WTO Forecasts World Trade to Grow 2.4% in 2017

world trade

In its latest trade statistics and outlook report, the World Trade Organization (WTO) forecasts the world merchandise trade volume to grow within a range of 1.8-3.6% in 2017 (on average 2.4%). This growth rate is slightly up from a very weak growth of 1.3% in 2016. WTO expects trade growth to further pick up to 2.1-4% in 2018.

On the positive side, the global GDP growth is expected to rebound to 2.7% in 2017 from 2.3% in 2016, which will contribute to the expansion of world trade. Notably, WTO expects emerging economies to return to modest economic growth in 2017. However, WTO sees policy uncertainty, including the imposition of restrictive trade measures and monetary tightening, a main risk factor to world trade this year.

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WTO also noted that since the financial crisis, the ratio of trade growth to GDP growth has fallen to around 1:1. And 2016 marked the first time since 2001 that this ratio has dropped below 1, to a ratio of 0.6:1. Historically, the volume of world merchandise trade has tended to grow about 1.5 times faster than world output. WTO is cautiously optimistic that the ratio will partly recover in 2017, but the ratio will remain a cause for concern.

At the press conference, Trump Administration’s trade policy receives significant attention. But according to  Roberto Azevêdo, Director-General of WTO, “just an overall statement of the intention to go one particular way or another, does not tell us what the trade policy is and does not tell us what the impact of that trade policy will be. Instead, the devil is in the details”. Roberto said he is waiting to see Trump’s new trade team in place (for example, the new US Trade Representative) and he looks forward to the meaningful dialogues with the team to know more details and clarity of U.S. trade policy. Until then, any comments on the impact of Trump Administration’s trade policy would be just speculations.

Outlook 2017: Apparel Industry Issues in the Year Ahead

outlook

In January 2017, Just-Style consulted a panel of industry leaders and scholars in its Outlook 2017–Apparel Industry Issues in the Year Ahead management briefing. Below is my contribution to the report. Welcome for any suggestions and comments.

1: What do you see as the biggest challenges – and opportunities – facing the apparel industry in 2017, and why?

I see the uncertainty in the global economy will pose one of the biggest challenges facing the apparel industry in 2017. Apparel business is buyer-driven. A great number of studies have suggested that economic growth is by far the most effective and reliable predictive factor for apparel consumption. Unfortunately, it seems apparel companies have to deal with another year of economic volatility and weak demand in 2017. For example, according to the latest International Monetary Fund (IMF) forecast released in October 2016, global economic growth in 2017 is projected to only recover to 3.4 percent from 3.1 percent in 2016. There is no particular excitement among major apparel consumption markets either: outlook of the U.S. economy in 2017 is complicated by the strong U.S dollar, the Federal Reserve’s monetary policy as well as the uncertain trade and tax policy to be adopted by the new Trump administration; Economic growth in the EU region next year will continue to be hindered by the unknown fallout from UK’s referendum on leaving the EU, pervasive geopolitical uncertainties, high unemployment rates and the rising protectionist tendencies; Japan’s economic growth is projected to be as low as 1.0 percent in 2017 according to the Organization for Economic Co-operation and Development (OECD); And China’s economic growth in 2017 could slow again to 6.5 percent, which would be the slowest pace in more than 25 years. Reflecting the trend, we might see a stagnant growth or even a decline of global textile and apparel trade in 2017 as well.

Nevertheless, companies’ continuous investments on technology and innovation will create exciting new opportunities for the apparel industry. Particularly, growing areas in the apparel industry such as 3D printing, wearable technology, digital prototyping and e-commerce have made many “non-traditional” players now interested in fashion, including technology giants like Google and Apple. I think we can expect the apparel industry to become even more modern and high-tech driven in the years to come. The changing nature of the apparel industry will also increase demand for talents from an ever more diversified educational background, such as engineering, physical therapy and business analytics.

2: What’s happening with sourcing? How is the sourcing landscape likely to shift in 2017, and what strategies can help apparel firms and their suppliers to stay ahead?

