The U.S. presidential elections got over a month back and we all know the news/ implications/ assumptions surrounding Mr. Donald Trump’s win. Like everyone else, I am very interested to know about Trump’s policies and agreements on apparel market. Because although there isn’t much overlap between fashion and politics, his economic policies on International trade is something each one of you should know about.
Now, Mr. Trump made a variety of statements during his election campaign which indicated his opposition to certain trade agreements and his interest in tax reforms. This was solely focused on bringing jobs back to America.
So, what are the implications of his presidency on different geographies due to the trade agreements?
On December 8, 1993, then US president Clinton signed an agreement with Canada and Mexico. This was called NAFTA (North American Free Trade Agreement) where the participating countries (US and Mexico) forgoes tariffs on imported goods originating in other NAFTA countries and this came into effect on January 1, 1994 (naftanow.com). Thus, US lifted tariffs on about 30% of apparel imports from Mexico.
How did NAFTA help?
NAFTA accelerated apparel manufacturing in Mexico and resulted in lower prices for US consumers. As a result, US exports of textiles and apparel to Mexico increased by 79% between 1993 and 1996, increasing from $1.6 billion to $2.8 billion, despite Mexico’s recession. The US share of Mexico’s textile and apparel imports rose from 68% in 1993 to 86% in 1996 (Study on the Operation and Effects of the North American Free Trade Agreement)The US share of Mexico’s textile and apparel imports rose from 68% in 1993 to 86% in 1996 due to… Click To Tweet
Figure 1: Increase in apparel exports from Mexico to USA after NAFTA
Figure 2: Global competitiveness scores of NAFTA countries
Implication on NAFTA post US election?
Trump plans to renegotiate/ withdraw NAFTA. He has stated to put a 35% tariff on some Mexican goods.Trump has stated to put a 35% tariff on some Mexican goods #Trump #TrumpInauguration Click To Tweet
In addition, he has said he would round up and send home up illegal immigrants living and working in America, 5 million of whom are thought to be Mexican. If implemented in full, the impact on the Mexican economy of these policies would be profound. Trade between the US and Mexico would slow, factories would close, foreign direct investment flows would dry up and millions of repatriated workers would have to be absorbed into the Mexican workforce. US consumers would see the price of some goods rise(theguardian.com).
Trump plans to impose 45% tariff on Chinese imports. Also, to note that America is the largest importer of apparel from China (about 35%).
Implications of the tariff?
In general, the president, acting unilaterally via executive action, can only impose tariffs of up to 15% and for 150 days to combat balance of payments deficits. This clause was used by President George W. Bush in 2002 to combat under-priced imports of steel; tariffs were priced at 8-30%. As a result, the U.S. angered trading partners and was held in violation of WTO commitments. (Forbes.com)
Putting 45% tariff on all imported goods from China is against the trade of terms of WTO. This might result in US withdrawal from WTO.
On 4th February 2016, an agreement was signed among 12 of the Pacific Rim countries (Singapore, Brunei, New Zealand, Chile, US, Australia, Peru, Vietnam, Malaysia, Mexico, Canada and Japan) which account for 40% of the world’s economy. This was called TPP (Trans-Pacific Partnership) where tariff between US and 11 involved nations was lowered. (BBC.com)
How would have TPP helped?
TPP would have reduced the cost for manufacturers which would have trickled down to the consumers as well.TPP would have reduced the cost for manufacturers which would have trickled down to the consumers… Click To Tweet
Figure 3: TPP in short
Implication on TPP post US election?
Trump made it clear that he was against TPP and would withdraw America’s participation. Putting into action his campaign’s tough talk on trade, President Trump signed an executive order on 23rd January to formally withdraw the U.S. from the Trans-Pacific Partnership free trade deal (Washington Times).
This could result in a blow to countries like Vietnam which counts to America for nearly 50% of its textile and garment turnover (inspectorio.com) and could suffer lowest growth rate in nearly a decade.
On 1 January 2006, an agreement was signed between US and Bahrain. This was called The United States- Bahrain Free Trade Agreement which allows the textiles and apparel exported from Bahrain a duty-free access to the US market.
How did FTA help?
Tariffs on textiles and apparel trade were eliminated immediately, promoting new opportunities for U.S. and Bahraini fiber, yarn, fabric, and apparel manufacturing.
Implication on FTA post US election?
If Trump carries forward his vision to cut the imports in the US to develop manufacturing jobs at home, the Gulf apparel industry is bound to feel a setback. The Tariff Preference Levels or TPLs enjoyed by Bahrain are set to expire in 2016 and with trump in the hot seat, renewal of the same cannot be guaranteed. The apparel manufacturers in Bahrain rely on these TPLs because 100% of their exports are to the US, and they mostly source their fabrics and yarns from third-party countries like China. Now, these apparel manufacturing firms are mostly owned by foreign firms. Thus, if Trump is still reluctant towards China’s involvement and America’s imports of finished goods, the foreign owner companies will take away their investments from the Gulf nations, therefore be affecting the Gulf Apparel industry hugely.
Trump’s victory and his policy changes regarding imports and the tariffs involved are going to have a substantial effect on the global apparel industry, be it in the Pacific Nations, Gulf Nations, or Mexico. Now, with Trump in the decision-making chair, all we need to do is wait and watch for the changes that are coming our way, and meanwhile search relentlessly for other markets to absorb the shock, if Trump is able to implement what has been claimed by him time and again, throughout his campaign.
1. Frequently asked questions. Retrieved from NAFTANOW.org (http://www.naftanow.org/faq_en.asp#faq-1)
2. Sommer, H. (2008, June 16). The Economic benefits of NAFTA to the United States and Mexico. Retrieved from (http://www.ncpa.org/pub/ba619)
3. Elliott, L. (2016, November 9). How America’s new president will affect the global economy. Retrieved from https://www.theguardian.com/business/2016/nov/09/donald-trump-new-us-president-america-global-economy-china-mexico)
4. HSU, S. (2016, November 14). How far can Trump go on Chinese trade policy. Retrieved from (http://www.forbes.com/sites/sarahsu/2016/11/14/how-far-can-trump-go-on-chinese-trade-policy/#55f175913281)
5. TPP: What is it and why does it matter? (2016, November 22). BBC News. Retrieved from (http://www.bbc.com/news/business-32498715)
6. How will President Trump affect the apparel supply chain? (2016, November). Inspectorio.com. Retrieved from (http://blog.inspectorio.com/how-will-president-trump-affect-the-apparel-supply-chain)
7. Study on the Operation and Effects of the North American Free Trade Agreement. (July 1997). Retrieved from google books