USTR Lighthizer Discusses Philosophies behind Trump Administration’s Trade Policy

At an event hosted by the Center for Strategic and International Studies (CSIS) on September 18, U.S. Trade Representative Robert Lighthizer addressed the U.S. trade policy in the Trump Administration, particularly Trump’s beliefs on trade:

Philosophy 1: The reason why some Americans oppose free trade is NOT that they were “ill-informed.” Rather, it is because the U.S. trade policy for decades has failed to create a “level playing field.” The Trump Administration will proactively use all instruments to “make it expensive” for U.S. trading partners to engage in the non-economic behavior, convince U.S. trading partners to treat U.S. workers, farmers, and ranchers fairly and demand “reciprocity” both in the home and international markets.

Philosophy2: Trade deficits matter. Although trade policy is not the only cause for the trade deficit, it can be a major contributor, such as high tariffs that deny the market access for U.S. products, not imposing the border adjustment tax and currency manipulation.

Philosophy 3: China is the top challenge. According to Lighthizer, “the sheer scale of China’s coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented.”

Philosophy 4: The Trump Administrations will exam all existing trade agreements to make sure they provide “roughly equivalent” measured by trade deficits. “Where there the numbers and other factors indicate a disequilibrium, one should renegotiate.”

During the Q&A session, Lighthizer further shared his views on some cutting-edge trade issues:

  1. Regarding the NAFTA renegotiation, Lightlizher said that the negotiation is “moving at warp speed, but we don’t know whether we’re going to get to a conclusion, that’s the problem.” The consultation process with U.S. Congress is complicated and time-consuming, but it is unavoidable.
  2. The Trump Administration prefers bilateral trade deal over regional and multilateral ones. Given the size of the U.S. economy, Lighthizer believes that bilateral trade agreement will provide more negotiation leverages and ensure better enforcement.
  3. The Trump Administration will still stay very much engaged in Asia.
  4. The WTO Dispute-Settlement mechanism doesn’t work well—it has both imposed new obligations for the U.S. and reduced a lot of U.S. benefits.
  5. Regarding the outlook for the Trans-Atlantic Trade and Investment Partnership (T-TIP) negotiation, Lighthizer stressed the importance of the US-EU trade relations. He said that the series of elections in EU is a reason why the negotiation of the agreement hasn’t moved forward.
  6. Regarding TISA (Trade in services agreement), the U.S. objective is to open markets and eliminate market access barriers for U.S. companies.
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2017 U.S. Fashion Industry Benchmarking Study Released

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The report can be downloaded from HERE

Key findings of the study:

While the majority of respondents remain confident about the five-year outlook for the U.S. fashion industry, the percentage of those who are “optimistic” or “somewhat optimistic” dropped to a record low since we began conducting this study in 2014. This change could be due to concerns about the “protectionist trade policy agenda in the United States” and “market competition in the United States from e-commerce,” the top two concerns this year.

  • The percentage of those who are “optimistic” or “somewhat optimistic” fell from 92.3 percent in 2016 to 71.0 percent in 2017, a record low since we began conducting this study in 2014. As many as 12.9 percent of respondents are “somewhat pessimistic” about the next five years, mostly large-scale retailers with more than 3,000 employees.
  • Despite the challenges, demand for human talent in the industry overall remains robust. This year, around 80 percent of respondents plan to hire more employees in the next five years, especially supply chain specialists, data scientists, sourcing specialists, and marketing analysts.
  • Cost is no longer one of the top concerns; respondents are less stressed about “increasing production or sourcing cost,” which slipped from #2 challenge in 2016 to #7 challenge in 2017. Only 34 percent rate the issue among their top five challenges this year, significantly lower than 50 percent in 2016 and 76 percent in 2015. Labor cost remains the top factor driving up sourcing cost in 2017.

Although U.S. fashion companies continue to seek alternatives to “Made in China,” China’s position as the top sourcing destination remains unshakable. Meanwhile, sourcing from Vietnam and Bangladesh may continue to grow over the next two years, but at a relatively slow pace.