One observation from me is that textile and apparel (T&A) supply chain is becoming more regional-based. For example, data from the World Trade Organization (WTO) shows that 91.4 percent of textiles imported by Asian countries in 2015 came from other Asian countries, up from 86.6 percent in 2008. This suggests that Asian countries togetherare building a more integrated T&A supply chain. Likewise, in 2015 close to 90 percent of apparel exported by North, South and Central American countries went to the United States and Canada and 81 percent of apparel exported by EU countries went to other EU countries too. To be noted, all of these three major T&A supply chains are facilitated by respective free trade agreements in the region such as the North American Free Trade Agreement (NAFTA), ASEAN–China Free Trade Area (ACFTA) and of course the common market enjoyed by the EU members. On the other hand, fashion brands and apparel retailers often use the Western-Hemisphere supply chain and EU-based supply chain as a supplement to the Asia-based supply chain for more fashion-oriented or time-sensitive items. I think such a dual-track sourcing strategy will continue in 2017.

Related, I think supply chain management will play a growing important role helping apparel companies control sourcing cost, improve speed to market and better meet consumers’ demand in 2017. An interesting phenomenon revealed by the 2016 U.S. Fashion Industry Benchmarking Study released by the U.S. Fashion Industry Association is that around 30 percent of respondents say they plan to consolidate rather than diversify their sourcing base in the next 2 years. As one respondent commented, “(Our) focus right now is really finding efficiencies and maximizing productivity in the supply chain. While we won’t necessarily move out of any countries, we are consolidating the base within regions.”

Last but not least, I think in 2017 apparel companies will continue to give more weight to sustainability and social responsibility in their sourcing decisions. Building a more transparent and sustainable supply chain is an irreversible trend in the apparel industry. 

3: What should apparel firms be doing now if they want to remain competitive into the future? What will separate the winners from the losers?

To remain competitive into the future, apparel companies need to be prepared to change and be willing to try something new. Indeed, revolution is coming for the apparel industry, including the way products are made and sourced (example: 3D printing and various digital manufacturing tools), how consumers shop (example: the see-now-buy-now trend) and where and how to sell (example: the booming e-commerce and omni-channel retailing). In the past, small and medium sized companies (SME) were regarded more vulnerable than big players in the apparel industry for business survival.  However, nowadays, without embracing the spirit of innovation and entrepreneurship, even large companies can quickly become “dinosaurs” and find their business struggling. 

4: What keeps you awake at night? Is there anything else you think the apparel industry should be keeping a close eye on in the year ahead? Do you expect 2017 to be better than 2016, and why?

One thing that keeps me awake at night as a professor is what needs to be changed or updated in our curriculum to better prepare our students for the needs of the apparel industry. Fashion programs like us directly prepare future professionals for the fashion apparel industry. This also means we are not immune to the big shift in the industry either. For example, our course offerings currently include textile science, product development, merchandising, branding and sourcing and trade. But in addition to these conventional topics, what else should be added to the curriculum? What new skill setsor knowledge points will be highly expected by the apparel industry for our students in the future? Personally I think talent training is a critical area that the apparel industry and our fashion educational programs can and should form closer partnership. And the outcomes will be mutual beneficial too.

Trade policy is another area that keeps me awake at night. Trade policy matters for the apparel industry because it affects the quantity, price and availability of products in the market. Specifically, in 2017 I will be watching closely about the following trade agendas: 1) the WTO Trade Facilitation Agreement (TFA), which is nearing entering into force. TFA aims to make customs and border procedures easier, speed up the passage of goods between countries and lower cost of trade.

2) negotiation of the Regional Comprehensive Economic Partnership (RCEP). In 2015, the sixteen RCEP members altogether exported $369 billion worth of textile and apparel (50% of world share) and imported $124 billion (34% of world share). Since the Trans-Pacific Partnership (TPP) won’t be implemented anytime soon, RCEP has the potential to influence and reshape the T&A supply chain in the Asia-Pacific region.

3) a possible revision of the North American Free Trade Agreement (NAFTA). NAFTA is a critical factor facilitating and maintaining the Western-Hemisphere textile and apparel supply chain. A recent study of mine shows that ending the NAFTA would significantly hurt apparel manufacturing in Mexico and textile manufacturing in the United States, largely because apparel “Made in Mexico” today often contains yarns and fabrics “Made in USA”.

4) Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP). Although many people think these two agreements are dead, I disagree. TPP and T-TIP are NOT conventional free trade agreements (FTAs) that deal with tariffs and non-tariff barriers only. Just like why we need traffic rules, TPP and T-TIP address our needs to update international trade regulations on 21st century trade agendas such as digital trade, state-owned enterprises, labor and environmental standards, small and medium sized enterprises and trade related investment. On the other hand, both TPP and T-TIP still have a solid and broad supporting base, which includes the fashion apparel industry. If trade politics is why TPP and T-TIP are in trouble, for the same reason, we should expect a reversal of the fate of these two agreements when time arrives. Plus, we should never underestimate the creativity and wisdom of trade policymakers.

Sheng Lu

The US Elections Explained: Trade Policy

This video is a great supplement to our discussion on the U.S. trade policy this week. To be noted, the next president’s trade policy will affect millions of Americans, as well as the health and competitiveness of the country’s economy. Done right, trade policy can also advance strategic interests like strengthening the economies of allies, deepening diplomatic ties, and promoting global cooperation that acts as a bulwark against conflict.

Please feel free to share your thoughts on the video, including any points you agree, disagree or find interesting. Additional resources that can facilitate the discussion are also welcome.

Towards a More Inclusive Trading System

A timely, informative and intellectual discussion with Roberto Azevêdo, Director General of the World Trade Organization on the state of global trade and its governance. Some important key points during Roberto’s presentation/discussion:

  • Trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history: In recent decades it has helped to lift one billion people out of poverty in developing countries. The World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not. in the US, estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually.
  • Trade means more choice, lower prices and real dollar in the pocket for consumers: A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade. But the poorest consumers, they could lose up to 63% of their spending power
  • Trade is imperfect: Despite the obvious overall gains, trade can have negative effects in some parts of the economy. And those effects can have a big impact on some people’s lives. But we would be betraying those very same people, and many, many more, if we turned against trade and allowed the negative arguments to go unanswered.
  • Trade protectionism is an ineffective and very expensive way of protecting jobs: In the latter part of the 20th century, the EU protected various industries — including steel, agriculture and textiles. The French economist Patrick Messerlin analyzed this approach. He found that the average cost per job saved was several hundred thousand euros, or about 10 times the corresponding wage in each of those industries. The US applied tariffs on Chinese truck tires in 2009. Around 1,200 jobs were saved, but this came at a cost of $1.1 billion in higher prices for consumers. That works out as a cost of about $900,000 per job. The Petersen Institute estimates that these higher prices also resulted in around 2,500 job losses in the tire retail sector due to slumping sales.
  • Trade protectionist solutions do not reflect the nature of the modern economy and the international nature of production: Most goods aren’t made in one country. Most exports have components which have been imported. So by restricting imports, a country can restrict its own ability to export. Trade protectionism is also a two-way street. It leads to retaliation and the domino-effect.
  • Unemployment is not strictly or mainly a trade issue, trade measures will NOT address this disorder: trade is a relatively minor cause of job losses. The evidence shows that well over 80% of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation.
  • The real economic revolution that is happening today: Studies suggest that almost 50% of existing jobs in the US are at high risk of automation. An International Labor Organization (ILO) study on Cambodia, Indonesia, Vietnam, Philippines and Thailand found that 56% of jobs are at high risk of automation. And that’s just on average. In some sectors over 80% of jobs are at risk. In Japan, there are 315 robots per 10,000 workers. In China that number is only 36 — but it is rising fast. In the US, the number is 164, which is still relatively low. But it is set to go up!

Questions for thinking:

  • How do we ensure that trade can continue to promote growth and lift people out of poverty?
  • How to RESPOND to the rising anti-trade sentiment in public discourse? Is trade protectionism the right approach?
  • How to ensure that the benefits of trade reach further and wider– in other words, how to create a more inclusive global trading system? How to harness the power of e-commerce to support inclusiveness?
  • How do we help small and medium sized enterprises (SMEs) to leverage technology so that this marketplace doesn’t just become the preserve of the big players?
  • How can the trading system adjust to the shift from a world of few, large, known exporters to a world in which exporters are many, small and unknown? How can we ensure that this transition works for consumers?

