://tmd433.wordpress.com/2013/10/13/the-2013-global-apparel-sourcing-map-balancing-cost-compliance-and-capacity/ Particularly, criteria for sourcing decisions involves a balance of price, quality, capacity, speed and market risk. If you have the chance to take the TMD432 with me in the Spring, we will discuss in detail about various sourcing strategies adopted by apparel firms nowadays.

  10. The United States, being one of the most competitive markets in today’s world, will always be searching for the most reasonable cost for manufacturing goods, and the consumer will always be hunting down the best deals. If China does indeed continue to raise its prices on the US, who’s to say the US will not abandon China and find a new main manufacturer.

  11. Although this article doesn’t make it seem as though the change in Chinese labor costs significantly effect the retail price of “made in China” products, it would be interesting to see if the future bears a different outcome. Should China’s increasing labor costs continue to soar in future years and cause an increase in U.S. apparel retail prices, the Crafted with Pride Campaign may stand a chance (with necessary reforms, of course). The main reason the campaign was unsuccessful the first time around was due to the fact that Americans preferred cheaper clothing, regardless of the dismal manufacturing environments and unhappy, underpaid workers constructing the apparel in less-developed countries. If the cheaper clothing option is eliminated, U.S. branded clothing may finally be recognized as the best consumer option for American retail customers.

  12. For over a decade now, the U.S. has benefitted from importing apparel from China. I was surprised to read this article and find that manufacturing costs in China are actually rising and quickly doing so. Just like what other people have mentioned in their comments, the U.S. apparel industry is incredibly competitive. Since we have so many options in this day in age, the U.S. can choose to reduce Chinese apparel imports, and direct more to other countries that have lower labor costs. This proves that the U.S. does not necessarily have to pay more, if the cost of labor continues to soar in China. Since 40% of U.S. apparel imports currently come from China, this would influence a dramatic change in the global apparel industry. I think that China will do everything it can to keep the U.S. apparel industry and its consumers happy. While China has dominated in the export of apparel for many years now, changes in its economy may shift this dominance in the near future to another country.

  13. As many students have already commented, the United States is very competitive and people are constantly trying to get the best deals out there while saving the most money. If production in China gets more expensive, resulting in an overall price increase of China-made products, it is very possible that the US may look elsewhere in the world to where production will remain at its cheapest. There are other textile producing countries, such as Mexico and Vietnam, who may not need to increase their prices due to labor costs. This is proof that the global economy is constantly changing, and that at any time the market can shift from place to place.

    Also, this post reminds me about our last case study in class “Made in America.” If the prices of imported Chinese product does go up, more American citizens might be inspired to spend the money on products made in America instead.

  14. The United States is an extremely competitive market. We always looks for the cheapest and most efficient ways of doing things. I think that the retailers will think hard before raising their prices due to China raising their price to produce. The companies do not want to risk losing their clientele over a price shift. They would probably just try to find somewhere cheaper to manufacture their products so they can keep their prices the same without losing any money. However, I also find it interesting that the studies show that the consumer prices wouldn’t go up. I don’t understand how that could happen. Wouldn’t the companies lose money?

  15. Even if every retailer in the U.S who imports from China raises prices due to an increase in China’s labor costs wouldn’t force consumers to pay more for their apparel. Because there is so much competition in the apparel industry around the world, consumers will find another retailer who sources elsewhere to shop at where the prices will be lower. Consumers are always looking for a bargain and since the U.S does not only source from China, it would’nt matter if they increased their labor wages or not; consumers will just look elsewhere for a better price. Unless every country in the world that produces apparel increased their labor wages would it force U.S retailers to raise their prices. Even then consumers will still continue to look for a bargain making competiton much more difficult between retailers to offer the best prices, sales, and deals.

  16. From reading this study it’s interesting to learn what contributes to the direct price linkage between the U.S. apparel import market and the U.S apparel retail market. The U.S. has a very competitive market. Consumers are always looking for the cheapest price so retailers will try their best not to raise prices in the fear of competing. At first I was very shocked to read that if “made in China” becomes more expensive than the U.S consumers would not need to pay more. After reading all my classmates comments I from that we learned in class I have realized that it does make sense that the U.S will look to other countries that are cheaper. The market is always changing and there is always a possibility of a new country taking the lead. Most consumers in the U.S are not concerned with where their clothing is made from as long as the prices are low.

  17. I agree with the comments above about the U.S always wanting to find cheaper prices for their products. It’s surprising to know that if China’s prices rise, the consumers’ prices won’t; I would have thought that the rise in prices for prices increased, so would the price for the consumers. But, I do believe that the U.S will always want the lower or cheaper prices, but this will also satisfy the consumer because it may not change the way they shop or buy products coming from China. Also, this article made me think about the Crafted with Pride case study we did in class and how we as consumers may think about where products are coming from and the prices we pay for them.

  18. It is very understandable that there be an increase in “Made in China” products because as we learned in class production is going up and employment in America is going down. And thus the demand for Chinese workers is going up as well. Or the demand of what we import from China or need from China is going up. Those people should be paid more for all the work that they are doing because if it was being done in America prices would definitely go up due to demand in wage increase. But looking at this from a business point of view, like my colleagues have stated, China will try its best to keep prices from going up so that they can stay in the competition. As we read in the T-shirt book China factories use people who live in the country to do their work. And to find people who will continue to work for cheap these factories will continue to find people in China to do it. They are our leading importers and I’m sure they want to keep their position. The fact is if China were to raise their prices they American businesses would find cheaper places to import what they need. I don’t know if it’s possible but to stay in the game China could open up other factories in lesser developed countries and have those people work in the factories they make and thus China would stay competitive and not have to worry about price increase but if that were to happen they would have a company in another country that could still meet the US price demands.

  19. China is one of the up and coming leading apparel and textile imports in the world. There are more and more “made in China” labels each and every day. The demand for Chinese workers is at an all time high becuase of this. The workers are not paid enough and work in very un hygenic working conditions. China is doing its best to keep prices from going up but this may not last. If production in China gets more expensive, it is extremley possible that the United States may turn to other countries in terms of production where it would be the overall cheapest. There are many other countries that other students have named that will not have to increase their prices due to labor costs. All of the facts just further prove that their is an increasing global economy and that at any point it is subject to change. If prices in China go up then more Americans will be subject to buying products that are from America.

  20. I think that China will eventually rise their prices since they are a world leader in producing. In order to maintain low prices, the United States needs to find other countries to produce in order to balance out. Or my personal favorite is to restore jobs and companies within the United States so things can flourish.

  21. I definitely think that eventually apparel and textiles imported from China will be more expensive than they have been in the past. However, up and coming countries such as Bangladesh and Viet Nam may have the potential to become similar in China, where over a span of many years, many workers are treated in a humane fashion and earn wages that are more fair. I do not think that prices on Chinese imports rising will force American to buy “made in the USA”. As my classmates have stated, US retailers may be forced to look elsewhere for their imports, and there will be up and coming countries who will step up and produce.

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