Cheaper to Make Textiles in the United States than in China: Reality or Myth?

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A New York Times article back in August 2015 suggests that “yarn production costs in China are now 30 percent higher than in the United States” because of savings in raw and auxiliary material. The article believes the cost difference is why some Chinese textile companies are coming to build factories in the United States, such as Keer Group’s cotton mill in South Carolina.

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However, in a recent interview with China Textile News, Chairman of the Cixi Jiangnan Chemical Fiber Co (Cixi) provides a different cost sheet (above). In September 2013, Cixi invested a $45million polyester staple fiber mill in South Carolina. Because nearly 80% of Cixi’s outputs are sold outside of China, and the United States is its single largest export market, the investment intends to help the company maintain its presence in the U.S. market and substantially save transportation cost.

According to Cixi, it is a misunderstanding that making textiles in the United States is cheaper than in China. Although moving factories to the United States may help Chinese companies save money in land, electricity, natural gas, and logistics, it will significantly increase the costs in purchasing manufacturing equipment, building factories and managing daily operation of the company.  Additionally, culture and language barriers, as well as labor policy in the United States, could also become critical challenges facing Chinese investors. Cixi admits that to keep its U.S. factory running smoothly, members of its management team all come from China.

Are Textile and Apparel “Made in China” Losing Competitiveness in the U.S. Market?

The following analysis is from the latest Just-Style Op-ed Is China Losing Its Edge as a US Apparel Supplier.

A fact-checking review of trade statistics in 2016 of a total 167 categories of T&A products categorized by the Office of Textiles and Apparel (OTEXA) suggests that textile and apparel (T&A) “Made in China” have no near competitors in the U.S. import market. Specifically, in 2016:

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  • Of the total 11 categories of yarn, China was the top supplier for 2 categories (or 18%);
  • Of the total 34 categories of fabric, China was the top supplier for 25 categories (or 74%);
  • Of the total 106 categories of apparel, China was the top supplier for 88 categories (or 83%);
  • Of the total 16 categories of made-up textiles, China was the top supplier for 12 categories (or 68%);

In comparison, for those Asian T&A suppliers regarded as China’s top competitors:

  • Vietnam was the top supplier for only 5 categories of apparel (less than 5% of the total);
  • Bangladesh was the top supplier for only 2 categories of apparel (less than 2% of the total)
  • India was the top supplier for 2 categories of fabric (9% of the total), one category of apparel (1% of the total) and 5 categories of made-up textiles (41.7% of the total)

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Notably, China not only was the top supplier for many T&A products but also held a lion’s market shares. For example, in 2016:

  • For the 34 categories of fabric that China was the top supplier, China’s average market shares reached 41%, 23 percentage points higher than the 2nd top suppliers for these categories
  • For the 88 categories of apparel that China was the top supplier, China’s average market shares reached 53%, 38 percentage points higher than the 2nd top suppliers for these categories.
  • For the 16 categories of made-up textiles that China was the top supplier, China’s average market shares reached 57%, 40 percentage points higher than the 2nd top suppliers for these categories.

It is also interesting to see that despite the reported rising labor cost, T&A “Made in China” are NOT becoming more expensive. On the contrary, the unit price of U.S. T&A imports from China in 2016 was 6.8% lower than a year earlier, whereas over the same period the unit price for U.S. T&A imports from rest of the world only declined by 2.9%.

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Furthermore, T&A “Made in China” are demonstrating even bigger price competitiveness compared with other suppliers to the U.S. market. For example, in 2016, the unit price of “Made China” was only 78% of the price of “Made in Vietnam” (in 2012 was 89%), 88% of “Made in Bangladesh” (in 2012 was 100%), 86% of “Made in Mexico” (in 2012 was 103%) and 72% of “Made in India” (in 2012 was 81%).

Are the results surprising? How to explain China’s demonstrated price competitiveness despite its reported rising labor cost? What’s your outlook for the future of China as a sourcing destination for U.S. fashion brands and retailers? Please feel free to share your views.

New USCBC Study Suggests Overall Positive Impacts of China on the US economy

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Although the trade relationship with China is often blamed for causing job losses in the United States, a new study prepared for the U.S.-China Business Council (USCBC) by Oxford Economics suggests overall positive impacts of China on the US economy. According to the study:

  • China has grown to become the third-largest destination for American goods and services, only after Mexico and Canada. China purchased $165 billion in goods and services from the United States in 2015, representing 7.3 percent of all US exports and about 1 percent of total US economic output. By 2030, US exports to China are projected to rise to more than $520 billion annually.
  • The US-China trade relationship supports roughly 2.6 million jobs in the United States. Specifically, US exports to China directly and indirectly supported 8 million new jobs in 2015.
  • The reported gross US trade deficit with China is overstated and somehow misleading. As China has become an integral part of the global manufacturing supply chain, much of its exports are comprised of foreign-produced components delivered for final assembly in China. If the value of these imported components is subtracted from China’s exports, the US trade deficit with China is reduced by half, to about 1 percent of GDP—about the same as the US trade deficit with the European Union.
  • Additionally, “Made in China” lowered prices in the United States for consumer goods. As estimated, US consumer prices are 1 percent – 1.5 percent lower because of Chinese imports–trade with China saved each American household up to $850 in 2015. Given the fact that hourly labor costs in the textile industry were $2.65 in China in 2014 compared with $17.71 in the United States, the report argues that replacing Chinese imports of textiles and clothing with US manufactured products would significantly raise US consumer prices.

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In terms of the textile and apparel (T&A) sector, the report suggests that:

  • The rising U.S. import from China mostly represents China’s displacement of imports from other countries and regions: China has been squeezing out traditional apparel manufacturers such as Mexico, Hong Kong, and Taiwan.
  • Meanwhile, textile and apparel manufacturing is one of the very few sectors that observe a paralleled pattern of rising imports from China and declining gross value added in the United States since 2000. In comparison, over the same period other sectors that experienced the most rapid growth in Chinese imports are also the sectors where US businesses have seen the strongest growth.

The report can be downloaded from HERE.

Outlook for Trade Policy in the Trump Administration and Impact on the Textile and Apparel Industry: A Summary of Views from Experts

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TPP is in trouble, but NOT dead

David Spooner, Partner at Barnes & Thornburg LLP, Former Chief Textile & Apparel Negotiator at the Office of the U.S. Trade Representative, and Former Assistant Secretary of Commerce for Import Administration: “it will be a tough road to pass it (the Trans-Pacific Partnership, TPP) during the Trump Administration…However, there may be opportunities for the (fashion) industry if Trump brings new faces to the Office of the U.S. Trade Representative (USTR) and takes a fresh look at trade agreements.” Source: https://www.usfashionindustry.com/news/off-the-cuff-newsletter/2803-recap-28th-apparel-importers-trade-transportation-conference

Jeffrey J. Schott, Senior Fellow of the Peterson Institute for International Economics: “What’s the future for TPP? Most likely, Trump will simply not implement it. Without US participation, the pact cannot definitively enter into force. It’s death by malign neglect.” “But the 11 other TPP countries may not sit idly on the sidelines waiting for US ratification. Instead, they could agree among themselves to extend the TPP benefits to each other on a provisional basis, leaving the door open for US participation in the future. If the United States subsequently ratifies the TPP, the pact would then enter into force on a permanent basis.” Source: https://piie.com/blogs/trade-investment-policy-watch/tpp-could-go-forward-without-united-states

Steve Warner, President/CEO BeaverLake6 Group LLC, former President and CEO of the Industrial Fabrics Association International (IFAI): “TPP was dead going forward. TPP isn’t actually bad for the technical textiles industry except in a few instances. The real bad culprit, though, is the passage of the Trade Promotion Authority (TPA), which I opposed when it was being hotly debated in 2015. TPA gave no wiggle room for lawmakers to make even slight changes in the TPP when it was presented by the Obama administration that could at least mollify a representative’s constituents. You couldn’t just like parts of the agreement; you had to like all of it. Thus, you were either with it entirely or have to go against it. It proved to be safer to go against it. As for T-TIP, it was going to be a tough deal to conclude when the European Union insisted a primary objective for them was the elimination of the Berry Amendment protection for US domestic manufacturers” Source: http://www.beaverlake6.com/in-my-opinion/

Face uncertainties but with hope

Michael Singer, vice president of customs compliance at Macy’s and chairman of the U.S. Fashion Industry Association (USFIA): “I do see some opportunities believe it or not, and I had to struggle really hard to come up with something positive. From the regulatory basis, there may be an opportunity for some easing of government laws and mandates.” “One of the key issues we now face is how the administration and Congress will handle trade issues in 2017… We all know how important trade and the access to world markets is in our ability to provide our customers the choices and products they expected, and yet there is no doubt the protectionist sentiment in our country is at historic levels. USFIA will be doing our best to make sure that this remains a top priority and we clearly communicate the importance and benefit of trade to U.S. consumers and the U.S. economy.” Source: http://wwd.com/business-news/government-trade/donald-trump-on-trade-taxes-and-regulations-10702130/

 Julia Hughes, President of the U.S. Fashion Industry Association (USFIA): “A lot of folks were surprised by the (election) outcome… We can see we have our work cut out for us…We’re going to be dealing with a lot of unknowns even with the continuation of a Republican Congress.” Source: http://www.just-style.com/analysis/tpp-is-not-going-to-happen-in-a-trump-administration_id129272.aspx