  • 91 percent of respondents source from China; while 100 percent sourced from China in our past three studies, China is still the top-ranked sourcing destination this year, and the percentage of those expecting to decrease sourcing from the country fell from 60 percent in 2016 to 46 percent this year—and many more expect to maintain their current sourcing value or volume from the country in the next two years.
  • Likely reflecting the United States’ withdrawal from the Trans-Pacific Partnership (TPP) and the expectation of increasing labor costs, only 36 percent of respondents expect to increase sourcing from Vietnam in the next two years, much lower than 53 percent who said the same in 2016.
  • Respondents are cautious about expanding sourcing from Bangladesh in the next two years, with only 32 percent expecting to somewhat increase sourcing While “Made in Bangladesh” enjoys a prominent price advantage over many other Asian suppliers, respondents view Bangladesh as the having the highest risk for compliance.

U.S. fashion companies continue to maintain truly global supply chains.

  • Respondents source from 51 countries or regions in 2017, close to the 56 in last year’s study.
  • 6 percent source from 10+ different countries or regions in 2017, up from 51.8 percent in last year’s survey. In general, larger companies have a more diversified sourcing base than smaller companies. Additionally, retailers maintain a more diversified sourcing base than brands, importers/wholesalers, and manufacturers.
  • Around 54 percent expect their sourcing base will become more diversified in the next two years, up from 44 percent in 2016; among these respondents, over 60 percent currently source from more than 10 different countries or regions.
  • The most common sourcing model is shifting from “China Plus Many” to “China Plus Vietnam Plus Many.” The typical sourcing portfolio today is 30-50 percent from China, 11-30 percent from Vietnam, and the rest from other countries.
  • While Asia as a whole remains the dominant sourcing region for U.S. fashion companies, the Western Hemisphere is growing in popularity. This year, we see a noticeable increase in sourcing from the United States (70 percent, up from 52 percent in 2016) and countries in North, South, and Central Americas, which offer a shorter lead time and relatively lower risk of compliance.

Today, ethical sourcing and sustainability are given more weight in U.S. fashion companies’ sourcing decisions. Respondents also see unmet compliance (factory, social and/or environmental) standards as the top supply chain risk.

  • 5 percent of respondents say ethical sourcing and sustainability have become more important in their company’s sourcing decisions in 2017 compared to five years ago.
  • 100 percent of respondents currently audit their suppliers, including how suppliers treat their workers, suppliers’ fire safety, and suppliers’ building safety. The majority (93 percent) use third-party certification programs to audit, with a mix of announced and unannounced audits.
  • As many as 90 percent of respondents map their supply chains, i.e., keep records of name, location, and function of suppliers. More than half track not only Tier 1 suppliers, suppliers they contract with directly, but also Tier 2 suppliers, i.e. supplier’s suppliers. It is less common for U.S. fashion companies to map Tier 3 and Tier 4 suppliers though, which could be because of the difficulty of getting access to related information with such a globalized and highly fragmented supply chain.

Free trade agreements (FTAs) and trade preference programs remain underutilized, and several FTAs, including CAFTA-DR, are utilized even less this year than in previous years.

  •  Of the 19 FTAs/preference programs we examined this year, only NAFTA is used by more than 50 percent of respondents for import purposes.
  • Even more concerning, some U.S. fashion companies source from countries/regions with FTAs/preference programs but, for whatever reason, do not claim the benefits. For example, as many as 38 percent and 6 percent of respondents, respectively, do not use CAFTA-DR and NAFTA when they source from these two regions.

Respondents unanimously oppose the U.S. border adjustment tax (BAT) proposal and call for the further removal of trade barriers, including restrictive rules of origin and high tariffs.

  • 100 percent of respondents oppose a border adjustment tax; 84 percent “strongly oppose” it.
  • Respondents support initiatives to eliminate trade barriers of all kinds, from high tariffs to overcomplicated documentation requirements, to the restrictive yarn-forward rules of origin in NAFTA and future free trade agreements.
  • Respondents say the “complex standards on labeling and testing”, “complex rules for the valuation of goods at customs” and “administrative and bureaucratic delays at the border” are the top non-tariff barriers they face when sourcing today.

The benchmarking studies from 2014 to 2016 can be downloaded from https://www.usfashionindustry.com/resources/industry-benchmarking-study 

NAFTA Renegotiating Objectives Related to the Textile and Apparel Industry

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On Tuesday (July 17, 2017), the Office of the U.S. Trade Representative (USTR) released its detailed and comprehensive summary of the renegotiating objectives of the North American Free Trade Agreement (NAFTA). In the statement, USTR says that “through the renegotiation of NAFTA, the Trump Administration will seek a much better agreement that reduces the U.S. trade deficit and is fair for all Americans by improving market access in Canada and Mexico for U.S. manufacturing, agriculture, and services.”

