Apparel Interests Tell Section 301 Panel They're Already Tariffed Enough
Companies large and small, new and more than a century old all told government officials to keep apparel and footwear off the fourth list of Section 301 tariffs. The witnesses testified June 17, on the first of seven days of hearings from industries and trade groups about the possibility of additional 25 percent tariffs on nearly all Chinese imports that have not yet been targeted.
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American Apparel and Footwear Association CEO Rick Helfenbein said that before this ratcheting up of tariffs began, "our industry represented 6 percent of all imports yet, yet, we already paid 51 percent of all duties collected." For all imports, before this administration, the average duty rate was 1.4 percent, and apparel and footwear's average was over 10 percent. "Aren’t we burdened enough? Please, do not add to that burden," he said.
Helfenbein said that six years ago, wages in China began rising rapidly, and clothing companies started looking for lower-wage countries to move to. They did move some production to Vietnam, Bangladesh, India, Indonesia, Cambodia and other countries. But Helfenbein said that China supplies 42 percent of apparel purchased in the U.S., and 69 percent of the shoes. "All other countries combined are ill-equipped to handle the sheer volume we would be required to move out of China" to avoid these tariffs, he said.
Michael Jeppesen, president of global operations for Wolverine Worldwide, said the company sells 100 million pairs of shoes across 12 brands, including classics like Keds, Sperry, Bass and Wolverine. The company began as a bootmaker in 1883. Jeppesen said Wolverine started moving out of China in 2012 because of increasing costs and a labor shortage. The company has been able to move half its production out of China, with the majority of non-China work in Vietnam. It also sources from India, Malaysia, Cambodia and Bangladesh.
But Jeppesen told the panel that it takes years of planning to establish new facilities, and all the companies are competing for capacity outside China. "There’s a natural limitation how much we can move out of China," he said. "Vietnam has 7 or 8 percent of population of China."
The tariffs proposed on List 4 wouldn't just affect shoe and apparel importers. Helfenbein noted that the government chose to remove factory equipment used by apparel manufacturers in an earlier round, but now it's back. Knitting machines, looms and embroidery machines are all on the list. "A 25 percent tariff on that would be unconscionable," he said.
New Balance, the only athletic shoe manufacturer that still makes shoes in America, talked about the tax on components, rather than machinery. Monica Gorman, vice president of global compliance for New Balance Athletics, said the company has five factories in New England, with 1,600 workers, and they're planning to open another in Massachusetts in 2020.
New Balance has to import soles and inserts from China, and imports raw materials to make some outsoles in America. Gorman said New Balance was looking at shifting sourcing to Mexico, but President Donald Trump's threat to put tariffs on all Mexican imports produced "a chilling effect."
"We choose to make shoes in the United States because it is the right thing to do, even though it is less profitable," Gorman said. But going from duty-free or 5 percent tariffs on components to 25 percent or 30 percent tariffs would cost New Balance millions, and it "would upend the fragile model of domestic manufacturing."