Daniel J. Ikenson, director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies: “If he (Trump) is able to expand and diversify the pool of people advising him, there is a reasonable chance that President Trump’s actions will be less bellicose than his rhetoric has been. After all, as someone who wants to make America “great again,” President-elect Trump will want the policies implemented by his administration to help grow the economy. Trade agreements have succeeded in that regard and, in addition to the TPP, there are plenty of countries and regions willing to partner, including the European Union and the United Kingdom (separately), and plenty of alternative negotiating platforms for accomplishing trade and investment liberalization. ” Source: https://www.cato.org/blog/shifting-gears-contemplate-trumps-trade-policies

David Spooner, Partner at Barnes & Thornburg LLP, Former Chief Textile & Apparel Negotiator at the Office of the U.S. Trade Representative, and Former Assistant Secretary of Commerce for Import Administration: “I think there’s some opportunity in a Trump administration…Assuming chaos provides opportunities, and if Trump brings in new faces to USTR, it might give us an opportunity to do new things in trade. We’ve been screwed by the yarn-forward rule for decades. Maybe there’s an opportunity to do things, even if it’s around the margins.” Source: https://sourcingjournalonline.com/tpp-ttip-wont-happen-trump-administration/

Robert Antoshak, managing director at Olah Inc.: “First, (Trump) he’ll let TPP, the Trans-Pacific Partnership) just wither on the vine. It’s pretty easy to kill TPP by doing nothing; Congress hasn’t voted on it yet. Next, he may activate the escape clause in NAFTA (the North American Free Trade Agreement with Canada and Mexico), which gives signatories a six-month window to exit the agreement. During that time, he could use an exit for political gain in the media – imagine the headlines about the US pulling out of NAFTA – but in reality, he could use the time to renegotiate portions of the agreement. And then there’s T-TIP, the Transatlantic Trade and Investment Partnership free trade deal with the EU. Personally, I’m going to keep a close eye on relations between the White House and 10 Downing Street. The commonalities between the forces supporting Brexit and Trump are all too similar. Why negotiate with all of the EU, when it may be more politically expedient for Trump to negotiate a separate economic-trade deal with Theresa May?” “I am confident that he (Trump) will attempt to alter the global hierarchy. One way of changing the system will be to focus on trade. He can make tactical adjustments to trade policy that will not only give him the front-page news he craves, but will enact the kind of systemic change upon which he ran for president.” Source: http://www.just-style.com/comment/trump-trade-policy-who-knows-what-hell-do_id129295.aspx

US-China Trade War? Keep a close watch

Augustine Tantillo, president and chief executive officer of the National Council of Textile Organizations (NCTO): “(I) would be surprised if Trump does not take some steps to crack down on currency devaluation, particularly as it relates to China.” Source: http://wwd.com/business-news/government-trade/donald-trump-on-trade-taxes-and-regulations-10702130/

 Chad Bown, Senior Fellow of the Peterson Institute for International Economics: “What he (Trump) has said is that they (China) manipulate their currency and he has threatened to impose tariffs upwards of 45%. The concerns with doing that is that we (USA) do have a trade agreement with 163 other economies of the world, the WTO. China is a part of that and by doing that (imposing tariffs upwards of 45%) unilaterally, would be violating our commitments, legal commitments to our trading partners under that deal and China would be authorized and probably would retaliate and strike back and probably do the same thing against the United States which would mean U.S. companies and exporters that make goods and agricultural products, and send those to China would suffer as a retaliatory response.” Source: https://www.c-span.org/video/?417891-3/washington-journal-chad-bown-trade-policy-trump-administration

Textile and apparel industry needs NAFTA 

Steve Lamar, executive vice president for the American Apparel & Footwear Association(AAFA): “It is well established that CAFTA and NAFTA are critical for the U.S. textile and apparel industry. The things we have continued to argue is how to find ways to make it better… NAFTA was negotiated when there were no other free-trade agreements and the world was surrounded by quotas and rules of origin that catered to the United States. But the industry has evolved.” “Trump will renegotiate NAFTA and is only threatening to abrogate the free-trade accord… Trump likes to build up leverage to get the best possible deal, and he can view trade with that same lens.” Source: https://www.apparelnews.net/news/2016/nov/17/how-would-end-nafta-affect-la-apparel-industry/

Augustine Tantillo, president and chief executive officer of the National Council of Textile Organizations (NCTO): “there will be a ‘level of caution,’ when it comes to renegotiating NAFTA. This agreement has been in place for a while and it would be clearly disruptive to simply walk away from it at this point.” Source: http://wwd.com/business-news/government-trade/donald-trump-on-trade-taxes-and-regulations-10702130/

