While Asia remains the globe’s most prominent sourcing hub for footwear and apparel, relationships between U.S. brands and retailers and the region’s supply chain have been undergoing an evolution.
At Sourcing Journal’s Global Outlook event on June 27, experts spoke to editor in chief Peter Sadera about China’s continued influence. Together, the U.S. and China make up 42 percent of international trade, and the relationship “is the engine that’s driving everything” in sourcing, Sadera said.
Related Articles
Despite the global issues such as tensions with Russia, the Ukraine war and climate change that the two should be working to fix together, “both China and the U.S. view our relationship more competitively than cooperatively at this point,” according to American Apparel and Footwear Association president and chief executive officer Steve Lamar.
You May Also Like
Congress believes China must be held accountable for anti-competitive practices to harm the nation’s economy. Doing so is “pretty much the only thing that there is bipartisan agreement on,” he added. As divided as Washington politics may be, both sides of the aisle want to boost American competitiveness, limit China’s influence and “bring about sort of more of the disentanglement between the economies,” Lamar said.
Businesses, however, have taken a more nuanced approach. “There are many who believe in and see China as a strong partner, and there are companies and individuals within China who have been very long partners of the industry,” Lamar said. “So as companies are looking to de-risk because they’re looking to diversify, there’s still a very strong component continuing to do business in China.”
Sally Peng, senior managing director of export controls, sanctions and trade for FTI Consulting, said clients are weighing the benefits of a strategy involving China and one, or sometimes multiple, other sourcing locales. “It’s still that ‘China-plus’ strategy that I’m seeing a lot of our clients or companies implement,” she said. “But I also want to remind our clients that when you’re looking to de-risk…are there lost opportunities as well?” Companies may not be finding growth in other markets, or evaluating how much sourcing capacity and skill they could be losing, for example.
Lamar said the U.S. government isn’t doing enough to foster a productive shift away from the sourcing superpower. “There is this huge movement to diversify out of China, not just your finished products, but also your supply chains as well,” he said. “That’s very clearly what the U.S. government through its words and its actions has really been signaling.” Unfortunately, the government doesn’t seem to be coming up with alternatives or solutions, Lamar continued, saying, “They’re not creating the incentives, they are not facilitating those discussions” about investing in Central America or Africa, for example.
If the Africa Growth and Opportunity Act, set to expire in 2025, isn’t renewed, companies are unlikely to invest in sourcing there. The same goes for the Haiti HELP Act’s free-trade benefits on thousands of products, which will expire in two years if lawmakers don’t re-up on the bipartisan legislation. Meanwhile, the Generalized System of Preferences, “which services and supports business for other developing countries” lapsed nearly two and a half years ago, denying countries duty-free access to the American market. “Our members look at what Congress has been able to accomplish and the fact is that they have literally fumbled the football here — they have left these programs to expire,” Lamar said. “There is this really powerful signal that says, ‘Yeah, we know we told you we want you to diversify from China, but we really don’t want you to diversify from China, if you measure it strictly by our actions.’”
Many companies are interested in nearshoring in the Americas, but limitations keep some from effectively using the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), according to Lamar. The yarn-forward rule of origin has represented a significant hurdle for brands and retailers looking to make use of CAFTA-DR, he added. “We’ve actually seen utilization of CAFTA-DR drop; it’s now at some of the lowest levels it’s been since the agreement took effect,” he said.
Trade relations between the U.S. and China also show signs of worsening or stagnating. “In earlier days, some people believed that tariffs would be gone — I think there’s no one who believes that anymore,” said Peng, who described tariffs as “part of the cost” of doing business in China. Traceability, too, has become important for brands continuing to operate in China, especially with the implementation of the Uyghur Forced Labor Prevention Act.
Despite the challenges of sourcing in China today, “businesses still have to go on,” she said. “Companies still have to find the bright spots.”