Debate on Used-clothing Trade, Sustainable Development Strategy and Wage Level in the Garment Industry: Discussion Questions from FASH455

ethiopian-textiles

Debate on used-clothing trade and strategy for building a sustainable garment industry

#1 Should countries in East Africa ban on imported used-clothing for the survival of its own apparel manufacturing industry, which is at the nascent stage of development?

#2 From an environmental sustainability standpoint, wouldn’t it make sense for East Africa to continue importing used clothes for their Mitumba wholesale center rather than ceasing this trade and manufacturing new clothes? What is your view?

#3 If clothing manufacturing has significantly helped Haiti grow its economy, should East African countries follow the same development path?

#4 The reading article says that trade agreements have extended Haiti’s duty free access to the United States until 2020. What might happen to Haiti’s garment exports after 2020? Can it survive? In your view, is Haiti’s garment industry a model for sustainable development?

#5 Why is the United States willing to offer duty free access for apparel made in Haiti but not made in other Asian countries, such as Bangladesh? Is it fair?

Debate on Wage level of garment workers

#6 Garment manufacturing and exporting are picking up Haiti’s economy, although most Haitian garment workers only make roughly $180-$200 per month. Meanwhile, Haiti is looking to attract retailers’ further investment. Given the fact that there are so many places in the world that retailers can source clothing from, will an increase of wage level drive away foreign investment in Haiti and negatively affect Hait’s garment exports?

#7 If consumers are willing to pay higher, will it help increase the wages of factory workers in developing countries? Or as consumers, we can do little about it?

#8 Should globalization be responsible for the low wage of garment workers in the developing countries? Without globalization, would garment workers in the developing countries live a better life?

[Please feel free to join our online discussion. For the purpose of convenience, please mention the question # in your reply/comment.]

Global Apparel and Footwear Industry (Updated in June 2016)

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The global apparel and footwear industry enjoys a 5 percent value growth in 2015. Asia Pacific remains the world’s largest apparel and footwear market, with market value increased by $30 billion USD in 2015.  In particular, the United States, China and India contributed more than half the absolute increased value.

Market growth in Western Europe remains stagnant in 2015. However, some countries performed better than others. For example, apparel and footwear sales continued to experience significant losses in Greece and Italy with 7 percent and 2 percent declines in 2015, respectively. France didn’t do very well either and size of the French market is expected to contract by $1.5 billion USD by 2020. In comparison, UK, Western Europe’s largest market, posted modest 1 percent growth in 2015. Performance in Germany remained overall stable.

US

The US market continues to perform well with healthy value growth of 4 percent in 2015. However, the performance of key players such as J Crew and Gap, both of which plan to close a significant number of physical stores and lay off employees, highlight the increasingly competitive trading environment. US consumers overall remain cautious and adopt a value- driven approach to buying clothes resulting in a continuous discounting cycle, negatively impacting profit margins and slowing growth for the industry as a whole. From 2013 to 2014, volume growth of apparel sales in the United States exceeded value, primarily due to discounting, the proliferation of fast fashion brands and greater availability of low prices online. However, value growth returned to a more robust position in 2015, as a strengthening economy, improvements in the labor market and rising wages support future growth.

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Sportswear is maintaining its momentum, increased by 8 percent in market value from 2014 to 2015, faster than any other apparel product categories. Consumers no longer consider sport a task that needs to be checked off on a day-to-day basis but instead it has become a lifestyle. Athleisure remains a heavily prominent trend as more consumers adopt an active and healthy lifestyle, increasing the demand for athletic products that are technically advanced and fashionable. In response to the evolving athleisure trend, major sportswear brands have turned their attention to women’s sports apparel and footwear. With Skechers, Lululemon, Under Armour and Nike reporting growth of 33 percent, 20 percent, 19 percent and 12 percent, respectively, in 2015.

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Currency weakness, political unrest and tough economic environments continue to result in slowing growth among the emerging markets. However, internet retailing & e-commerce is a spotlight. Apparel and footwear sales through internet retailing grew by 23 percent in 2015 globally and are expected to continue providing impressive growth for apparel brands to 2020. Global mobile internet retailing has grown at a rapid of 92 percent over 2011-2015, highlighting the increasingly vital role mobile is playing within the buying process. Notably, emerging markets are accounting for a significant proportion of growth and are expected to boast a higher market size than developed markets by 2018.

Data source: Euromonitor Passport