Several released negotiating objectives address textile and apparel (T&A) directly or are highly relevant to the sector:

Trade in Goods

  • Improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries.
  • Maintain existing duty-free access to NAFTA country markets for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities.

Rules of Origin

  • Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.
  • Ensure the rules of origin incentivize the sourcing of goods and materials from the United States and North America.
  • Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles.
  • -Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles.

Customs and Trade Facilitation

  • Provide for automation of import, export, and transit processes, including through supply chain integration; reduced import, export, and transit forms, documents, and formalities; enhanced harmonization of customs data requirements; and advance rulings regarding the treatment that will be provided to a good at the time of importation.

Comments:

  1. Notably, reducing the trade deficit and bringing more manufacturing jobs back to the United States are at the core of the NAFTA’s renegotiating objectives. These two goals are also highly consistent with Trump’s rhetoric on his trade policy.
  2. A dilemma facing the T&A sectoral negotiation is that the United States currently runs a robust trade surplus with Canada and Mexico for textiles: in 2016, the value of U.S. trade surplus (i.e. the value of exports minus the value of imports) totaled $680 million for yarns (up 56.7% from 1994), $4,342 million for fabrics (up 202.9% from 1994) and $1,461 million for made-up textiles (up 223.5% from 1994). Meanwhile, although the United States is in a trade deficit with NAFTA partners for apparel ($1,130 million in 2016), U.S. apparel imports from Canada and Mexico often contain textile inputs “Made in the USA” through the Western-Hemisphere supply chain. Blindly cutting the trade deficit on apparel ironically could affect the U.S. textile exports to the NAFTA region negatively.
  3. Based on the released objectives, it seems unlikely that the NAFTA renegotiation will liberalize the yarn-forward rules of origin for textile and apparel. On the contrary, USTR could review the current exceptions to the yarn-forward rules, including the tariff preference levels (TPL) and some special regimes such as the 9802 program related to fabric sourcing to strengthen the manufacturing base and create MANUFACTURING jobs in the United States. Recognizing the competing arguments between the U.S. textile industry and the apparel industry (fashion brands and retailers) regarding the necessity and impact of these exceptions, USTR also needs more inputs of how companies use exceptions like the TPL in sourcing and why they use them.
  4. Other than the rules of origin, trade facilitation and customs enforcement will be another major agenda related to the T&A sector in the NAFTA renegotiation. Elements from the newly enforced Trade Facilitation and Trade Enforcement Act of 2015 could be added to the updated NAFTA.
  5. A positive aspect of the NAFTA T&A sectoral negotiation is that all parties alongside the supply chain, from U.S. cotton growers, textile mills to apparel retailers and brands recognize the value of NAFTA and no one calls for pulling out of the agreement. It is also a consensus view of the U.S. T&A industry that NAFTA renegotiation should “do no harm”, i.e. strengthening rather than weakening the current supply-chain partnership between NAFTA members. Additionally, stakeholders in the U.S. T&A industry unanimously support keeping the renegotiation trilateral, but agree to use bilateral provisions to address some particular concerns.
  6. The NAFTA renegotiation may officially start on August 17 or 18, 2017. However, Time is the enemy of the NAFTA renegotiation. While there is a strong incentive for all parties to finish the negotiation by the end of 2017 given the upcoming U.S. mid-term election and the Mexican presidential election in 2018, the ambitious renegotiation agenda makes it extremely challenging to meet that goal. Risks are still there that Trump may pull the United States out of NAFTA should he lose patience for the renegotiation. Notably, Trump’s dislike of NAFTA is real.