Leonie Barrie, Managing editor of Just-Style: “Will a Trump administration revisit NAFTA? Such a prospect is a concerning one because NAFTA’s free trade framework with Mexico has been at the heart of many sourcing strategies in North America. The US exported $6.5bn of apparel and textiles to Mexico last year and, in turn, Mexico shipped $4.2bn to the US. Earlier this year executives told just-style that if Trump went ahead with threats to build a 3,200-kilometre fence on the Mexican-American border to stem immigration, it could cut $2.2bn or 20% of the $11bn in US-Mexican textiles and apparel trade in its first year.” Source: http://www.just-style.com/comment/what-might-a-trump-presidency-mean-for-apparel_id129260.aspx

Please feel free to respond to any comments above or leave your thoughts.

Chinese Manufacturer to Open $20 Million Garment Factory in the US

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We all know that China is the single largest supplier of textile and apparel to the U.S. market. But on Oct 20, 2016, Arkansas Gov. Asa Hutchinson announced Tianyuan Garments Company, a Chinese sport apparel manufacturer based in Suzhou, China will invest $20 million to build a new garment factory in the Little Rock area of Arkansas.

Tianyuan, founded in 1998, is a garment maker specializing in the production of casual and sport apparel, including garment for Adidas, Reebok and Armani. With five facilities in China, Tianyuan was named one of the top 100 garment companies in China in 2015. Tianyuan’s annual production rate is nearly 10 million articles and clothing. The company currently supplies 90% of the garments marketed by Adidas, which is the second-largest global sports and apparel maker behind Nike. Tianyuan was also one of several suppliers for the 2014 World Cup and for the Italian Olympic Team in 2016.  

According to the Memorandum of understanding (MOU) signed by Hutchinson and Tianyuan executives, the Chinese apparel giant will hire 400 full-time workers primarily from Arkansas within four years of starting operations in central Arkansas. It is said that these workers will be paid around $14/hour.

As part of the deal, Arkansas offers an incentive package that will include five-year, 3.9% annual tax rebate worth nearly $1.6 million annually. Other incentives include a $1 million infrastructure assistance grant for building improvements and equipment purchases, as well as a $500,000 stipend for worker training.

Arkansas will also help provide assistance in helping Tianyuan get 20 work visas for company executives who will live in Arkansas or travel between the U.S. and China on business related to the Little Rock manufacturing plant. Furthermore, the Chinese garment maker will receive abatement of up to 65% of property taxes from the city of Little Rock and Pulaski County.

Tianyuan is not the only Chinese textile and apparel company that invests in the US in recent years. Back in 2013, Keer Group, a Chinese textile company founded in 1995 and based in Zhejiang, China opened a new facility in Lancaster County, South Carolina as the base of operations for Keer Group’s expansion into the North American market. With $218 million total investment in 5 years, Keer America plans to open one plant with manufacturing capacity of 30,000 metric tons of yarn per year and another plant with 75,000 spindles to make 50 metric tons of yarns daily.

Please feel free to share your thoughts on the following discussion questions:

  1. Why do you think Tianyuan and Keer group decide to open factories in the US? Based on your research, do you think Tianyuan and Keer’s investments reflect a growing trend in the industry or are they just two individual cases?
  2. In your view, are investments made by Tianyuan and Keer group good or bad for the US economy? Why?
  3. What is the business outlook for Tianyuan’s garment factory in the US and Keer America? What are their opportunities and challenges?
  4. Any other thoughts or questions for the case?

[Discussion for this post is closed]

How is China’s Garment Industry Dealing with Rising Labor Costs?

Please feel free to share your views on the following discussion questions based on the video:

China is no longer one of the cheapest places to produce garments. The minimum monthly wages in China have far exceeded those in Bangladesh, India and Cambodia:

  • How are Chinese garment factories coping with the challenges of rising labor cost?
  • Is adopting Taylor’s “scientific management”, i.e. asking skilled workers to do less skilled jobs in a more specialized production line, a smart idea?
  • What is your view on the growing difficulty of hiring and retaining young skilled workers for the garment industry in China?
  • Any other thoughts on the video?

Appendix: State of China’s Apparel Exports in 2015

According to the UNComtrade, China remains the world’s largest apparel exporter in 2015 (37.4% world share for knitted apparel, HS61 and 34.9% for woven apparel, HS62).

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62From 2011 to 2015, “Made in China” continues to acquire more market shares in some key apparel import markets in the world, including the United States and UK (i.e. China’s apparel exports to these markets grew at a faster rate than these countries’ apparel import growth from the world—bubbles in blue in the figures below). Nevertheless, in some other markets (bubbles in yellow in the figures below), notably Japan and Germany, China is losing market shares to other garment exporters such as Vietnam and Bangladesh.

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