Sheng Lu

Related: US Textile and Apparel Industry and NAFTA: Key Statistics (updated July 2017)

USTR Hearing on the Renegotiation of NAFTA: Textile and Apparel Industry

US Textile and Apparel Associations Comment on NAFTA Renegotiation

USTR Hearings on the Renegotiation of NAFTA: Textile and Apparel Industry

Panel:

  • Augustine Tantillo, President, and CEO, National Council of Textile Organizations
  • David Spooner, Counsel representing the U.S. Fashion Industry Association
  • Stephen Lamar, Executive Vice President, American Apparel and Footwear Association
  • Randy Price, VP, Managing Director Product Supply—Americas, VF Corporation
  • Marc Fleischaker, Trade Counsel, Rubber and Plastic Footwear Manufacturers Association
  • Reece Langley, VP of Washington Operations, National Cotton Council
  • Richard Gottuso, Vice President and General Counsel, Bracewell, LLP-Hunter Douglas

US Textile and Apparel Industry Associations Comment on NAFTA Renegotiation

This week, several leading U.S. textile and apparel industry associations submitted their comments to the Office of the United States Trade Representative (USTR) regarding the renegotiation objectives of the North American Free Trade Agreement (NAFTA). Below is a summary of these organizations’ viewpoints based on their submissions:

NAFTA renegotiation

Appendix: Submitted written comments

What Do You Take Away from FASH455?

I encourage everyone to watch the above two short videos, which provide a great wrap-up for FASH455 and remind us the meaning and significance of our course.

Indeed, I hope students can take away essential knowledge about textile and apparel (T&A) trade & sourcing from FASH455. So far in the course we’ve discussed various trade theories, evolution pattern of the global T&A industry, three major T&A supply chains in the world (namely the “Western-Hemisphere” supply chain, “Factory Asia” supply chain based on the flying geese model and the phenomenon of intra-region T&A trade in Europe) as well as T&A trade policy. Understanding how trade and sourcing work will be highly relevant and beneficial to your future career in the fashion industry no matter as a fashion designer, buyer, merchandiser, sourcing specialist or marketing analyst.

However, more importantly, I hope FASH helps students shape a big picture vision of the T&A industry in today’s global economy and provides students a fresh new way (perspective) of looking at the world. Throughout the semester, we’ve examined many critical, timely and pressing global agendas that are highly relevant to the T&A industry, from apparel companies’ social responsibility practices, the debate on the impact of free trade agreements (FTAs) to the controversy of Trumps’ trade policy agendas. It is important to keep in mind that we wear more than just clothes: We also wear the global economy, international business, public policy and trade politics that make affordable, fashionable, and safe clothes possible and available for hardworking families.

Likewise, I hope FASH455 puts students into thinking the meaning of being a FASH major (as well as a college graduate) and how to contribute to the world we are living today positively. A popular misconception is that T&A is just about “sewing,” “fashion magazine,” “shopping” and “Project Runway.” In fact, as one of the largest and most economically influential sectors in the world today, T&A industry plays a critical and unique role in creating jobs, promoting economic development, enhancing human development and reducing poverty. For example, globally over 120 million people remain directly employed in the T&A industry, a good proportion of whom are females living in poor rural areas. For most developing countries, T&A usually accounts for 70%–90% of their total merchandise exports and provide one of the very few opportunities for these countries to participate in globalization. We are as important as any other major on the campus!

Last but not last, I hope from taking FASH455, students can take away meaningful questions that can inspire their future study and even life’s pursuit. For example:

  • How to make the growth of global textile and apparel trade more inclusive?
  • How to distribute the benefits & cost of globalization among different countries and groups of people more equally?
  • How to make sure that tragedies like the Rana Plaza building collapse will never happen again?
  • How to make international trade work better and lead to economic growth and human development more effectively?
  • How to use trade policy as a tool to solve some tough global issues such as labor practices and environmental standard?

These questions have no real answer yet. But they are waiting for you, the young professional and the new generation of leaders, to write the history, based on your knowledge, wisdom, responsibility, courage and creativity!

So what do you take away from FASH455? Please feel free to share your thoughts and comments.

Trade Policy and the Textile and Apparel Industry: Discussion Questions

Global Partners

#1 Why or why not the textile and apparel industry should get involved in policy advocacy?

#2 Do you think the current U.S. trade policy reflects the interests of the U.S. textile and apparel industry? Please provide detailed examples.

#3 It is said that “trade is a way for countries to strengthen partnerships and alliances, promote peace and trust between the cooperating nations, and help other countries in need.” Do you think this principle still holds today?

#4 President Trump proposes an “America First Trade Policy,” which intends to encourage more “buy America” and reduce the U.S. trade deficit. How should President Trump respond if other countries adopt a similar approach by proposing initiatives such as “EU first trade policy,” “China first trade policy” and “Mexico first trade policy”?

#5 What do you take away from Case Study 2 regarding the making of U.S. trade policy?

Please mention the question # in your comment.